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eSecLending’s Annual Securities Financing Conference 2017
eSecLending’s Annual
Securities Financing Conference
Wednesday, October 4, 2017
John F. Kennedy Presidential Library and Museum, Boston
eSecLending’s Annual Securities Financing Conference 2017
Equity Lending: Demand-Side Perspective on the Lending Market
Phil Prince, Pine River Capital Management
Michael Slomienski, Goldman Sachs
Brian Cahalan, BNP Paribas
Jim Moroney, eSecLending
eSecLending’s Annual Securities Financing Conference 2017
Introduction to the JFK
Presidential Library
Brooke Gillman, eSecLending
eSecLending’s Annual Securities Financing Conference 2017
Regulatory Rollback: How Changes to the Components of Financial Services Reform
are Impacting Securities Finance
Greg Lyons, Debevoise & Plimpton
eSecLending’s 2017 Annual
Securities Financing Conference
October 4, 2017
Gregory J. Lyons
Regulatory Rollback: How Changes to
the Components of Financial Services
Reform are Impacting Securities
Finance
6
State of the
Banking Sector
State of the Banking Sector
• In a reversal, EU banks now have higher risk-based capital ratios than U.S. banks.
– Higher capital ratios in EU driven primarily by decreases in RWAs.
– Higher capital ratios in US driven primarily by increases in capital.
7
Banks Highly Capitalized
*Group 1 Banks generally refers to the largest banks in each country that
are internationally active.
State of the Banking Sector
• Leverage ratios are lower in Europe compared to the Americas and the rest of the world.
8
Leverage Ratio Remains an Issue
State of the Banking Sector
• NSFR compliance remains an issue in both U.S. and EU.
9
LCR/NSFR Compliance
10
Where We’re
Going
U.S. Treasury Core Principles Report
• Core Recommendations
– Changes to Comprehensive Capital Analysis and Review (CCAR), Dodd-Frank Act stress testing (DFAST) and resolution planning.
» Increasing transparency around CCAR processes.
» Eliminating mid-year DFAST.
» Moving CCAR and resolution planning to a 2 year cycle.
– Delay of pending rules (NSFR, FRTB).
– Weakening of the Volcker Rule.
– Modifications to the supplementary leverage ratio (SLR) and the liquidity coverage ratio (LCR).
– Re-calibrating the global systemically important bank holding company (G-SIB) surcharge, total loss-absorbing capacity (TLAC) and the enhanced SLR(eSLR).
– Enhancing Risk-Sensitivity of standardized approaches (risk-based capital, SCCL).
11
Part One: Banks and Credit Unions (June 12, 2017)
State of Regulations
12
International Divergence in Implementation
Regulation U.S. EU Canada
Capital Floor (e.g., Basel IV style).
Implemented via Collins Amendment.
Delayed indefinitely at Basel Committee.
Delayed indefinitely at Basel Committee.
Market Risk Capital (FRTB)
U.S. regulators still evaluating.*
Adopted by European Commission; EU Parliament and European Council considering.
Beginning of regulatory reporting delayed to Q1-2021.**
Leverage Ratio Final Rule adopted. See above. Final Rule adopted.
Net Stable Funding Ratio (NSFR)
Proposed; implementation likely delayed.*
See above. Implementation delayed to 2019.**
Single-Counterparty Credit Limits (SCCL)
Proposed; implementation likely delayed.
See above. Implementation planned for 2019.
SA-CCR (Derivatives) U.S. regulators still evaluating.
See above. Implementation delayed to 2018.**
Implemented
Implementation More Likely
Implementation Status Unclear
Implementation Unlikely
**OSFI has suggested that its implementation would depend on the
timing of key foreign market implementation.
*The U.S. Treasury Core Principles Report recommends a delay in
implementation.
State of Regulations
• Disharmony. Uneven global recovery and mixed signals from the United States cast doubt onto the future of the Basel “project” (and similar cross-jurisdictional initiatives, e.g., cross-border initiatives).
• Case Study (NSFR). Uneven implementation across major jurisdictions.
– EU. Somewhat weaker form of Basel NSFR proposed. Implementation uncertain.
– U.S. NSFR proposed; implementation likely will depend on EU implementation.
– Japan. Until recently, the JFSA was planning on implementing January 1, 2018. Status unclear.
– Hong Kong SAR. “The HKMA will implement the NSFR … from January 2018.” (Risk.net 9/25/2017).
