# Title 13 — Department of Financial Institutions

## Article 13-03 — Credit Unions

## Chapter 13-03-22 — Investment Activities

### § 13-03-22-01. Definitions.

The following definitions apply to this chapter:
1. "Adjusted trading" means selling an investment to a counterparty at a price above its current
fair value and simultaneously purchasing or committing to purchase from the counterparty
another investment at a price above its current market value.
2. "Borrowing repurchase transaction" means a transaction in which the credit union agrees to
sell a security to a counterparty and to repurchase the same or identical security from the
counterparty at a specified future date and at a specified price.
3. "Call" means an option that gives the holder the right to buy the underlying security at a
specified price during a fixed time period.
4. "Charitable contributions and donations" means gifts provided to assist others through
contributions of staff, equipment, money, or other resources through charities that are exempt
from taxation under 501(c)(3) of the Internal Revenue Code.
5. "Counterparty" means a swap dealer, derivatives clearing organization, exchange, or
commercial loan customers that participates as the other party in a derivatives transaction with
a credit union.
6. "Derivatives" means a financial contract that derives its value from the value and performance
of some other underlying financial instrument or variable, such as an index or interest rate.
7. "Derivatives clearing organization" has the meaning as defined by the commodity futures
trading commission in 17 CFR 1.3 effective March 15, 2021.
8. "Distribution in kind" means acceptance of remaining charitable donation account assets,
upon termination of the account, in their original form instead of in cash resulting from the
liquidation of assets.
9. "Domestic interest rates" means interest rates derived in the United States and are United
States dollar-denominated.

10. "Earnings at risk" means the changes to earnings, typically in the short term, for example,
twelve to thirty-six months, caused by changes in interest rates.
11. "Economic effectiveness" means the extent to which a derivatives transaction results in
offsetting changes in the interest rate risk that the transaction was, and is, intended to provide.
12. "Embedded option" means a characteristic of an investment that gives the issuer or holder the
right to alter the level and timing of the cashflows of the investment. Embedded options
include call and put provisions and interest rate caps and floors. Since a prepayment option in
a mortgage is a type of call provision, a mortgage-backed security composed of mortgages
that may be prepaid is an example of an investment with an embedded option.
13. "Eurodollar deposit" means a United States dollar denominated deposit in a foreign branch of
a United States depository institution.
14. "European financial options contract" means an option that can be exercised only on its
expiration date.
15. "External service provider" means any entity that provides services to management in carrying
out its derivatives program and the requirements of this chapter.
16. "Fair value" means the amount at which an instrument could be exchanged in a current,
arms-length transaction between willing parties, as opposed to a forced or liquidation sale.
17. "Financial options contract" means an agreement to make or take delivery of a standardized
financial instrument upon demand by the holder of the contract as specified in the agreement.
18. "Futures commission merchant" has the meaning as defined by the commodity futures trading
commission in 17 CFR 1.3 effective March 15, 2021.
19. "Industry-recognized information provider" means an organization that obtains compensation
by providing information to investors and receives no compensation for the purchase or sale
of investments.
20. "Interest rate risk" means the current and prospective risk to a credit union's capital and
earnings arising from movements in interest rates.
21. "Introducing broker" means a futures brokerage firm that deals directly with the client, while
the trade execution is done by a futures commission merchant.
22. "Investment repurchase transaction" means a transaction in which an investor agrees to
purchase a security from a counterparty and to resell the same or an identical security to that
counterparty at a specified future date and at a specified price.
23. "Margin" means the minimum amount of eligible collateral, as defined in subdivision c of
subsection 3 of section 13-03-22-16, that must be deposited between parties to a derivatives
transaction, as detailed in a master services agreement.
24. "Master services agreement" means a document agreed upon between two parties that sets
out standard terms that apply to all transactions entered into between those parties. The most
common form of a master services agreement for derivatives is an international swap dealer
association master agreement.
25. "Maturity" means the date the last principal amount of a security is scheduled to come due
and does not mean the call date or the weighted average life of a security.
26. "Noncleared" means transactions that do not go through a derivatives clearing organization.

