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 and 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