• Consequences. Disharmony could lead to undesirable results.
– Equivalence determinations under foreign regimes could be threatened.
– Uneven playing field across jurisdictions (e.g., given U.S. gold-plating).
13
No Longer Race to the Top
Final U.S. QFC Rules
• September 1, 2017. Last month, the Board of Governors of the Federal Reserve System finalized its rule imposing restrictions on the qualified financial contracts of U.S. G-SIBsand their affiliates and the U.S. operations of foreign G-SIBs (“Covered Entities”).
• QFCs. The rule will require amendments to many “qualified financial contracts.” The term includes:
– Borrower Agreements (MSLAs, GMSLAs, bespoke agreements);
– SLAAs that have borrower default indemnifications (SLAAs)
– Service agreements that have QFC-features (e.g., custody agreements that provide for intraday credit to settle securities transactions).
• Key Exceptions. Certain categories of transactions are excluded.
– Out-of-Scope QFCs. Agreements that do not have default rights that can be exercised against a G-SIB or that have transfer restrictions that would prevent a transfer from the G-SIB in a resolution context are not covered.
– U.S. Nexus Exception. Agreements governed by U.S. law where all the non-Covered Entity parties are based in the U.S.
14
Amendments Required to Sec. Lending Agreements
15
Trump
Administration
Personnel is Policy
Federal Reserve Board – Presidential Appointments
Other Notable
Positions:
16
Vice Chairman
Fischer(Resigning as of
10/13/17)
Chair Yellen
Term Expires: February 2, 2018
(as Chair); January 31, 2024
(as Governor)
Vice Chairman of Supervision
(Randy Quarles -Confirmation Pending)
(Open)
Governor*(Open)
Governor Powell
Term Expires:January 31, 2028
Governor Brainard
Term Expires:January 31, 2028
Governor Tarullo
(resigned)(Open)
General Counsel Mark
Van Der Weide
“Personnel is policy. And changing the personnel will change the policy, will change the interpretation. And we think that is very important” –Gary Cohn, Director of the National Economic Council (April 20, 2017)Deputy Director in the
Division of Supervision and Regulation
Timothy P. Clark(retiring)
*One member of the Board must have primary experience
working in or supervising community banks. 12 U.S.C. § 241.
Federal Reserve Leadership
Contact Information
17
Gregory J. LyonsPartner, Head of Financial Institutions Group
Debevoise & Plimpton LLP
Telephone: 212-909-6566
Email: [email protected]
eSecLending’s Annual Securities Financing Conference 2017
Short-Term Cash Markets: Current State
Rob Zambarano CFA, Guggenheim
Thomas Kolimago, BlackRock
Phil Picariello, eSecLending
Front End Update
Guggenheim Securities, LLC
October 2017
Overview
Update on the Fed policy, bill supply, RRP facility, Repo markets, and Alternative Reference Rate
Committee (ARRC)
▪ Fed policy
– Expect December rate hike
– Transitory inflation to get boost from hurricane rebuilding efforts
– Balance sheet runoff to have minimal impact in short term
▪ Bill supply
– Debt ceiling deal pushes X-date to mid-March
– Small window for TGA increase results in minimal increase in bill supply ($30-40 billion)
– Post March debt ceiling resolution TGA to rise to ~$350 billion ($150-200 billion in new bill supply)
▪ Balance Sheet
– Composition of Treasuries reinvestments shifts to quarterly refunding dates in mid-2018
– MBS reinvestments will be scaled back by the runoff cap levels
– High hurdle to change runoff policy
▪ RRP
– Remain active policy tool during balance sheet runoff
▪ ARRC
– Broad Treasury financing rate is the preferred reference rate
20Guggenheim Securities, LLC
Fed Policy
December rate hike barring an exogenous shock to the economy. Base case for three rate hikes in 2018
▪ Dual mandate continues to get airtime but financial conditions factor in policy debate
– Labor market continues to absorb slack (average pace of 175k above required 120k pace)
– Wage inflation will signal tightening labor markets
– Fed’s version of “gradual” pace to remove policy once a quarter
▪ Inflation
– Ongoing debate on structural vs cyclical forces impacting inflation
– Recent CPI reports reflect potential uptrend
– Market based measures of inflation trending higher
– Post hurricane demand supportive of cyclical firming
▪ Financial conditions
– Continue to ease in the face of three rate hikes
– March rate hike a reaction to lack of tightening following December
– Pose risk of contributing to asset bubbles and potentially disrupting current economic expansion
– Unintended consequences of prolonged phase of loose monetary policy
21Guggenheim Securities, LLC
Treasury General Account (TGA)
Source: FRED, Amounts shown in dollars (bns).
