KT-NOTES™

KT-Notes™​ are redeemable securities backed by a managed portfolio of short-term US government or US government-guaranteed obligations. They offer a unique, high-quality, liquid investment that has been designed to satisfy the most stringent credit and regulatory requirements while paying attractive returns to investors.

KT-Notes™​ are:
backed by a managed portfolio (the KT-Note Portfolio) of short term Level 1 HQLAs (as defined by the US Federal Reserve for LCR)
issued for 5 to 10-year maturities
redeemable into cash for their share of the KT-Note Portfolio NAV or underlying securities at any time for 7-day settlement
redeemable into cash at par annually and at maturity
rated
listed on the Irish Stock Exchange
settled into DTCC with a unique market identification number (ISIN/CUSIP)
easily transferrable
tri-party repo-eligible
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KT-Note security features:
KT-Notes​ are backed by the most liquid securities in the market
KT-Notes offer multiple means of accessing cash:
  • redemption at any time for their share of KT-Note Portfolio NAV
  • sale over the counter to qualified institutional buyers or via the Irish Stock Exchange
  • use as repo collateral
The KT-Note Portfolio backing the KT-Notes​ resides in an insolvency-remote account under the investment management of a professional investment advisor, but under the operating control of BNY Mellon
The KT-Note Portfolio securities are held at the Fed but separated on the books and records of BNY Mellon (the custodian) as belonging to the KT-Note. This segregates the KT-Note Portfolio securities from those of both the portfolio advisor and BNY Mellon, eliminating counterparty credit risk
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Potential market applications for KT-Notes include:
As collateral for credit enhancement:
collateral for a wide range of borrowing transactions (e.g., bilateral loans, central bank funding, repos and SLAs)
eligible investments for Cat Bonds and ILS funds
eligible collateral for collateralized reinsurance and longevity swaps
qualifying collateral for reserve credit for reinsurance in the US
qualifying collateral for reinsurance security arrangements (RSAs) in Canada
a Tier 1 asset for Funds-at-Lloyd’s
derivatives collateral for initial and variation margin
collateral for trade finance transactions
As a high-quality, liquid asset for current and contingent liquidity and capital:
an admitted asset for insurance
a high-quality asset under collateral upgrades
a high-quality asset under committed liquidity facilities
a high-quality asset under contingent liquidity facilities
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Regulatory guidance for market applications:
Derivative collateral
Dodd-Frank (17 CFR 23.156(a)(1)(ix))
EMIR
Insurance collateral and admitted asset
National Association of Insurance Commissioners (NAIC)
Reserve-Credit-for-Reinsurance trust assets for property/casualty insurance transactions
Reserve-Credit-for-Reinsurance trust assets for life/annuity insurance transactions not covered by Model Law #787/AG48
Primary Security in AG48/#787 life transactions as long as separate from a “regulatory transaction”
Other Security in AG48/#787 life transactions
Collateral or admitted assets in relation to AG48-grandfathered life reserve financings, structured as to not jeopardize the continued grandfathered status
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HQLA Portfolio risk/return characteristics
preserve capital and to ensure liquidity and the ability to pay par at annual redemption dates and at maturity
track 3 – 6 months US Treasury returns
outperform short-term market benchmarks after fees

The graphs below illustrate historical KT-Note performance for a hypothetical KT-Note Portfolio relative to key short-term benchmark rates1 and selected government money market funds.

 

 

 

 

 

 

 

Sources: Confidential professional asset management firm for KT-Note returns, Bloomberg for 3M and 6M UST rates, JPMorgan for OGVXX, BlackRock for TFDXX and Wells Fargo for GVIXX. All Gov’t MMF returns are 30-day average yields.

1 It is assumed that the 3-month and 6-month USTs were acquired and held to maturity with reinvestment proceeds used to acquire new 3-month and 6-month USTs.

 

KT-Notes outperformed the majority of selected benchmarks and all of the government money market funds