27. "Put" means a financial options contract that entitles the holder to sell, entirely at the holder's
option, a specified quantity of a security at a specified price at any time until the stated
expiration date of the contract.
28. "Qualified charity" means a charitable organization or other nonprofit entity recognized as
exempt from taxation under section 501(c)(3) of the Internal Revenue Code.
29. "Real estate mortgage investment conduit" means a mortgage passthrough security and is
synonymous with the terms MBS and passthrough. The scope of the MBS market extends to
structured mortgage securities such as collateralized mortgage obligations, real estate
mortgage conduits, and strips, for which passthroughs are the most common form of
collateral.
30. "Registered investment adviser" means an investment advisor registered with the securities
and exchange committee pursuant to the Investment Advisors Act of 1940.
31. "Registered investment company" means an investment company that is registered with the
securities and exchange commission under the Investment Company Act of 1940 [15 U.S.C.
80a]. Examples of registered investment companies are mutual funds and unit trust
investments.
32. "Residual interest" means the remainder cashflows from collateralized mortgage obligations or
real estate mortgage conduits, or other mortgage-backed security transaction, after payments
due bondholders and trust administrative expenses have been satisfied.
33. "Security" means a share, participation, or other interest in property or in an enterprise of the
issuer or an obligation of the issuer that:
a. Either is represented by an instrument issued in bearer or registered form or, if not
represented by an instrument, is registered in books maintained to record transfers by or
on behalf of the issuer;
b. Is of a type commonly recognized in any area in which it is issued or dealt in as a
medium for investment; and
c. Either is one of a class or series or by its terms is divisible into a class or series of
shares, participations, interests, or obligations.
34. "Senior executive officer" means a person who participates or has authority to participate in
major policymaking and decisionmaking functions of the credit union, whether or not the
officer has an official title. The chief executive officer, chief financial officer, chief credit officer,
president, vice president, and controller are considered senior executive officers.
35. "Structured liability offering" means a share product created by a credit union with contractual
option features, such as periodic caps and calls, similar to those found in structured securities
or structured notes.
36. "Swap dealer" has the meaning as defined by the commodity futures trading commission in
17 CFR 1.3 effective March 15, 2021.
37. "Threshold amount" means an unsecured credit exposure that a party to a derivatives
transaction is prepared to accept before requesting additional eligible collateral, as defined in
subdivision c of subsection 3 of section 13-03-22-16, from the other party.
38. "Total return" means the actual rate of return on all investments in a charitable donation
account over a given period of up to five years, including realized interest, capital gains,
dividends, and distributions, but exclusive of account fees, and expenses provided they were

not paid to the credit union that established the account or any of its affiliates. For the purpose
of this definition, affiliate is an entity the credit union has an ownership interest in, directly or
indirectly, but not an ownership interest due to funding of employee benefits.
39. "Weighted average life" means the weighted average time to the return of a dollar of principal.
Calculated by multiplying each portion of principal received by the time at which it is expected
to be received, based on a reasonable and supportable estimate of that time, and then
summing and dividing by the total amount of principal.
40. "Zero coupon investment" means an investment that makes no periodic interest payments but
instead is sold at a discount from its face value. The holder of a zero coupon investment
realizes the rate of return through the gradual appreciation of the investment, which is
redeemed at face value on a specified maturity date.
History: Effective January 1, 2007; amended effective April 1, 2022.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-02. Permissible investments.