Treasury’s goal is to maintain level of TGA high enough to facilitate two weeks worth of outflows –
approximately $350 billion.
▪ Debt ceiling agreement uses September 8th as baseline for TGA balance $70 billion
– We expect little change to bill supply with any changes coming in 4-week and Cash Management Bills (CMBs)
▪ December 15th TGA balance must revert back to September 8th balance
– Constrains the ability to increase bill supply for three months without disrupting bill market functioning
22Guggenheim Securities, LLC
0
50
100
150
200
250
300
350
400
450
500
Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Bill Supply
Source: Treasury, Amounts shown in dollars (bns).
Treasury plans to absorb SOMA runoff initially with increases in bill supply. Expect more after next
debt ceiling.
▪ Money fund reform has increased demand and resulted in structural bill supply shortfall
– Bills around quarter-end regularly trade through the RRP
▪ Bills as a percentage of total debt outstanding (currently 12-13%) well below the historical level of 20-23%
– Increasing percentage of bills to historical norms would result in an additional $1.5 trillion in bill supply
23Guggenheim Securities, LLC
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
1,200
1,300
1,400
1,500
1,600
1,700
1,800
1,900
2,000
Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17
Bills Bills % Total
SOMA Shrinkage: Treasury Maturities
Source: FRBNY, Amounts shown in dollars (bns).
▪ Monthly maturities shift to quarterly refunding dates after mid-2018
▪ SOMA will continue to hold on-the-run issues, reducing auction-cycle specialness concerns
24Guggenheim Securities, LLC
0
10
20
30
40
50
60
70
80
Oct-17 May-18 Dec-18 Jul-19 Feb-20 Sep-20 Apr-21 Nov-21 Jun-22
Maturities Runoff Cap
SOMA Reinvestments: Treasuries
Source: FRBNY, Amounts shown in dollars (bns).
▪ Treasury will have to incrementally increase coupon sizes to compensate for reduced SOMA bids in
future auctions
▪ Plenty of space in intermediate coupons to absorb reduced SOMA demand for next several years
25Guggenheim Securities, LLC
0
5
10
15
20
25
30
35
40
45
Oct-17 May-18 Dec-18 Jul-19 Feb-20 Sep-20 Apr-21 Nov-21 Jun-22
Net Reinvest
SOMA: Projected Treasury Runoff
Source: FRBNY, Amounts shown in dollars (bns).
▪ We anticipate a business cycle slowdown in the first half of 2020 that results in a pause of balance sheet runoff
▪ Approximately $1.1 trillion in balance sheet runoff ($620 Treasuries, $440 Agency MBS)
26Guggenheim Securities, LLC
0
100
200
300
400
500
600
700
800
900
1,000
Oct-17 Jun-18 Feb-19 Oct-19 Jun-20 Feb-21 Oct-21 Jun-22
Cummulative Runoff
Reverse Repo Facility
Source: FRBNY, Implementing Monetary Policy: Perspective from the Open Market Trading Desk.
Fed is comfortable with the current framework of IOER – RRP corridor. After several rate hikes, the fed
funds effective has printed within the target range.
▪ The floor system has been effective for accounts ineligible for IOR
– Most activity in fed funds market is from banks borrowing from nonbanks to earn IOER
▪ RRP acted as a temporary shock absorber during 2a-7 money fund reform
– Reflected demand for safe overnight investments by government funds
27Guggenheim Securities, LLC
0.00
0.20
0.40
0.60
0.80
1.00
1.20
0
50
100
150
200
250
300
350
400
450
500
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17
# Counterparties RRP Rate
Reverse Repo Facility – Outlook
Source: Board of Governors of the Federal Reserve System H.4.1 Statistical Release. April 26, 2017.
28Guggenheim Securities, LLC
Federal Reserve Balance Sheet
(USD, billions)
Assets Liabilities
Securities held outright 4246 Federal Reserve notes 1496
U.S. Treasury securities 2465 Deposits 2564
Agency debt 12 Reserve balances (deposits held by DIs) 2201
Agency MBS 1769 Treasury General Account 271
Repurchase agreements 0 Other 87
Loans* * Foreign official 5
Other assets 224 Reverse repurchase agreements 363
Total assets 4470 Foreign official and international accounts 241
Others 122
Other liabilities 6
Total liabilities 4429
Capital 41
Total liabilities and capital 4470
*Less than $1 billion
Overnight Rates
Source: FRBNY, DTCC.
