Corporate Treasury SMA Investment Options FDIC-Insured Brokered CDs

Transcription

1 Corporate Treasury SMA Investment Options FDIC-Insured Brokered CDs

2 FDIC- Insured Brokered CDs Overview Separately managed por<olio of FDIC- insured Brokered CDs Enhanced performance over U.S. government guaranteed securices and CDARS Client specified term construccon; including built- in liquidity requirements Placements of up to $75M per tax ID; $100Ms with mulcple tax IDs CDs trade with a CUSIP and serle DTC directly into the Client s custodial account; no change to Client s current operaconal procedures Without regulatory uncertainty of money funds 2

3 Saxon SecuriCes Saxon SecuriCes provides insctuconal investment management services specializing in large size FDIC- insured brokered CD por<olios for: Corporate Treasuries InsCtuConal Investors State and MunicipaliCes As a result of the perpetual low yield environment and pending money market reform, our mission is to help clients maximize the yield on a porcon of their short- term cash holdings in a safe and structured managed account. SpecializaCon: Proprietary pla<orm to systemacze placement Access to more than 1,500 FDIC- insured depository insctucons Fiduciary execucon to capture the highest yields banks are willing to pay Client- specified term and liquidity construccon 3

4 FDIC- Insured Brokered CDs Por<olio CharacterisCcs Government guarantee: FDIC- insured up to $250,000 (principal and interest) per financial insctucon per tax ID Compe00ve performance: higher yields than comparable term U.S. Government guaranteed securices, and other FDIC- insured products such as CDARS and FICA Flexible investment terms: clients specify built- in liquidity requirements and required distribucon windows Dura0on: product is designed for longer- term cash holdings (6 months or greater) Liquidity: CDs may be liquidated in the secondary market at prevailing market prices, which may be more or less than an investor's original purchase price at no penalty to the Client Repor0ng: amorczed cost, held- to- maturity, mark- to- market and custom reports available No administra0ve burden to the Client 4

5 Case History Trust Account Bankruptcy Court: Creditors Trust Account Saxon SecuriCes was retained to implement a U.S. Bankruptcy Court and Creditors CommiRee- approved $1 Billion por<olio of FDIC- insured brokered CDs: UClized by the U.S. Trustee for the bankruptcy The court authorized the U.S. Trustee to invest its cash in securices that were fully guaranteed by the U.S. Government The FDIC- Insured Brokered CD product was pioneered for the court approved program 1- Year duracon with custom distribucon dates Investment 1 Brokered CDs 2,3 U.S. Treasuries 4 Yield Enhancement A similar 1- Year duracon brokered CD por<olio invested today could expect a net yield enhancement of approximately 270% (22bps increase) over U.S. Treasuries 1 YR 35bps 13bps 22bps 1 As of 01/07/ Sample $50 Million Brokered CD por<olio with a 1- Year duracon. 3 Yield results are net of management fees. The performance quoted is past performance and is not a guarantee of future results. Current performance may be higher or lower than the performance data shown. 4 Source: Federal Reserve H.15 Release 5

6 Case History Corporate Treasury Client uclized money funds to provide short- term cash management: Money fund por<olio earned single digit returns Investment policy allowed for FDIC- insured brokered CDs with terms out to 5 years Saxon SecuriCes built a custom CD por<olio for the Client s requirements during a three- week implementacon period: Built- in quarterly liquidity for 5 years Yearly distribucon windows 5- year laddering allocacon Investment 1 6 MO 1 YR 3 YR 5 YR AVG Brokered CDs 2,3 27bps 37bps 102bps 177bps 119bps Money Market Fund 4 10bps 10bps 10bps 10bps 10bps Yield Enhancement 109bps A similar $50 Million por<olio of Brokered CDs with 2.58 year duracon invested today could expect an approximate 109bps net increase over money market funds No increase or change to operacon or support 1 Case history as of 01/07/ Sample $50 Million Brokered CD por<olio with a 2.58 Year duracon. 3 Yield results are net of management fees. The performance quoted is past performance and is not a guarantee of future results. Current performance may be higher or lower than the performance data shown. 4 The average 7- day yield for the Top 5 Money Market Funds as reported by Crane Data on 01/07/2014 was 0.10%. 6

7 FDIC- Insured Products Matrix PRESERVATION OF CAPITAL FDIC-INSURED BROKERED CDs FDIC- insured brokered CDs have the full faith and credit of the U.S. Government. CDARS (Certificate of Deposit Account Registry Service) FDIC- insured brokered CDs have the full faith and credit of the U.S. Government. Early withdrawal penalces owed may be unearned at the Cme of withdrawal, causing loss of principal. (see PenalCes) FICA (Federally Insured Cash Account) FDIC- insured brokered deposits have the full faith and credit of the U.S. Government. LIQUIDITY YIELD FDIC- insured brokered CDs are Depository Trust Company (DTC) eligible, negocable instruments that can be sold on the secondary market should a client need immediate liquidity. FDIC- insured brokered CDs provide significant yield enhancement as compared to CDARS, FICA CD- based products and other insctuconal investments such as MMFs. CDARS cannot be liquidated in a secondary market because they are non- negocable instruments and are not Depository Trust Company (DTC) eligible. CDARS do not always exceed U.S. Treasury yield benchmarks. A special dispensacon inically provided lower- FDIC premiums for banks. This is no longer in effect. Liquidity for the FICA product is limited to weekly withdrawals. Unlike brokered CDs, this product is non- nego0able with no secondary market should the client need immediate liquidity. Yields of a brokered CD porvolio matching term parameters will exceed those of the FICA product, in some cases significantly. CAPACITY Varies for term; for one to two- year maturices, placements of up to $75M per tax ID. LimitaCons on placements apply. There is no guarantee funds will be placed. FICA is limited on capacity due to the size of the StoneCastle network as well as the amount of demand deposits available from each bank. TERM PENALTIES CUSTODY Because FDIC- insured brokered CDs are DTC eligible and negocable on the secondary market they provide azrac0ve, flexible term advantages. None Clients can use exis0ng custodial rela0onships CDARS are offered only in fixed terms (e.g., 4- wk, 13- wk, 26- wk, 52- wk, 2- yr, 3- yr and 5- yr) Substan0al penal0es for early withdrawals are similar to obtaining a non- negocable CD directly from a bank. PenalCes of 50 percent or 100 percent of interest earned over the term of the CDARS CD, based on maturity. Investors are required to use (and paper new accounts) with the program custodian, Bank of New York Mellon. No term, held as overnight deposits. None With brokered CDs, we are able to work with client s custodian of choice; FICA requires the client to paper a new custodial account with U.S. Bank. 7