A credit union may invest in the following types of investments:
1. Bonds of the United States without limitation in securities issued as direct obligations of the
United States government or any agency thereof and in any trust established for investing
directly or collectively in such securities.
2. Bonds or evidences of debt of this state or in bonds of states of the United States.
3. Bonds or certificates of indebtedness of any county, city, or school district, issued pursuant to
authority of law, subject to a limitation of thirty percent of the assets of the credit union.
4. First lien, public utility, industrial, corporation, or association bonds, notes or other evidences
of debt issued by corporations located in the United States to the extent authorized under
chapter 13-03-03. These investments must be rated in one of the four highest rating
categories by a nationally recognized statistical rating organization registered with the
securities and exchange commission. In the case of different ratings from different rating
organizations, the lower rating applies.
5. Shares of a registered investment company or collective investment fund, as long as the
prospectus of the company or fund restricts the investment portfolio to investments and
investment transactions that are permissible for state-chartered credit unions.
6. Corporate credit union shares or deposits, including paid-in or membership capital. A credit
union's aggregate amount of paid-in capital and membership capital in one corporate credit
union is limited to two percent of its assets measured at the time of investment or adjustment.
A credit union's aggregate amount of paid-in capital and membership capital in all corporate
credit unions is limited to four percent of its assets measured at the time of investment or
adjustment.
7. Certificates of deposit or other deposits issued by federally insured state or national banks,
mutual savings banks, trust companies, or issued by an insured financial institution located in
a territory of the United States that is either insured by the federal deposit insurance
corporation or by the national credit union administration. Included in these deposits are
yankee dollar deposits, Eurodollar deposits, banker's acceptances, deposit notes, and bank
notes with original weighted average maturities of less than five years.

8. Variable rate investments as long as the index is tied to domestic interest rates and not, for
example, to foreign currencies, foreign interest rates, or domestic or foreign commodity prices,
equity prices, or inflation rates.
9. A fixed rate or variable rate collateralized mortgage obligation or real estate mortgage
investment conduit issued by an agency of the federal government.
10. Derivative products but only for the purposes of managing interest rate risk and subject to the
limitations outlined in section 13-03-22-16.
11. Charitable donation accounts subject to the limitations outlined in section 13-03-22-17.
History: Effective January 1, 2007; amended effective April 1, 2022.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-03. Prohibited investments.

A credit union cannot invest in the following types of investments:
1. Any privately issued collateralized mortgage obligation or real estate mortgage investment
conduit.
2. Any zero coupon investment with a maturity date that is more than ten years from the
settlement date.
3. Any mortgage servicing rights as an investment but may perform mortgage servicing functions
as a financial service for a member as long as the mortgage loan is owned by the member.
4. Any stripped mortgage-backed securities, residual interests in collateralized mortgage
obligations or real estate mortgage investment conduits, or residual interests in small
business-related securities.
5. Any commercial mortgage-related security that is not permitted by chapter 13-03-03.
History: Effective January 1, 2007; amended effective April 1, 2022.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-04. Permissible investment activities.

1. Regular way settlement and delivery versus payment basis. A credit union may only contract
for the purchase or sale of a security as long as the delivery of the security is by regular way
settlement and the transaction is accomplished on a delivery versus payment basis.
2. Federal funds. A credit union may sell federal funds to an institution described in subsection 4
of North Dakota Century Code section 6-06-06 and credit unions, as long as the interest or
other consideration received from the financial institution is at the market rate for federal funds
transactions.
3. Investment repurchase transaction. A credit union may enter into an investment repurchase
transaction so long as:
a. Any securities the credit union receives are permissible investments for state-chartered
credit unions; the credit union, or its agent, either takes physical possession or control of
the repurchase securities or is recorded as owner of them through the federal reserve
book entry securities transfer system; the credit union, or its agent receives a daily
assessment of their market value, including accrued interest; and the credit union