▪ Corridor has been largely successful in maintaining upper and lower bounds around the effective rate
▪ Floor does get “leaky” via bill rates mostly by non-RRP eligible cash
▪ RRP should remain active tool if floor is part of the long-run policy framework
29Guggenheim Securities, LLC
0
20
40
60
80
100
120
140
9/1/2015 12/1/2015 3/1/2016 6/1/2016 9/1/2016 12/1/2016 3/1/2017 6/1/2017
Fed Funds Effective IOER DTCC GCF Repo Index (Tsy) RRP
Repo Volumes Gradually Increase
Source: FRBNY, Amounts shown in dollars (bns).
▪ Collateral providers from less regulatory constrained market participants such as smaller dealers, hedge funds, and
insurance companies are supportive of repo volume increases
30Guggenheim Securities, LLC
0
200
400
600
800
1000
May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16
Agency (other than MBS) Agency MBS Treasury
Money Fund Repo
Source: Cranes, (bns).
▪ Money funds increased repo holdings ahead of fund reform last year
▪ Allocation to repo continues to increase following March rate hike
▪ Majority allocated to overnight repo
31Guggenheim Securities, LLC
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
500.0
600.0
700.0
800.0
900.0
1,000.0
Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17
Fund Reform Repo Holdings Repo % Total Holdings
Tri-Party
Source: FRBNY, Amounts shown in dollars (bns).
▪ Volumes tend to decline ahead of each month-end and quarter-end as dealers net down their balance sheets
32Guggenheim Securities, LLC
-100
100
300
500
700
900
1100
May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 May-14 Nov-14 May-15 Nov-15 May-16 Nov-16 May-17
Agency (other than MBS) Agency MBS Treasury
GCF Repo
Source: FRBNY, Amounts shown in dollars (bns).
▪ GCF volumes tend to increase as dealers fund via interdealer market (GCF)
▪ Represents part of the other side of the Tri-party unwind
33Guggenheim Securities, LLC
0
50
100
150
200
250
May-11 May-12 May-13 May-14 May-15 May-16
Overnight GCF Repo
Agency (other than MBS) Agency MBS Treasury
0
100
200
300
400
500
600
May-11 May-12 May-13 May-14 May-15 May-16
Term GCF Repo
Agency (other than MBS) Agency MBS Treasury
Alternative Reference Rate Committee Update (ARRC)
Source: FRBNY *June 28 date pending as of 6/13/17.
From the August ARRC meeting: The ARRC discussed how uncertainty about LIBOR’s future after 2021
would affect the ARRC’s transition plans, given that the paced transition plan assumed that LIBOR would
continue to be available for legacy contracts.
▪ Potential publication of three overnight Treasury general collateral (GC) repurchase benchmark rates:
1. Narrow: Tri-party transactions (excluding GCF Repo and Federal Reserve transactions)
2. Broad general collateral rate: Tri-party + GCF Repo (still excluding Federal Reserve transactions)
3. Broad Treasury financing rate*: Tri-party + GCF Repo + Trimmed FICC cleared bilateral transactions
▪ All three rates would be calculated as volume-weighted medians (similar to EFFR and OBFR)
▪ Goal is to provide more transparency and efficiency by improving the quality and breadth of repo market
information to the public
▪ ARRC may need to expand its planning to address rate transitions in legacy contracts in addition to derivatives
in its transition plans for new trading activity
– Next steps include subgroups to develop and refine implementation plans
▪ FRBNY hosting a roundtable on November 2nd
34Guggenheim Securities, LLC
*ARRC’s preferred reference rate.
Disclosures and Legal Notice
Important Information
This material was prepared by Guggenheim Securities, LLC (“Guggenheim”) for use by sophisticated
institutional investors only. The material was not prepared by a research analyst or the firm’s Research
Department and is not fixed income research. The views expressed herein are those of the author.
This material should not be construed as a recommendation or advice or an offer or solicitation by
Guggenheim with respect to the purchase or sale of any investment.
Any financial instruments mentioned herein are speculative in nature and may involve risk to principal and
interest. Any prices or levels shown are either historical or purely indicative.
