getting ready for money market reform: enhancing liquidity ......3 // getting ready for money market...

LIQUIDITY SERVICES

Getting Ready for Money Market Reform:

Enhancing Liquidity DIRECTSM

AUGUST 2016

BNY MELLON MARKETS

3 // GET TING READY FOR MONEY MARKET REFORM: ENHANCING LIQUIDITY DIRECT

Introduction Ahead of the Securities and Exchange Commission’s (SEC) new rules becoming effective this fall, BNY Mellon is ready to assist our clients with the changes brought on by money market reform. BNY Mellon is making the necessary changes to its service model and platforms to support these changes. It is important that our clients who invest in institutional prime and tax-exempt money market funds understand how these changes will affect their particular business once the rules go into effect.

To assist you as you perform your assessments and get ready for these changes, we are pleased to share with you some of the initiatives we’ve undertaken to support the new money market fund requirements. Read about the new features we are adding to Liquidity DIRECTSM and the operational changes you need to be aware of including handling of Floating NAV (FNAV) funds, fees and gates.

These new features will be available through Nexen, BNY Mellon’s new digital ecosystem and client facing application. Clients can log into Nexen at nexen.bnymellon.com to take advantage of all that Liquidity DIRECT has to offer.

As always, our teams are poised to answer your questions and assist you along the way.

Feature Set Overview

New Fund Information Provided Individual Fund Six Month Rolling Chart – Daily and Weekly Liquidity – Daily and Weekly Liquidity – Net Assets Flow & Percentage Changes – Net Asset Flows – Affliate/Sponsor Support Flag – Daily/7 Day NAVs and Shadow NAVs – Fee/Gate Indicator – Weighted Average Maturity (WAM) and – Most Recent and Historical Market Net Weighted Average Life (WAL)

Asset Values (NAVs)

Reporting – Capital Gains Report – Sponsor/fund affliate report – Imposition fees/gate – All reports updated to provide unit,

Liquidity DIRECT

Money Market Reform Feature

Multiple Fund Comparison Charts – Asset Size and Change in Size – WAM/WAL – Daily and Weekly Liquidity – One and Seven Day Yields

price, and value Set

FNAV Trading Enhancements Analysis Charts – Most recent strike price/time – Daily and Weekly WAM vs. 1 Day Yield – Trade windows and strike times provided – Daily Liquidity vs. Asset Size/Size Change – Price/share trade calculator – Shadow NAV Spread/Volatility – MMR felds added to Fund Info pop up – Daily Liquidity Spread/Volatility – Buys and Sells prevented in gated funds – WAM/WAL Spread/Volatility – Purchases prevented if fee in effect – Asset Size vs. Investor Balance in Fund

https://nexen.bnymellon.com


Operational Items Investors Need to Know – Multiple Strike Times – Prime and tax-free/municipal funds may price their funds multiple times (typically

three times) during the day. Trades are not assigned a price until a price is calculated sometime after the next price strike time.

– Earlier Closings – Prime and tax-free/municipal fund cutoff times for T+0 are at the last strike price time which is expected to be earlier than pre-money market reform (MMR) end of day cutoff times for those funds. Clients should expect cutoff times for these funds of 3PM or earlier.

– Timing of Receipt of Redemption Monies – Clients will not be credited redemption proceeds until after a price for the fund is calculated which is anticipated to be 1.5 to 2 hours after the stated strike time.

– New MMR Fields in CSV Downloads – Due to report changes, clients that download csv fles as input to automated processes must be aware that the csv fles will include new felds such as units, price, and value and therefore may require updates to their automated processes.

– Increase to Percentage of Ownership – The industry expects assets in prime funds to fall and therefore investors must be cognizant that their percentage of ownership in these funds may increase.

– Purchase and Redemption Changes – For FNAV funds, only cash trades are supported for Purchases and share trades for Redemptions.

– Purchases and Redemptions are prevented if a gate is in effect.

– No Impact On Other Funds – All funds that are not prime or tax-free/municipal funds (e.g., government, treasury, etc.) will have no change in cutoff times or redemption wire timings.

Prime and Tax-Free/Municipal Changes Prior to Cutover to FNAV Fund providers have expressed their desire to work towards having a $1 NAV on their prime and tax-free/municipal fund cutover dates to FNAV. Therefore, portfolio managers are only investing in very short-term assets and, in some cases, are not making any investments in assets maturing after their cutover dates. This is expected to cause the following changes to metrics in these funds in the short term prior to cutover dates.

– Shorter WAM and WAL

– Higher daily and weekly liquidity percentages

– Lower yields

After the cutover dates, it is anticipated these fund metrics will return to their pre-cutover date levels although this may take some time.

Trading Updates for FNAV Funds Discover the new information on the Liquidity DIRECT Trading Screen rolling out at the end of August 2016.

– Last Price Pop Up displays the fund’s most recent strike price and time.

– Strike Times column displays the fund’s strike times with real-time indication of those strike times that have passed.

– Trade Calculator provides price/share conversions.

– Fund Info Pop Up enhanced to include new MMR felds and fund metrics.


The following illustrates the new Liquidity DIRECT trading screen updates for FNAV funds.*

– Purchases prevented if Fee in Effect

– For BUY trades in FNAV funds, the user must enter a trade amount.

– For SELL trades in FNAV funds, the user must enter a share amount.

– The Trade Calculator allows the user to determine the amount (shares) based on a user entered price and shares (amount).

– The Last Price Pop Up provides the user with the latest intraday price struck by the fund and the time the price was struck.

– The Strike Times column provides the user with the fund’s intraday strike price times along with real- time indicators of which strike times have passed.

– The Daily Fund Info Pop Up provides the user with the fund information including Daily Liquidity, Weekly Liquidity, and Net Asset Flow.

All screen shots, charts, graphs, tables and the information contained thereon are for illustrative purposes only.


Investment Research Screen The Liquidity DIRECT end of August rollout will contain updates to the Investment Research screen to include Net Asset Flows, Daily Liquidity and Weekly Liquidity.

BNY Mellon is here to offer our experts’ support and guidance as the new realities of the liquidity landscape come into clearer focus.


Capital Gain-Loss Report In support of the SEC regulation rules for FNAV fund gains and losses, a new Capital Gain-Loss report is being rolled out at the end of August. The report can be run for a specifc date range, range of months, quarters, or annually.


New Charts for Money Market Reform (August) In addition to the Investment Research Screen illustrated above, Liquidity DIRECT will roll out the following charts at the end of August to provide users with an easy-to–view mechanism for viewing a fund’s trends for Daily Liquidity, Weekly Liquidity, and Net Asset Flows.


New Charts on the Horizon Liquidity DIRECT will provide additional charts during the third quarter and fourth quarter of this year. The following provides a sample of these charts.

DAILY/WEEKLY LIQUIDITY AND ASSET SIZE The following graph provides the daily and weekly liquidity trends of a fund superimposed over the asset size of the fund. Users can easily see the daily and weekly liquidity trends and analyze the correlation between changes in fund size and liquidity.

WAL COMPARISON The following chart compares the WAL trends for a set of selected funds.


DAILY LIQUIDITY VS. ONE DAY YIELD The following scatter chart provides the daily yield and daily liquidity percentage for a set of funds. The chart provides useful data to analyze which funds are providing better yields without compromising daily liquidity.

For more information about our liquidity services, visit us at www.bnymellon.com/liquidityservices

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09/2016

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getting ready for money market reform: enhancing liquidity ......3 // getting ready for money market...

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