An open invitation to U.S. Treasury Beneficial Owners interested in achieving portfolio enhancement absent of counterparty exposure.

Attention Fellow U.S. Treasury Portfolio Owners, their Advisors, and/or Securities Lending Agents:

Would you like to enhance your or your client's portfolio by 12 basis points in exchange for giving up no more than a 5-day change in your U.S. Treasury portfolio's weighted average maturity while everything else in your portfolio remains the same???

Peer-to-peer trading and peer-to-peer lending are more common today than ever before. As a proprietary trading firm, AgentLenderPLUS (ALP) is inviting Beneficial Owners and/or those who advise Beneficial Owners to trade directly with ALP. For its own account, ALP executes relative value spread trades and manages its risk(s) with the goal of generating trading profits. In recent years, proprietary trading firms needed to adapt to the changing landscape within the capital markets. Prior to the 2008 credit crisis, having access to repo lines, was prop trader's lifeline. Post-credit crisis, when dealers began limiting access to their balance sheets, proprietary traders found it difficult to hold onto their seats and continue trading as a profession.??Unfortunately, many exceptional traders lost their jobs never to return to the only industry they ever knew. There are several reasons why the U.S. Treasury trading ecosystem found at large dealers today has been unwilling to find a solution that can benefit Beneficial Owners, the dealers themselves, and the market in general all at the same time. This is true for many reasons, but the main reason is that dealers are not incentivized to do so (because they have large balance sheets to manage their business). The fact that large dealers have sizeable balance sheets eliminates any chance Beneficial Owner would receive a portfolio enhancement if the Beneficial Owner wasn’t taking any form of measurable risk.?ALP on the other hand has a need (an alternative to Repo lines), and thus they were incentivized to come up with a solution that benefits Beneficial Owners without adding any risk other than the risk that comes with Treasury ownership. This is the value-added proposition that ALP offers its peer counterparties. ALP recognized many Beneficial Owners who are holders of short-dated U.S. Treasury securities rarely engage in executing relative value trades. Because this is all ALP does, they are willing to take the risk that they will make more than the 12 basis points they are paying their trading counterparties.??

To drive the relative value trade point just a little bit further, if you are a portfolio manager, ask yourself the following; When was the last time you fielded a call from an institutional salesperson who suggested you shorten up 2-weeks, pick up 4 basis points, and take out cash? Or, extend 2 weeks, pick up 8 basis points and take out cash? Probably quite some time ago, maybe you’ll be able to count those conversations on one hand and not use all your fingers. The growth of electronic trading has made relative value salespeople a thing of the past by taking the phone out of their hands. All in the name of progress!??

The shrinking absence of U.S. Treasury proprietary trading desks at large dealers is the reason why relative value trading ideas have slowed to a crawl. This absence has directly impacted market liquidity. The risks inherent in securities lending of U.S. Treasuries such as counterparty and cash collateral reinvestment risks have also had a direct impact on liquidity. Beneficial Owners learned the hard way during the credit crisis as the risk for lending their Treasuries wasn’t necessarily worth the reward. The same can be said today as the risk/reward dynamics for lending Treasury securities continues to keep many Beneficial Owners on the sidelines. However, as more and more Beneficial Owners learn about ALP’s creative use of Master Repurchase Agreements (MRA) and accept transacting on a peer-to-peer basis generating yield enhancement while being devoid of counterparty risk, can only result in improving market liquidity.??

ALP welcomes U.S. Treasury portfolio owners, their advisors, and or their securities lending agents to trade with them, earn 12 basis points per annum of additional yield on 100% of their portfolio, sacrificing no more than a 5-day weighted average maturity (WAM) change, all while being devoid of counterparty risk, and keeping all the reasons of Treasury ownership intact such as daily liquidity, safety, and/or as a hedge against a possible black swan event.??

When trading with ALP, U.S. Treasury Beneficial Owners take advantage of using MRA’s with an attached Annex to effectuate their trade. MRA’s are used because Beneficial Owners can eliminate counterparty risk to ALP, and not incur multiple accounting events every time ALP receives and replaces the security at an equal yield from the Beneficial Owners portfolio (this is how the WAM could possibly move and why ALP pays 12 basis points).

