European Money Market Fund Reform 7 Jul 2017

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CASH MANAGEMENT European Money Market Fund Reform 7 Jul 2017 On Monday, 28 November 2016, the European Parliament, Council and Commission agreed to a final legislative text on European Money Market

The final rules importantly preserve Constant Net Asset Value (CNAV) for government funds, and introduce a new type of fund, the Low-Volatility NAV (LVNAV) fund.

The available fund structures should continue to provide investors with a range of fund options and strategies to meet their operational and investment needs.

1 CASH MANAGEMENT European Money Market Fund Reform 7 Jul 2017 On Monday, 28 November 2016, the European Parliament, Council and Commission agreed to a final legislative text on European Money Market Fund Reform. The final text has been passed through a European Parliament & Council vote and was published in the Official Journal on 30 June The final rules importantly preserve Constant Net Asset Value (CNAV) for government funds, and introduce a new type of fund, the Low-Volatility NAV (LVNAV) fund. LVNAV is intended to replicate some of the utility of CNAV funds, with greater sensitivity to market pricing, and additional safeguards and controls built into the fund structure. The available fund structures should continue to provide investors with a range of fund options and strategies to meet their operational and investment needs. The regulation takes legal effect 20 July 2017, marking the start of the 18 month transition period for existing funds to comply. Full compliance with the regulation will be required by 21 January Please find below a summary of the structures approved in the text. In the following pages, we detail the key features and differences between the different fund types. We will be providing more specific communication on the BlackRock fund proposals and time frames over the coming months. Contact your relationship manager to learn more, or to discuss the regulation. Bea Rodriguez Lead Portfolio Manager- EMEA Damien Donoghue Head of EMEA Cash Management Sales Joanna Cound Head of Government Affairs & Public Policy ESMA Short Term Money Market : Agreed Structures Government CNAV that invest 100% of assets in government and governmentguaranteed securities may retain a CNAV through the use of full portfolio amortised cost accounting Mandated to hold 10% in daily maturing assets and 30% in weekly maturing assets Prescribed thresholds for liquidity fees & gates will apply for shareholder protection Subject to review in 2022, but any adjustment will require an entirely new Regulation Low Volatility NAV (LVNAV) Fund will price to 2 decimal places if the full mark-to-market price does not deviate from 1.00 by more than 20 basis points (bps), essentially rounding up to 1.00 If the 20 bps tolerance is breached the fund will price to 4 decimal places using the full mark-tomarket NAV, essentially rounding down to the nearest basis point May use amortised cost for assets <75 days, however the mark to market price must be used if this deviates by >10 bps from the amortised cost price Mandated to hold 10% in daily maturing assets and 30% in weekly maturing assets Prescribed thresholds for liquidity fees & gates will apply for shareholder protection Variable Net Asset Value (VNAV) that mark-to-market their full holdings to 4 decimal places Mandated to hold 7.5% in daily maturing assets and 15% in weekly maturing assets No formal prescriptions for Liquidity fees on redemptions or redemption gates are laid out in the text, but may be subject to liquidity fees and / or gates in existing UCITS or AIFMD rules. between the European Parliament, Council and Commission in November As at July 2017.

2 Short Term Money Market Weighted Average Maturity limit of 60 days Weighted Average Life limit of 120 days Fund Structure Government CNAV Low-Volatility NAV (LVNAV) Valuation & Pricing Redemption Gates & Fees Liquidity Buffer Fund prices to 2 decimal places, retaining CNAV through the use of full portfolio amortised cost accounting If weekly liquid assets falls below 30% of the fund AND the fund experiences net redemptions >10%, the Board shall convene and decide to either; take no immediate action, or either apply liquidity fees on redemptions that adequately reflect the cost of achieving liquidity fees, or apply redemption gates or suspensions for a max of 15 days If weekly liquid assets fall below 10% of the fund, the Board shall either apply liquidity fees on redemptions, or suspend redemptions up to a max of 15 days are required to hold 10% daily maturing assets and 30% weekly 10% daily liquidity consists of cash, and daily maturing assets (including Of the remaining 20% weekly liquidity, 17.5% can consist of government debt <190 days maturity, the remaining 2.5% must be held in weekly maturing assets (including Deposits and Reverse Repurchase Agreements) Fund can price to 2 decimal places if the full mark-to-market price does not deviate from 1.00 by more than 20 bps, essentially rounding up to 1.00 If the 20 bps tolerance is breached the fund will price to 4 decimal places using the full mark-to-market NAV, essentially rounding down to the nearest basis point The LVNAV may be calculated to 2 decimal places using amortised cost for assets <75 days to maturity so long as the market price of the asset is within 10 bps of its amortised cost price, if not the mark-to-market price is to be used If weekly liquid assets falls below 30% of the fund AND the fund experiences net redemptions >10%, the Board shall convene and decide to either; take no immediate action, or either apply liquidity fees on redemptions that adequately reflect the cost of achieving liquidity fees, or apply redemption gates or suspensions for a max of 15 days If weekly liquid assets fall below 10% of the fund, the Board shall either apply liquidity fees on redemptions, or suspend redemptions up to a max of 15 days are required to hold 10% daily maturing assets and 30% weekly 10% daily liquidity consists of cash, and daily maturing assets (including Of the remaining 20% weekly liquidity, 17.5% can consist of government debt <190 days maturity, the remaining 2.5% must be held in weekly maturing assets (including Deposits and Reverse Repurchase Agreements) between the European Parliament, Council and Commission in November As at July 2017.