maintains adequate margins that reflect a risk assessment of the securities and the term
of the transaction; and
b. The credit union has entered into signed contracts with all approved counterparties.
4. Borrowing repurchase transaction. A credit union may enter into a borrowing repurchase
transaction so long as:
a. The transaction meets the requirements of subsection 3;
b. Any cash the credit union receives is subject to the borrowing limit specified in North
Dakota Century Code section 6-06-19 and any investments the credit union purchases
with that cash are permissible for credit unions; and
c. The investments referenced in subdivision b mature no later than the maturity of the
borrowing repurchase transaction.
5. Securities lending transaction. A credit union may enter into a securities lending transaction so
long as:
a. The credit union receives written confirmation of the loan;
b. Any collateral the credit union receives is a legal investment for credit unions; the credit
union, or its agent, obtains a first priority security interest in the collateral by taking
physical possession or control of the collateral, or is recorded as owner of the collateral
through the federal reserve book entry securities transfer system; the credit union, or its
agent, receives a daily assessment of the market value of the collateral, including
accrued interest; and the credit union maintains adequate margin that reflects a risk
assessment of the collateral and the term of the loan;
c. Any cash the credit union receives is subject to the borrowing limit specified in North
Dakota Century Code section 6-06-19 and any investments the credit union purchases
with that cash are permissible for credit unions and mature no later than the maturity of
the transaction; and
d. The credit union has executed a written loan and security agreement with the borrower.
6. a. Trading securities. A credit union may trade securities which are permitted for credit
unions to own, including engaging in when-issued trading and pair-off transactions, so
long as the credit union can show that it has sufficient resources, knowledge, systems,
and procedures to handle the risks.
b. A credit union must record any security it purchases or sells for trading purposes at fair
value on the trade date. The trade date is the date the credit union commits, orally or in
writing, to purchase or sell a security.
c. At least monthly, the credit union must give its board of directors or investment-related
committee a written report listing all purchase and sale transactions of trading securities
and the resulting gain or loss on an individual basis.
History: Effective January 1, 2007; amended effective April 1, 2022.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-05. Prohibited investment activities - Adjusted trading or short sales.

A credit union may not engage in adjusted trading or short sales.

History: Effective January 1, 2007.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-06. Investment policies.

A credit union's board of directors must establish written investment policies consistent with North
Dakota Century Code chapter 6-06, this part, and other applicable laws and regulations and must
review this policy at least annually. These policies may be a part of a broader asset-liability
management or similarly functioning policy. Written investment policies must address the following:
1. The purposes and objectives of the credit union's investment activities;
2. The characteristics of the investments the credit union may make, including the issuer,
maturity, index, cap, floor, coupon rate, coupon formula, call provision, average life, and
interest rate risk;
3. How the credit union will manage interest rate risk;
4. How the credit union will manage liquidity risk;
5. How the credit union will manage credit risk, including specifically listing institutions, issuers,
and counterparties that may be used, or criteria for their selection, and limits on the amounts
that may be invested with each;
6. How the credit union will manage concentration risk, which can result from dealing with a
single issuer or related issuers, lack of geographic distribution, holding obligations with similar
characteristics like maturities and indexes, holding bonds having the same trustee, and
holding securitized loans having the same originator, packager, or guarantor;
7. Who has investment authority and the extent of that authority. Those with authority must be
qualified by education or experience to assess the risk characteristics of investments and
investment transactions. Only officials or employees of the credit union may be voting
members of an investment-related committee;
8. The broker-dealers the credit union may use;
9. The safekeepers the credit union may use;
10. How the credit union will handle an investment that, after purchase, is outside of board policy
or fails a requirement of this part; and
11. How the credit union will conduct investment trading activities, if applicable, including
addressing:
a. Who has purchase and sale authority;
b. Limits on trading account size;
c. Allocation of cashflow to trading accounts;
d. Stop loss or sale provisions;
e. Dollar-size limitations of specific types, quantity, and maturity to be purchased;
f. Limits on the length of time an investment may be inventoried in a trading account; and
g. Internal controls, including segregation of duties.

History: Effective January 1, 2007; amended effective April 1, 2022.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-07. Recordkeeping and documentation requirements.

