Insights

The Post Reform World

Conversion and Operational Changes


Introduction

Following completion of the regulatory approval process with our regulator regarding implementation of Money Market Funds Regulation (“MMFR”) by State Street Liquidity Plc. (“Fund”), we will convert the Fund into MMFR compliant categories, with the conversions to be effective on 18 February 2019.

When will SSGA convert to the new fund types?

The conversion of the funds into MMFR compliant fund categories will take place over the weekend of the 16/17 February, effective 18 February 2019. Shareholder notification dated 24 January outlining the upcoming changes has been issued and is available on our website at
ssga.com/cash.

What will your current funds be converting to?

Our current range of GBP, USD and EUR prime funds will be converting to Low Volatility NAV (LVNAV) funds. This fund type most closely resembles the current prime CNAV funds. For our GBP and USD LVNAV funds, these will trade providing a constant NAV calculated to 2 decimal places under normal market conditions. In response to the joint announcement from the CBI and the Luxembourg Commission de Surveillance du Secteur Financier (CSSF) confirming that the Reverse Distribution Mechanism (“RDM”) will not be compatible with the new regulation, we will be converting our current EUR prime fund into a EUR LVNAV fund with accumulating shares. In order to permit greater accuracy in the pricing of shares in the negative yield environment of EUR LVNAV fund, we will be (i) consolidating shares for each share to be priced at 1000.0000 and (ii) reporting out to 4 decimal places. This will enable the full price change movement to be captured in the NAV price and provide full transparency. By doing this, we will be able to continue offering the same cut-off and intraday liquidity, as well as offering a product that best prepares investors for a move back to a positive yield environment.

Other benefits of the LVNAV accumulating class structure are:

  • the ISIN would be retained, minimising investor impact operationally,
  • the ability to stabilise the NAV by activating income distribution in a positive rate environment,
  • the ability to provide a sustainable investment solution in either positive or negative rate environments that we expect will not have any further tax implications for our investors.1

Please note however that LVNAV share classes with accumulating share classes will not maintain a constant NAV in a negative yield environment. The State Street USD Treasury Fund will convert into the Public Debt CNAV (PDCNAV) fund.

This represents little change in regards to investment restrictions, requiring a holding of 99.5% in government debt, and the fund will maintain a constant NAV. Our current EUR Ultra Short Bond Fund will be converted into a Standard Variable NAV (SDVNAV) Money Market fund.

Additional Considerations

Will the fund remain Triple-A rated?

Yes, the funds will continue to be managed in accordance with the requirements to maintain a Triple-A rating from a Credit Rating Agency (CRA).2

Will other investment types be available?

We will have a full product range available, subject to investor demand.

Is there anything current investors need to do or be aware of?

Our GBP and USD LVNAV funds will operate in the same way as our current prime CNAV funds during normal market conditions, there are no operational changes that investors will need to be aware of. Dealing cut-off, intra-day redemptions and contract note delivery will remain the same, subject to the regulatory approval. Dealing and settlement requirements will be unaffected. Our EUR fund will update the income distribution policy to stop distributing the negative income. This will cause the negative income to hit the NAV as it currently does in the accumulating classes. The NAV will decrease by the negative income of the fund each day. This change the fund accounting methodology from a type that treats negative income as income, to one which treats this income as a capital de-accumulation. The value of the account is not different in these two methods. For severe market stress situations, we disclosed in the prospectus of the Fund conditions under which we may need to implement liquidity fees, redemption gates or suspension of redemptions in accordance with the MMFR requirements. The implementation of these tools is subject to the specific criteria, as follows:

  1. If weekly liquidity falls below 30% and daily net redemptions exceed 10% of total assets of the fund, the board must decide whether to apply one or more of the following measures: redemption gates, liquidity fees on redemptions, suspension of redemptions or take no immediate action.
  2. If weekly liquidity falls below 10% the board must apply one of the following measures: liquidity fees or suspension of redemptions.

Will SSGA continue to offer intra-day settlement?What times will this happen?

LVNAV intra-day settlement times will not change.

Will the fund cut-off time change?

For the LVNAV Funds, dealing cut-off times will be unchanged.

Can trades be placed using both cash and unit orders?

Yes, orders can be placed either in cash or unit amounts for both subscription and redemption trades across all fund types for all cut-offs and valuation points.

Can trades be placed using Swift?

Yes, investors can continue to trade using Swift.

Where will daily and weekly maturing asset figures be shown?

Daily and weekly maturing asset figures will be shown on the SSGA Cash website at ssga.com/cash. Figures will be updated daily, providing investors with full transparency of the liquidity levels within the funds.

Will the funds maintain Cash and Cash Equivalent Status?

For the LVNAV and Short-Term VNAV fund types, guidance from external accounting firms would indicate that investments will be treated as Cash and Cash Equivalent, however we would encourage investors to seek independent advice.

Should you have any further questions, please contact your SSGA Cash sales representative directly or contact us at:

EMEACashClientService@ssga.com
or +44 (0)20 3395 2333.

1 Information represented in this piece does not constitute legal, tax, or investment advice. Investors should consult their legal, tax, and financial advisors before making any financial decisions.
2 Subject to confirmation from the relevant CRA.