Guggenheim’s trading desk may have positions in the securities mentioned herein and may have acquired
such positions at prices no longer available. This material is not independent of the proprietary interests of
Guggenheim, which interests may conflict with your own. The author of this material supports the firm’s
trading desk, and his compensation may be tied to the profitability of the trading desk.
While Guggenheim believes that the sources of information provided herein are reliable, it does not
represent or warrant the accuracy or completeness of the information and undertakes no obligation to
provide additional, updated or supplemental information. Any forward-looking statements made herein are
only valid as of the date they are made. Past performance is not indicative of future results, and nothing
herein should be interpreted as a promise of future performance.
Guggenheim, its officers, employees, affiliates and partners shall not be liable to any person in any way for
any losses, costs or claims arising from your reliance on this material.
Guggenheim has prepared this material for your informational purposes and your use only. The material
should not be provided to any person in a jurisdiction where its provision or use would be contrary to local
laws, rules or regulations. The material is not to be reproduced or redistributed to any other person outside
of your organization without the prior written consent of Guggenheim.
Copyright © 2017 by Guggenheim Securities, LLC.
35Guggenheim Securities, LLC
eSecLending Securities Financing
Conference 2017
Thomas Kolimago, CFA, Managing Director, Cash
Management
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TLS0917U-266060-793464
Federal Reserve Monetary Policy
Target Federal Funds rate as reported in the Federal Open Market Committee
Summary of Economic Projections
Source: Bloomberg, Federal Reserve Note: Each dot represents the median of the member projections. As of September 30, 2017
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
7/2017 1/2018 8/2018 3/2019 9/2019
Rate
(%
)
Forward Rate 9/30 Jun 17 Median Sep 17 Median
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38
Factors impacting supply in the short-term cash markets
Negative impact Description
Basel III Liquidity Coverage Ratio (LCR) Banks are required to hold high quality liquid assets to cover the amount of
bank liabilities that might run in a 30-day stressed period.
Compliance date: January 1, 2017
Basel III Net Stable Funding Ratio (NSFR) Banks are required to hold more deposits and reduce short-term wholesale
funding, making them fund their activities with more stable sources of
funding. Compliance date: January 1, 2018
Supplementary Leverage Ratio (SLR) Raises the cost of low margin business and low-risk assets.
Compliance date: January 1, 2018
U.S. Operations of foreign banks (application of
Dodd Frank Section 165)
U.S. operations of foreign banks with assets exceeding $50 billion are
required to establish a separately capitalized intermediate holding company
for their subsidiary and will be required to meet the risk-based capital,
leverage capital and liquidity standards similar to U.S. banks.
Compliance date: January 1, 2018
Positive Impact Description
NY Federal Reserve Reverse Repurchase
Program
Allows approved counterparties to invest cash with the Federal Reserve
Bank of New York in exchange for securities
Source: BlackRock
The opinions expressed are as of July 2017 and are subject to change at any time due to changes in market or economic conditions.
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U.S. Repurchase Agreement (Repo) Market
Source: New York Federal Reserve. As of August 31, 2017
Primary Overnight Dealer Repo Outstanding: June 2014 to August 2017
FOR INSTITUTIONAL/PROFESSIONAL/QUALIFIED INVESTORS ONLY– NOT FOR FURTHER DISTRIBUTION
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
6/2
014
8/2
014
10
/201
4
12
/201
4
2/2
015
4/2
015
6/2
015
8/2
015
10
/201
5
12
/201
5
2/2
016
4/2
016
6/2
016
8/2
016
10
/201
6
12
/201
6
2/2
017
4/2
017
6/2
017
8/2
017
Mill
ions (
$)
Dealer Repo Outstanding (mm) Fed Repo Outstanding (mm)
TLS0917U-266060-793464
40
Tax and Accounting Impact:
• The U.S. Department of the Treasury and the Internal Revenue
Service (IRS) issued final regulations permitting the use of simplified
tax accounting for Floating Net Asset Value (FNAV) MMFs.
• The Securities and Exchange Commission (SEC), which has
authority to set accounting standards, clarified that FNAV MMFs will
be treated as cash equivalents.
• The IRS issued a revenue procedure that exempts shareholders of
FNAV MMFs from the wash sale rule.
Summary of Changes
Here’s what you need to know
What are the structural impacts to money market funds?