1. Credit unions must comply with all generally accepted accounting principles applicable to
reports or statements required to be filed with the national credit union administration.
2. A credit union must maintain documentation for each investment transaction for as long as it
holds the investment and until the documentation has been examined in accordance with
North Dakota Century Code section 6-06-08. The documentation should include, when
applicable, bids and prices at purchase and sale and for periodic updates, relevant disclosure
documents or a description of the security from an industry-recognized information provider,
financial data, and tests and reports required by credit union's investment policy and this
chapter.
3. A credit union must maintain documentation its board of directors used to approve a
broker-dealer or a safekeeper for as long as the broker-dealer or safekeeper is approved and
until the documentation has been examined in accordance with North Dakota Century Code
section 6-06-08.
4. A credit union must obtain an individual confirmation statement from each broker-dealer for
each investment purchased or sold.
History: Effective January 1, 2007; amended effective April 1, 2022.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-08. Discretionary control over investments.

A credit union must retain discretionary control over its purchase and sale of investments. A credit
union has not delegated discretionary control to an investment adviser when the credit union reviews all
recommendations from investment advisers and is required to authorize a recommended purchase or
sale transaction before its execution.
History: Effective January 1, 2007.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-09. Credit analysis required.

A credit union must conduct and document a credit analysis on an investment and the issuing entity
before purchasing it, except for investments issued or fully guaranteed as to principal and interest by
the United States government or its agencies, enterprises, or corporations or fully insured (including
accumulated interest) by the national credit union administration or the federal deposit insurance
corporation. A credit union must update this analysis at least annually for as long as it holds the
investment.
History: Effective January 1, 2007.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-10. Notice of noncompliant investments.

A credit union's board of directors must receive notice as soon as possible, but no later than the
next regularly scheduled board meeting, of any investment that either is outside of board policy after

purchase or has failed a requirement of this chapter. The board of directors must document its action
regarding the investment in the minutes of the board meeting, including a detailed explanation of any
decision not to sell it. The credit union must notify in writing the commissioner of the department of
financial institutions of an investment that has failed a requirement of this chapter within five days of the
board meeting.
History: Effective January 1, 2007.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-11. Broker-dealers.

1. A credit union may purchase and sell investments through a broker-dealer as long as the
broker-dealer is registered as a broker-dealer with the securities and exchange commission
under the Securities Exchange Act of 1934 [15 U.S.C. 781 et seq.] or is a depository institution
whose broker-dealer activities are regulated by a federal or state regulatory agency.
2. Before purchasing an investment through a broker-dealer, a credit union must analyze and
annually update the following:
a. The background of any sales representative with whom the credit union is doing
business;
b. Information available from state or federal securities regulators and securities industry
self-regulatory organizations, such as the national association of securities dealers and
the North American securities administrators association, about any enforcement actions
against the broker-dealer, its affiliates, or associated personnel; and
c. If the broker-dealer is acting as the credit union's counterparty, the ability of the
broker-dealer and its subsidiaries or affiliates to fulfill commitments, as evidenced by
capital strength, liquidity, and operating results. The credit union should consider current
financial data, annual reports, reports of nationally recognized statistical rating agencies,
relevant disclosure documents, and other sources of financial information.
3. The requirements of subsection 1 do not apply when the credit union purchases a certificate
of deposit or share certificate directly from a bank, credit union, or other depository institution.
History: Effective January 1, 2007.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-12. Safekeeping of investments.

1. A credit union's purchased investments and repurchase collateral must be in the credit union's
possession, recorded as owned by the credit union through the federal reserve book entry
system, or held by a board-approved safekeeper under a written custodial agreement that
requires the safekeeper to exercise at least ordinary care. The written custodial agreement will
also include a provision that the safekeeper cannot use the credit union's securities for
collateral on any borrowings of the safekeeper.
2. Any safekeeper used by a credit union must be regulated and supervised by either the
securities and exchange commission, a federal or state depository institution regulatory
agency, or a state trust company regulatory agency.
3. A credit union must obtain and reconcile monthly a statement of purchased investments and
repurchase collateral held in safekeeping.

