KT-NOTES™

KT-Notes are a unique ABS of U.S. Dollar high quality liquid assets (HQLAs) that provide an attractive alternative to investing in money market funds, bank deposits and credit securities. KT-Notes have been designed to be highly liquid, pay an attractive return to investors and satisfy the most stringent credit and regulatory collateral requirements.

Main Features:
  • KT-Notes are backed by a portfolio of short-duration U.S. treasuries (the KT-Note Portfolio) that are managed to outperform O/N Fed Funds Effective Rate, 3- to 6-month U.S. treasuries and government money market funds, while preserving capital
  • KT-Notes are multi-year securities that are freely transferable/ portable and can be redeemed at par on each annual anniversary from issuance or at any time for the holder’s share of portfolio NAV (for cash on same-day settlement basis; normal settlement for securities in kind). They therefore carry both a short and long-term rating matching that of the U.S. Government
  • The KT-Note Portfolio 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 is held at the U.S. Federal Reserve Bank 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
  • KT-Note Portfolio management criteria are structured to achieve: Attractive relative returns, low market/NAV volatility, capital preservation and high liquidity
  • Stock exchange listed with settlement into one or more clearing systems, carrying a unique market I.D. number (i.e., CUSIP and ISIN). Daily pricing and listing on Bloomberg
  • KT-Notes are versatile collateral, e.g. may be acceptable for:
    ‒      market borrowing transactions (e.g., bilateral loans, central bank funding, repos and SLAs)
    ‒      collateralized reinsurance
    ‒      longevity swaps and other pension risk transfer transactions
    ‒      U.S. reserve credit for reinsurance
    ‒      Canadian reinsurance security arrangements (RSAs)
    ‒      Derivatives initial and variation margin (e.g., under Dodd-Frank and EMIR)

     

Regulatory guidance for market applications covers:
  • 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