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
__________________________________________________________________________
KT-Note™ security features include:
  • backing by the most liquid securities in the market
  • 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
_____________________________________________________________________________

 

Potential market applications for KT-Notes™ as collateral for credit enhancement include:
  • 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)
In addition, KT-Notes™ are a high-credit-quality (e.g., Aaa/P-1), liquid investment that is redeemable for cash or short-duration U.S. dollar HQLA at any time and can be used as an admitted asset for U.S. insurance companies or as solvency-eligible / tier-1 capital in Europe.

 

______________________________________________________________________________
Regulatory guidance for market applications includes:
  • 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
______________________________________________________________________________

HQLA Portfolio management and risk/return characteristics:
  • preservation of capital to ensure liquidity and the ability to pay par at annual redemption dates and at maturity
  • competitive short-term yield that outperforms o/n Fed Funds Effective Rate, 3 to 6-month treasuries and government money market funds