4. Annually, the credit union must analyze the ability of the safekeeper to fulfill its custodial
responsibilities, as evidenced by capital strength, liquidity, and operating results. The credit
union should consider current financial data, annual reports, reports of nationally recognized
statistical rating agencies, relevant disclosure documents, and other sources of financial
information.
History: Effective January 1, 2007.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-13. Valuing securities.

1. Before purchasing or selling a security, a credit union must obtain either price quotations on
the security from at least two broker-dealers or a price quotation on the security from an
industry-recognized information provider. This requirement to obtain price quotations does not
apply to new issues purchased at par or at original issue discount.
2. At least monthly, a credit union must determine the fair value of each security it holds. It may
determine fair value by obtaining a price quotation on the security from an industry-recognized
information provider, a broker-dealer, or a safekeeper.
3. At least annually, the credit union's supervisory committee or its external auditor must
independently assess the reliability of monthly price quotations received from a broker-dealer
or a safekeeper. The credit union's supervisory committee or external auditor must follow
generally accepted auditing standards, which require either recomputation or reference to
market quotations.
4. If a credit union is unable to obtain a price quotation required by this section for a particular
security, then it may obtain a quotation for a security with substantially similar characteristics.
History: Effective January 1, 2007.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-14. Monitoring securities.

1. At least monthly, a credit union must prepare a written report setting forth, for each security
held, the fair value and dollar change since the prior month-end, with summary information for
the entire portfolio.
2. At least quarterly, a credit union must prepare a written report setting forth the sum of fair
values of all fixed and variable rate securities held, including deposits in other financial
institutions, that have one or more of the following features:
a. Embedded options;
b. Remaining maturities greater than three years; or
c. Coupon formulas that are related to more than one index or are inversely related to, or
multiples of, an index.
3. When the amount calculated in subsection 2 is greater than a credit union's net worth, the
report described in that paragraph must provide a reasonable and supportable estimate of the
potential impact, in percentage and dollar terms, of an immediate and sustained parallel shift
in market interest rates of plus or minus three hundred basis points on:
a. The fair value of each security in the credit union's portfolio;

b. The fair value of the credit union's portfolio as a whole; and
c. The credit union's net worth.
4. If the credit union does not have an investment-related committee, then each member of its
board of directors must receive a copy of the reports described in subsections 1 through 3. If
the credit union has an investment-related committee, then each member of the committee
must receive copies of the reports, and each member of the board of directors must receive a
summary of the information in the reports.
History: Effective January 1, 2007.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-15. Application required.

A state-chartered credit union may invest in any other investment or engage in any other
investment activity that a federal-chartered credit union may invest in or engage in subject to an
application to the state credit union board and approval from the state credit union board, subject to any
limitations the state credit union board may place on the credit union.
History: Effective January 1, 2007.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-16. Derivatives.

1. A state-chartered credit union may enter into derivatives that:
a. Are for the purpose of managing interest rate risk;
b. Denominated in United States dollars;
c. Based on domestic interests; and
d. Not used to create structured liability offerings for members or nonmembers.
2. A state-chartered credit union may not engage in embedded options required under generally
accepted accounting principles to be accounted for separately from the host contract.
3. To enter into derivative transactions, a credit union must:
a. Have an executed master services agreement with a counterparty. Such agreement must
be reviewed by legal counsel with expertise in similar types of transactions to ensure the
agreement reasonably protects the interest of the credit union;
b. Use only the following counterparties:
(1) For exchange-traded and cleared derivatives: swap dealers, introducing brokers, or
futures commission merchants, or both, that are current registrants of the
commodity futures trading commission; or
(2) For noncleared derivative transactions: swap dealers that are current registrants of
the commodity futures trading commission.
(3) Commercial loan customers for the purpose of limiting the interest rate risk
associated with their specific loan transactions.

