(a) The retirement system may, in the exercise of its constitutional discretion to manage the assets of the retirement system, select one or more commercial banks, depository trust companies, or other entities to serve as custodian or custodians of the system’s securities and to lend the securities under rules adopted by the board of trustees and as required by this section. The retirement system may select one or more commercial banks, depository trust companies, or other entities to act independently of the custodian and lend the securities under board rules and as required by this section.
(b) To be eligible to lend securities under this section, a bank or brokerage firm must:
(1) be experienced in the operation of a fully secured securities loan program;
(2) maintain adequate capital in the prudent judgment of the retirement system to assure the safety of the securities;
(3) execute an indemnification agreement satisfactory in form and content to the retirement system fully indemnifying the retirement system against loss resulting from borrower default or the failure of the bank or brokerage firm to properly execute the responsibilities of the bank or brokerage firm under the applicable securities lending agreement;
(4) require any securities broker or dealer to whom it lends securities belonging to the retirement system to deliver to and maintain with the custodian collateral in the form of cash or government securities eligible for book entry in either the Federal Reserve System or the Participants Trust Company, in an amount equal to not less than 100 percent of the market value, from time to time, of the loaned securities; and
(5) comply with guidelines the board of trustees may adopt concerning the investment of cash collateral, borrower limits, and other items.