3 Short Term Money Market Weighted Average Maturity limit of 60 days Weighted Average Life limit of 120 days Fund Structure Government CNAV Low-Volatility NAV (LVNAV) Diversification & Concentration Limits ABCP Internal Credit Sponsor Support Miscellaneous Competent authority may authorise a Money Market Fund to invest up to 100% of its assets in government debt and certain agency debt Whilst ABCP is technically permitted on the government funds it has to comply with the overarching 99.5% government debt rule Money Market public disclosure rules Fund structure is subject to review in 2022, however this will require an entirely new regulation in order to change the fund structure fundamentally Concentration limit of 5% in Money Market Instruments and Asset-Backed Commercial Paper (ABCP) issued by the same institution Concentration limit up to 10% in deposits with the same institution A Money Market Fund cannot hold more than 10% of a Money Market Instrument or ABCP issued by a single institution A Money Market Fund may invest up to 15% of its portfolio in fully supported ABCP, pending the finalisation of the proposed European Union Regulation for simple, transparent and standardised securitisations (STS) Once STS is applicable a Money Market Fund may invest up to 20% of its assets in ABCP, of which up to 15% is not required to be STS Money Market public disclosure rules Not subject to sunset clause between the European Parliament, Council and Commission in November As at July 2017.

4 Short Term Money Market Weighted Average Maturity limit of 60 days Weighted Average Life limit of 120 days Standard Money Market Weighted Average Maturity limit of 180 days Weighted Average Life limit of 360 days Fund Structure Valuation & Pricing Redemption Gates & Fees Liquidity Buffer Diversification & Concentration Limits VNAV Short-Term Money Market Mark-to-market or mark-to-model for the funds full holdings (use of independent pricing inputs is optional) Calculates the NAV to 4 decimal places No formal prescriptions for Liquidity fees on redemptions or redemption gates are laid out in the text, but may be subject to liquidity fees and / or gates in existing UCITS or AIFMD rules. are required to hold 7.5% daily maturing assets and 15% weekly 7.5% daily liquidity consists of cash, and daily maturing assets (including The remaining 7.5% weekly liquid assets can be fulfilled by holding shares in other Money Market, or any security which can be sold and settled in 5 business days Up to 20% restriction (in certain circumstances) Exposure to Money Market Instruments, including ABCP, issued by a single body is subject to UCITS concentration rules Concentration limit up to 10% in deposits with the same institution A Money Market Fund cannot hold more than 10% of a Money Market Instrument or ABCP issued by a single institution VNAV Standard Money Market Mark-to-market or mark-to-model for the funds full holdings (use of independent pricing inputs is optional) Calculates the NAV to 4 decimal places No formal prescriptions for Liquidity fees on redemptions or redemption gates are laid out in the text, but may be subject to liquidity fees and / or gates in existing UCITS or AIFMD rules. are required to hold 7.5% daily maturing assets and 15% weekly 7.5% daily liquidity consists of cash, and daily maturing assets (including The remaining 7.5% weekly liquid assets can be fulfilled by holding shares in other Money Market, or any security which can be sold and settled in 5 business days Up to 20% restriction (in certain circumstances) Exposure to Money Market Instruments, including ABCP, issued by a single body is subject to UCITS concentration rules Concentration limit up to 10% in deposits with the same institution A Money Market Fund cannot hold more than 10% of a Money Market Instrument or ABCP issued by a single institution between the European Parliament, Council and Commission in November As at July 2017.