8 Fees CDs with terms below 2 years: First $100 million $ million Beyond $500 million % CDs with terms above or equal to 2 years: First $100 million $ million Beyond $500 million % Fees are based on incremental assets using Cered break points. Break points are applied to aggregate of all accounts in a relaconship. 8

9 Gelng Started STEP STEP STEP Client Agreement Executed (1-2 days) Investment Advisory Agreement executed by Client and Saxon SecuriCes Investment Parameters / RestricCons provided by Client Saxon Form ADV Part II sent to Client Account Setup (1-5 days) Client works with their custodian to open custodial account where the CDs will be held Pla<orm setup (1-5 days) Deposit Management Pla<orm setup (1-5 days, depending on custom reporcng needs) For new custodians; establish trade delivery instruccons, reconciliacon IntegraCon into Clearwater AnalyCcs Total Elapsed Time: 1-5 days (steps done concurrently) 9

10 FAQ What are Brokered CDs? Brokered CDs are Cme deposits issued by Federal Deposit Insurance CorporaCon (FDIC) insured financial insctucons and are underwriren by the Financial Industry Regulatory Authority (FINRA) registered Broker/Dealers 1. Also known as DTC Eligible CDs, this type of deposit is offered to investors by issuing insctucons looking to raise liquidity and funding through the wholesale and insctuconal markets. Unlike tradiconal CDs, and similar to other securices, Brokered CDs are issued in book entry form and use the CUSIP system for idencficacon and trading in a primary and secondary market. When a CD is underwriren, it has a CUSIP arached to it by the CUSIP Global Services; the CUSIP is used to idencfy the security for the purposes of facilitacng clearing and serlement of trades. How big is the Secondary Market? Brokered CDs have a robust secondary market; approximately $3-4 billion is traded every day through markets maintained by Broker/Dealers. How are Brokered CDs classified? Although Brokered CDs issued by a bank are generally exempt from the definicon of security, the specific terms and methodology of a given offering could result in the Brokered CDs being deemed to be an investment contract for purposes of the federal and state securices laws. However, because securices issued by a bank are exempt securices by virtue of SecCon 3(a)(2) of the SecuriCes Act of 1933, there is no prospectus, registracon statement or other required form of disclosure document, and the Brokered CDs are exempt from registracon under such seccon of the 1933 Act. Can any bank issue a Brokered CD? SecCon 29 of the FDI Act, implemented by Part 337 of the FDIC Rules and RegulaCons, limits the use of brokered deposits. Only a well- capitalized insured depository insctucon is allowed to solicit and accept, renew, or roll over any brokered deposit without restriccon. 1 Saxon SecuriCes and Merriman Capital, Inc. do not underwrite Brokered CDs. 10

11 FAQ Who is the DTC? The Depository Trust Company (DTC) is the world's largest securices depository. Owned by its members in the financial industry, the DTC is a registered clearing agency with the U.S. SecuriCes and Exchange Commission (SEC), a member of the Federal Reserve System, and a limited purpose trust company under New York Banking Law. DTC is the clearing agent in all transaccons associated with the brokered CDs (serlement, payment of interest, payment of principal, payment of insurances (if required)). What happens when a bank fails? In the unlikely event of a bank failure, the FDIC acts quickly to protect insured depositors holding brokered CDs by paying depositors directly for their brokered CDs to the insured limit. In the event an issuer fails, interest- bearing brokered CDs are insured, up to $250,000, for principal and interest accrued to the date the Issuer is closed. This payment is made to the client s custodial account. How quickly does the FDIC make payments of insured deposits? The FDIC announces bank failures on a Friday, typically the custodial account will be receive insurance payment on the following Wednesday (effeccvely T+3). Federal law requires the FDIC to make payments of insured deposits "as soon as possible" upon the failure of an insured insctucon. While every bank failure is unique, there are standard policies and procedures that the FDIC follows in making deposit insurance payments. It is the FDIC's goal to make deposit insurance payments within two business day of the failure of the insured insctucon. 11

12 Disclosures The performance quoted is past performance and is not a guarantee of future results. Current performance may be higher or lower than the performance data shown. Saxon SecuriCes LLC is not a member of FDIC, but the banks issuing the CDs are FDIC members. Saxon SecuriCes LLC investment advisory services are not guaranteed nor insured by the FDIC. Only the CDs purchased from FDIC member banks are insured up to applicable FDIC insurance limits; for FDIC insurance informacon and applicable limits, see fdic.gov. Saxon SecuriCes LLC is an investment adviser registered with the SecuriCes and Exchange Commission. For more informacon regarding the firm, please see its Form ADV Parts 1 and 2 on file with the SEC. RegistraCon with the SEC does not imply a parccular level or skill. 12