c. Utilize contracted margin requirements with a maximum margin threshold amount of two
hundred fifty thousand dollars; and
d. For noncleared derivative transactions, accept as eligible collateral, for margin
requirements, only the following: cash (United States dollars), United States treasuries,
government-sponsored enterprise debt, United States government agency debt,
government-sponsored enterprise residential mortgage-backed security passthrough
securities, and United States government agency residential mortgage-backed security
passthrough securities.
e. Operate according to comprehensive written policies and procedures for control,
measurement, and management of derivative transactions. At a minimum, the policies
and procedures must address the requirements of this rule and any additional limitations
imposed by the credit union's board of directors. A credit union's board of directors shall
review the policies and procedures described in this section at least annually and update
them when necessary.
4. A credit union engaging in derivative transactions must have sufficient reporting on the activity
to include:
a. Board reporting. At least quarterly, a credit union's senior executive officers shall deliver a
comprehensive derivatives report, as described in subdivision c to the credit union's
board of directors.
b. Senior executive officer and asset liability or similarly functioning committee. At least
monthly, credit union staff shall deliver a comprehensive derivatives report, as described
in subdivision c to the credit union's senior executive officers and, if applicable, the credit
union's asset liability or similarly functioning committee.
c. Comprehensive derivatives management report. At a minimum, the reports required in
subdivisions a and b must include:
(1) Identification of any areas of noncompliance with any provision of this section or the
credit union's policies, and the planned remediation of such noncompliance;
(2) An itemization of the credit union's individual transactions subject to this section, the
current values of such transactions, and each individual transaction's intended use
for interest rate risk mitigation; and
(3) A comprehensive view of the credit union's risk reports, including interest rate risk
calculations with details of the transactions subject to this section.
d. Prepurchase due diligence. Before executing any derivatives transaction, management
shall identify and document the circumstances that lead to the decision to execute the
derivatives transaction, specify the strategy management will employ, and demonstrate
the economic effectiveness of the transaction.
e. Retention requirement. Reports required by this section must, at a minimum, be retained
for as long as it holds the derivative and until the documentation has been examined in
accordance with North Dakota Century Code section 6-06-08.
f. Management shall notify the commissioner within five days of entering its first derivatives
contract.
g. Notification of noncompliance. Notification of any noncompliance as part of the
derivatives management report required in paragraph 1 of subdivision c must be

submitted to the commissioner and to the credit union's board of directors within thirty
days.
5. Personnel and processes required to manage a derivatives program include:
a. A credit union using derivative transactions must internally possess the following
experience and competencies:
(1) Before entering into the initial derivatives transaction, a credit union's board
members must receive training that provides a general understanding of derivative
transactions, and the knowledge required to provide strategic oversight of the credit
union's derivatives program.
(2) Any person that becomes a board member after the initial derivatives transaction
must receive the same training, updated if necessary, as required by paragraph 1.
b. A credit union's senior executive officers must be able to understand, approve, and
provide oversight for the derivatives program. These individuals must have a
comprehensive understanding of how the derivative transactions fit into the credit union's
interest rate risk management process.
c. To engage in the derivative transactions, a credit union must employ staff with
experience in the following areas:
(1) Staff must be qualified to understand and oversee asset/liability risk management,
including the appropriate role of the transactions subject to this section. Staff must
be qualified to understand and undertake or oversee the appropriate modeling and
analytics related to net economic value and earnings at risk;
(2) Staff must be qualified to understand and oversee appropriate accounting and
financial reporting for derivatives in accordance with generally accepted accounting
principles;
(3) Staff must be qualified to undertake or oversee derivative trade executions; and
(4) Staff must be qualified to evaluate counterparty, collateral, and margin risk as
described in subdivisions b and c of subsection 3.
d. To effectively manage the transactions subject to this section, management shall ensure
that effective accounting, review processes, and internal controls have been established,
to include:
(1) Within the first year after commencing its first derivatives transaction, management
shall have an internal controls review that is focused on the integration and
introduction of the program, and ensure the timely identification of weaknesses in
internal controls, accounting, and all operational and oversight processes. This
review must be performed by a qualified independent entity;
(2) Any credit union engaging in derivative transactions pursuant to this section must
obtain an annual opinion audit and be compliant with generally accepted accounting
principles for all derivatives-related accounting and reporting;
(3) Before executing its first derivative transaction, management shall establish a
collateral management process that monitors the credit union's collateral and
margining requirements and ensures that its transactions are collateralized in
accordance with the collateral requirements of this section and the credit union's
master services agreement with its counterparty;