5 Short Term Money Market Weighted Average Maturity limit of 60 days Weighted Average Life limit of 120 days Standard Money Market Weighted Average Maturity limit of 180 days Weighted Average Life limit of 360 days Fund Structure ABCP / ABS Internal Credit Sponsor Support Miscellaneous VNAV Short-Term Money Market A Money Market Fund may invest up to 15% of its portfolio in fully supported ABCP, or term ABS, pending the finalisation of the proposed European Union Regulation for simple, transparent and standardised securitisations (STS) Once STS is applicable a Money Market Fund may invest up to 20% of its assets in ABCP, of which up to 15% is not required to be STS Money Market public disclosure rules (detailing the maturity & credit profile of the fund, large holdings on a weekly basis) VNAV Standard Money Market A Money Market Fund may invest up to 15% of its portfolio in fully supported ABCP, or term ABS, pending the finalisation of the proposed European Union Regulation for simple, transparent and standardised securitisations (STS) Once STS is applicable a Money Market Fund may invest up to 20% of its assets in ABCP, of which up to 15% is not required to be STS Money Market public disclosure rules (detailing the maturity & credit profile of the fund, large holdings on a weekly basis) See Important Disclosures on the next two pages. Want to know more? For any questions do not hesitate to contact your relationship manager. between the European Parliament, Council and Commission in November As at July 2017.

6 Risks: Past performance is not a reliable indicator of current or future results. The value of investments and the income from them can fall as well as rise and is not guaranteed. You may not get back the amount originally invested. Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Levels and basis of taxation may change from time to time. Important Information: This material is for distribution to Professional Clients (as defined by the FCA Rules) and Qualified Investors only and should not be relied upon by any other persons. Issued by BlackRock Investment Management (UK) Limited, authorised and regulated by the Financial Conduct Authority. Registered office: 12 Throgmorton Avenue, London, EC2N 2DL. Tel: Registered in England No For your protection telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. Risks: Any research in this document has been procured and may have been acted on by BlackRock for its own purpose. The results of such research are being made available only incidentally. The views expressed do not constitute investment or any other advice and are subject to change. They do not necessarily reflect the views of any company in the BlackRock Group or any part thereof and no assurances are made as to their accuracy. This document is for information purposes only and does not constitute an offer or invitation to anyone to invest in any BlackRock funds and has not been prepared in connection with any such offer. For investors in Singapore: Issued by BlackRock (Singapore) Limited (Co. registration no N) for use only by institutional investors as defined in Section 4A of the Securities and Futures Act, Chapter 289 of Singapore. In Hong Kong, this material is issued by BlackRock Asset Management North Asia Limited. This material is for distribution to "Professional Investors" (as defined in the Securities and Futures Ordinance (Cap.571 of the laws of Hong Kong) and any rules made under that ordinance.) and should not be relied upon by any other persons or redistributed to retail clients in Hong Kong.Issued in Australia and New Zealand by BlackRock Investment Management (Australia) Limited ABN , AFSL (BIMAL) for the exclusive use of the recipient, who warrants by receipt of this material that they are a wholesale client as defined under the Australian Corporations Act 2001 (Cth) and the New Zealand Financial Advisers Act 2008 respectively. This material provides general information only and does not take into account your individual objectives, financial situation, needs or circumstances. Before making any investment decision, you should therefore assess whether the material is appropriate for you and obtain financial advice tailored to you having regard to your individual objectives, financial situation, needs and circumstances. This material is not a securities recommendation or an offer or solicitation with respect to the purchase or sale of any securities in any jurisdiction. This material is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. BIMAL is a part of the global BlackRock Group which comprises of financial product issuers and investment managers around the world. BIMAL is the issuer of financial products and acts as an investment manager in Australia. BIMAL does not offer financial products to persons in New Zealand who are retail investors (as that term is defined in the Financial Markets Conduct Act 2013 (FMCA)). between the European Parliament, Council and Commission in November As at July 2017.

7 This material does not constitute or relate to such an offer. To the extent that this material does constitute or relate to such an offer of financial products, the offer is only made to, and capable of acceptance by, persons in New Zealand who are wholesale investors (as that term is defined in the FMCA). This material has not been prepared specifically for Australian or New Zealand investors. It may contain references to dollar amounts which are not Australian or New Zealand dollars and may contain financial information which is not prepared in accordance with Australian or New Zealand law or practices. BIMAL, its officers, employees and agents believe that the information in this material and the sources on which it is based (which may be sourced from third parties) are correct as at the date of publication. While every care has been taken in the preparation of this material, no warranty of accuracy or reliability is given and no responsibility for the information is accepted by BIMAL, its officers, employees or agents BlackRock, Inc. All Rights reserved. BLACKROCK, BLACKROCK SOLUTIONS, ishares, BUILD ON BLACKROCK, SO WHAT DO I DO WITH MY MONEY and the stylized i logo are registered and unregistered trademarks of BlackRock, Inc. or its subsidiaries in the United States and elsewhere. All other trademarks are those of their respective owners. between the European Parliament, Council and Commission in November As at July 2017.

Frequently Asked Questions: European Money Market Fund Regulation

Frequently Asked Questions: European Money Market Fund Regulation J.P. Morgan Global Liquidity January 2018 WHAT IS THE IMPLEMENTATION TIMELINE? The regulation provides for an 18-month implementation for