Counterparty risk is eliminated because when the same two counterparties buy and sell identical Repos with each other, using the same securities, and for the same term, means all securities have been returned, all Repo obligations have been satisfied, Repo restrictions are not applicable (as there are no Repo restrictions for a closed Repo), and no indemnification is necessary (for securities lending participants), and any concerns of counterparty risk have been extinguished (legal opinion is available upon request). Repo executions performed in this manner are defined as a “Closed Repo”. It is also important to note, the ALP transaction is done as a pair-off, as no securities or cash will leave your account when establishing the “Closed Repo” position.??

The reason why ALP is willing to pay 12 basis points to their counterparties is that they want unlimited rights of substitutions. Rights of substitutions and other aspects of the trade are memorialized within an Annex to the MRA. The “Closed Repo” pair-off step and subsequent collateral substitutions (if any) are settled no differently than any other transaction. ALP clears and settles its trades with FICC through its clearing firm ICBC.?

For those of you who might be curious, we welcome you to ask your favorite dealer or securities lending agent to offer the same trade. We encourage you to ask them to offer an enhancement that (1) provides daily liquidity (2) keeps the safety of ownership intact (3) guarantees an enhancement on your Treasury holdings in exchange for a maximum WAM change of plus or minus 5 days, and (4) guarantees and pays upfront 12 bp on 100% of your portfolio used in the trade. The back-to-back Repo trade that ALP is suggesting has been around for decades, but market events and changes brought on by the Volker Rule, further growth of ECNs, and other dynamics have allowed ALP to fill that void. Proprietary traders serve the marketplace in many different ways, the ALP trade is one creative way for all to benefit.?

TRADE DETAILS:

Trade Date: First business day of the calendar month

Settlement Date: First business day following Trade Date

Maturity Date: Last business day of the calendar month (in some cases the maturity date of the security)??

Liquidity: Daily

Fee payable to Portfolio Owner: 12 basis points per annum payable on Settlement Date

Portfolio Utilization Rate: 100%

Risk: Restricted to a maximum weighted average maturity (WAM) change of 5-days

Securities/Cash Flows: Securities and cash are paired off on the Settlement Date

Collateral Substitutions: U.S. Treasury for U.S. Treasury at equal yield without altering the portfolio WAM by more than 5-days

Documentation: SIFMA Master Repurchase Agreement with Annex

Trade Description:

? U.S. Treasury Portfolio Owner sells a repo at rate X and simultaneously buys the exact same repo at X + 12 basis points satisfying all obligations under the repo agreement

? The above transaction is paired off and is executed between the same two counterparties, using the same bonds, and for the same term

? Throughout the term, AgentLenderPLUS can make collateral substitutions, at equal yield, replacing one Treasury for another Treasury while being restricted to a 5-day WAM change barrier

? AgentLenderPLUS settles their trades FICC through their clearing firm ICBC

Risks to Beneficial Owners of U.S. Treasury Securities:

? Risk is limited to a maximum change of WAM of just 5-days which is reflected within the Cusip breakdown after each collateral substitution

? The repo buy and repo sell are paired off transactions, therefore securities and cash never leave the beneficial owners' custodian account except when there are collateral substitutions (done at equal yield)

? Counterparty risk is eliminated because all obligations under the repo agreements have been satisfied at trade inception (securities were returned)

Benefits to Beneficial Owner of U.S. Treasury Securities:

? Offers Portfolio Owners 12 basis points of fee income on 100% of their under 2-year portfolio

? Daily liquidity, securities are always held at the beneficial owners' custodian, and all reasons for Treasury ownership remain intact

? “Closed Repo” position eliminates any concerns of counterparty default as all obligations under the repo agreement have been satisfied

Benefits to Beneficial Owners who Currently, or Had Previously Engaged in Securities Lending:

? Offers Portfolio Owners a safer alternative than engaging in U.S. Treasury securities lending as counterparty risk has been eliminated due to the Portfolio Owners' securities being returned on the Settlement Date which established a “Closed Repo” position, and all collateral reinvestment risk has been eliminated

? Offers Portfolio Owners with a known enhancement (12 basis points per annum) versus a best efforts enhancement and exposure to counterparty and cash collateral reinvestment risk via current securities lending methodology

? Repo restrictions are not applicable as there are no open obligations to be performed

? Beneficial Owners pay no fees

About AgentLenderPLUS, LLC: AgentLenderPLUS, LLC (ALP) is a Proprietary Trading Firm specializing in U.S. Treasury arbitrage. ALP manages no client assets, is self-funded, and was established following the inclusion and successful implementation of their trading strategy within an SEC Rule 2a-7 U.S. Treasury, AAA-rated Money Market Fund.