Prime Institutional
Funds
Municipal
Institutional Funds
Prime Retail Funds Municipal Retail
Funds
Government /
Treasury Funds
Floating Net Asset
Value (FNAV) ✓ ✓ No No No
Liquidity Fees ✓ ✓ ✓ ✓ No
Redemption Gate ✓ ✓ ✓ ✓ No
Stable NAV No No ✓ ✓ ✓
Other key changes
to Rule 2a-7
• Enhanced stress testing and diversification.
• Increased transparency to daily market-based NAV, weekly liquid asset levels and net investor flows.
• Basis point rounding for FNAV funds (to the fourth decimal place).
Information provided as of April 2017
Other Structural Changes
• Government MMFs: Reduction of non-government fund holdings
from 20% to 0.5%.
• Retail MMFs: Funds that have policies and procedures reasonably
designed to limit all beneficial owners to natural persons.
• Municipal MMFs: Reduction of the 25% diversification basket to a
single 15%.The 25% bucket has been removed for all other Funds.
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5
10
15
20
25
30
35
40
45
50
55
9/3
0/2
014
10
/31
/201
4
11
/30
/201
4
12
/31
/201
4
1/3
1/2
015
2/2
8/2
015
3/3
1/2
015
4/3
0/2
015
5/3
1/2
015
6/3
0/2
015
7/3
1/2
015
8/3
1/2
015
9/3
0/2
015
10
/31
/201
5
11
/30
/201
5
12
/31
/201
5
1/3
1/2
016
2/2
9/2
016
3/3
1/2
016
4/3
0/2
016
5/3
1/2
016
6/3
0/2
016
7/3
1/2
016
8/3
1/2
016
9/3
0/2
016
10
/31
/201
6
11
/30
/201
6
12
/31
/201
6
1/3
1/2
017
2/2
8/2
017
3/3
1/2
017
4/3
0/2
017
5/3
1/2
017
6/3
0/2
017
7/3
1/2
017
8/3
1/2
017
Weig
hte
d A
vera
ge L
ife (
Days)
Prime Institutional Prime Retail
Major Movement in Prime Weighted Average Maturities
42
Source iMoneyNet |As of August 31, 2017
Weighted Average Maturities of Prime Funds (September 2014 to August 2017)
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Historical Mark to Market Net Asset Values
Sources: Bloomberg and Federal Reserve As of August 31, 2017
Representative Prime Institutional Fund NAV (June 2015 to August 2017)
43
This representative account was selected as a sample of one prime institutional fund and is provided for illustrative purposes only.
0.00%
0.10%
0.20%
0.30%
0.40%
0.50%
0.60%
0.70%
0.80%
0.90%
1.00%
1.10%
1.20%
1.30%
$0.9970000
$0.9975000
$0.9980000
$0.9985000
$0.9990000
$0.9995000
$1.0000000
$1.0005000
$1.0010000
$1.0015000
$1.0020000
$1.0025000
Representative Prime Institutional Fund (Left Axis) Fed Funds Target Rate - Upper Bound (Right Axis)
Ne
t A
sse
t V
alu
eF
ed
Fu
nd
s T
arg
et R
ate
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Spreads on Credit Instruments
Source: Bloomberg. As of August 31, 2017
LIBOR-OIS Has Tightened Post 2a-7 Reform (May 2016 to June 2017)
44
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
0.45
0.50
Sp
rea
d
3 Month LIBOR (mL) - OIS (%)
3mL - OIS (%)
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Historical Yield Spread
Representative Institutional Prime/Government Historical Yield Spread (April 2015 to August 2017)
Sources: iMoneyNet and Federal Reserve. As of August 31, 2017
Historical yields are not indicative of future levels.
FOR INSTITUTIONAL/PROFESSIONAL/QUALIFIED INVESTORS ONLY– NOT FOR FURTHER DISTRIBUTION
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.00
0.20
0.40
0.60
0.80
1.00
1.20
4/2015 6/2015 8/2015 10/2015 12/2015 2/2016 4/2016 6/2016 8/2016 10/2016 12/2016 2/2017 4/2017 6/2017 8/2017
Spre
ad (%
)Yie
ld (
%)
Average Institutional Government Fund Monthly Annualized Yield (Left Axis)
Average Institutional Prime Fund Monthly Net Annualized Yield (Left Axis)
Spread (Right Axis)
TLS0917U-266060-793464
45
European MMF Reform | Summary of Structural changes
46
What are the structural impacts to European money market funds?