(4) Before executing its first derivative transaction, management shall establish and
document a liquidity review process to analyze and measure potential liquidity
needs related to its derivatives program and the additional collateral requirements
due to changes in interest rates. Management shall, as part of its liquidity risk
management, calculate and track contingent liquidity needs in the event a
transaction needs to be novated or terminated, and shall establish effective controls
for liquidity exposures arising from both market or product liquidity and instrument
cash flows; and
(5) Appropriate controls and segregation of duties.
6. A credit union using derivatives may use external service providers to support or conduct
aspects of its derivative management program, provided:
a. The external service provider, including affiliates, does not:
(1) Act as a counterparty to any derivative transactions that involve the credit union;
(2) Act as a principal or agent in any derivative transactions that involve the credit
union; or
(3) Have discretionary authority to execute any of the credit union's derivative
transactions.
b. The credit union has the internal capacity, experience, and skills to oversee and manage
any external service providers it uses;
c. Management documents the specific uses of external service providers in its policies and
procedures; and
d. The credit union retains internal staff to meet the requirements of subsection 5.
7. If a credit union has violated any part of this section, is or has engaged in unsafe or unsound
practices, or is in unsafe or unsound condition, the commissioner may provide written notice to
the credit union prohibiting them from entering into new derivatives transactions, effective
upon receipt of the notice. The commissioner may also require divesture of derivative
products. The credit union can appeal this prohibition or divesture to the state credit union
board, and must provide written notice of their intent to appeal to the department within twenty
days of receipt of the prohibition or divesture requirement as outlined in North Dakota Century
Code section 6-01-04.2.
History: Effective April 1, 2022.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
### § 13-03-22-17. Charitable donation accounts.

Credit unions may invest in charitable donation accounts provided:
1. The charitable donation account is structured as a hybrid charitable and investment vehicle
used to provide charitable contributions and donations to a qualified charity.
2. The maximum book value of investment in all charitable donation accounts is limited to five
percent of credit union net worth. Any credit union in violation of this limit must bring the
investment into compliance with this limit within thirty days of the violation.
3. The charitable donation accounts will be held as a segregated custodial account or special
purpose entity and must be specifically identified as a charitable donation account.

4. Any trust established for the charitable donation account must be regulated by a state or
federal financial regulatory agency, and any trustee or persons making investment decisions
for the charitable donation account must be a registered investment advisor or regulated by a
state or federal agency.
5. The board of directors of the credit union has established policies governing the account
consistent with the requirements of this section and safe and sound business practices.
6. The terms and conditions of the written agreement between the parties to the charitable
donation account must:
a. Be consistent with the provisions of this section and safe and sound business practices.
b. Require the charitable donation account to make charitable contributions and donations
only to charities named that are exempt from taxation under section 501(c)(3) of the
Internal Revenue Code.
c. Document the investment strategies and risk tolerances the administrator must follow.
d. Require all aspects of the account, including distributions and liquidations be accounted
for in accordance with generally accepted accounting principles.
e. Identify the frequency of distributions to qualified charities.
7. The charitable donation account makes a distribution no less frequently than every five years,
and distributes a minimum of fifty-one percent of the account's total return over the period
since the last distribution.
8. Upon termination and liquidation of the charitable donation account, credit unions may receive
a distribution in kind of remaining assets or cash if the assets are otherwise permissible
investments for a credit union.
History: Effective April 1, 2022.
General Authority: NDCC 6-01-04
Law Implemented: NDCC 6-06-06