Short Term Money Market FundsStandard Money Market
Funds
Government
(CNAV)
Low Volatility NAV
(LVNAV)
Variable Net Asset Value
(VNAV)
Standard Variable Net
Asset Value (VNAV)
Stable NAV ✓ * X X
Floating Net Asset
Value (FNAV) X * ✓ ✓
Liquidity Fees
** ***** ***
Redemption Gate *** ***
Reference
* The Fund can price to 2 decimal places if the full mark-to-market price does not deviate from 1.00 by more than
20bps, essentially rounding up to 1.00. If the 20bps tolerance is breached the fund will price to 4 decimal places
using the full mark-to-market NAV, essentially rounding down to the nearest basis point
** If the weekly maturing assets of the fund fall below 30% the manager will inform the board who has the discretion
to implement fees and/or gates as deemed appropriate. If the weekly maturing assets of the fund fall below 10% the
board must decide which fees and/or gates they deem appropriate to implement
*** Although fees and or gates are not prescribed for VNAV funds as part of the European Money Market Fund
Reform text, they will be required to be included within funds prospectus under UCITS and AIFMD rules, as they
currently are.
Source: Source: BlackRock’s interpretation of European Money Market Regulation as finalised via a political agreement between the European Parliament, Council and
As of July, 2017
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Source: Moody’s As of November 2016
Total Cash Holdings by U.S.
Non-Financial Companies
$0
$500
$1,000
$1,500
$2,000
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Source: Moody’s Investor Service & Market Watch*As of November 2016
Companies with the most cash
0 100 200 300
General Motors
Amgen
Johnson & Johnson
Cisco
Oracle
Alphabet/Google
Berkshire Hathaway
Microsoft
Apple
Largest Cash Holdings of U.S. Corporations($
Bill
ion
s)
$742
$1,769The top 10 companies by cash and cash
equivalents held* (in billions):
$253
$115
$86
$85
$68
$67
$38
$38
$26
$22
Company2015
% Cash Offshore
2016
% Cash Offshore
Apple 93% 91%
Microsoft 94% 98%
Cisco 94% 93%
Alphabet 59% 58%
Oracle 87% 77%
Top Five U.S. Companies with
Cash Overseas†
Source: Moody’s Investor Service. † As of November 2016
47
References to securities are shown for illustration only and should not be construed as investment advice or a recommendation.
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Important Notes
This material is for distribution only to those types of recipients as provided below and should not be relied upon by any other persons. This material is provided for informational purposes
only and does not constitute a solicitation in any jurisdiction in which such solicitation is unlawful or to any person to whom it is unlawful. Moreover, it neither constitutes an offer to enter
into an investment agreement with the recipient of this document nor an invitation to respond to it by making an offer to enter into an investment agreement.
This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of yields
or returns, and proposed or expected portfolio composition. Moreover, where certain historical performance information of other investment vehicles or composite accounts managed by
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historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could
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This document contains general information only and is not intended to represent general or specific investment advice. The information does not take into account your financial
circumstances. An assessment should be made as to whether the information is appropriate for you having regard to your objectives, financial situation and needs.
Disclosures related to institutional prime and institutional municipal money market funds: You could lose money by investing in the Fund. Because the share price of the Fund
will fluctuate, when you sell your shares they may be worth more or less than what you originally paid for them. The Fund may impose a fee upon sale of your shares or may
temporarily suspend your ability to sell shares if the Fund's liquidity falls below required minimums because of market conditions or other factors. An investment in the Fund
is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. The Fund's sponsor has no legal obligation to provide financial
support to the Fund, and you should not expect that the sponsor will provide financial support to the Fund at any time.
Disclosures related to retail money market funds : You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at $1.00
per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government
agency. The Fund's sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial support to the
Fund at any time.
Disclosures related to government money market funds : You could lose money by investing in the Fund. Although the Fund seeks to preserve the value of your investment at
$1.00 per share, it cannot guarantee it will do so. An investment in the Fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other
government agency. The Fund's sponsor has no legal obligation to provide financial support to the Fund, and you should not expect that the sponsor will provide financial
support to the Fund at any time.
THIS MATERIAL IS HIGHLY CONFIDENTIAL AND IS NOT TO BE REPRODUCED OR DISTRIBUTED TO PERSONS OTHER THAN THE RECIPIENT.
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