Liquidity Management Strategies: Moving Towards Integration, Visibility and Agility Martijn Stoker

Head of Global Liquidity and Escrow Services, Asia Pacific Treasury Services J.P. Morgan

1. The Need to Think Differently About Liquidity

a. Regulatory, Policy and Market Drivers

b. Technology Innovation enabling New Liquidity Management Approaches

2. The Implications of Basel III

3. Solutions for a New Age in Liquidity Management

a. Today’s Value-added Solutions for the New Liquidity Environment

b. Tomorrow’s Long-Term Vision and Strategic Investment

4. Conclusions

Agenda

• Disruptive technology

• Liquidity management enablers

2007 2017 2008 2013 2015 2009 2010 2011 2012 2014 2016

First iPhone released

Blockchain concept

Web 2.0 +

Cloud + apps

Big Data from terabyte to exabyte

Financial Crisis

Quantitative Easing

Money Market Fund (MMF) Reform (U.S.)

Negative interest rates (ECB, Japan, etc.)

Think Differently: a New Paradigm for Liquidity Management

Brexit

Regulatory fencing Converging forces: the need to manage liquidity actively

along with the tools to do it

2

Government Fund - SNAV

Prime Fund - VNAV Deleveraging Post-crisis, the US banking

system was flooded with cash.

The end of Quantitative Easing coupled with Money Market Fund reform could now reduce overall market liquidity in the US.

Liquidity remains in the Banking System

Liquidity removed from the Banking System

$

Fund Corp & Bank Paper

$ Gov’t Paper Fund $ The impetus to go to government funds is

expected to reduce liquidity in the system

Changes in Short-Term Liquidity Markets

Changes in Market Supply and Demand for USD Liquidity

Increasing USD Demand: Drivers

‒ 40bps ‒ 10bps 25bps

Recovery and resolution

Regulatory Ring Fencing

Regulatory Impact Time

Liqu

idity

Ava

ilabi

lity

Demand

Supply

$

$

$

4

Basel III: Guidelines on LCR & NSFR

The objective of the LCR is to promote the short-term resilience of the liquidity risk profile of banks. It does this by ensuring that banks have an adequate stock of unencumbered high-quality liquid assets (HQLA) that can be converted easily and immediately in private markets into cash to meet their liquidity needs for a 30 calendar day liquidity stress scenario. According to Basel III guidelines, the LCR has two components: (a) Value of the stock of HQLA in stressed conditions; and (b) Total net cash outflows, calculated according to the scenario parameters outlined below.

Liquidity Coverage Ratio (LCR)

Stock of HQLA Total net cash outflows over the next 30 calendar days

≥ 100%

NSFR supplements the LCR and has a time horizon of one year. It has been developed to provide a sustainable maturity structure of assets and liabilities. Basel III guidelines defined it as the amount of available stable funding

relative to the amount of required stable funding.

Net Stable Funding Ratio (NSFR)

Available amount of stable funding Required amount of stable funding

≥ 100%

5

Basel III: LCR & NSFR Implementation Roadmap in Asia Pacific

• The information above are correct as of Mar 2017, and are for reference only. • Effective date refers to the 1st date of implementation, and does not include the subsequent phased implementations. • Please consult with the regulators or your consultants on the implementation roadmap of the respective countries.

Liquidity Coverage Ratio (LCR)

Net Stable Funding Ratio (NSFR)

Country Key Regulators Effective Date Effective Date

Singapore MAS (Monetary Authority of Singapore) √ effective Jan 2016 Consultative paper published

Australia APRA (Australia Prudential Regulation Authority) √ effective Jan 2015 √ effective Jan 2018

Hong Kong HKMA (Hong Kong Monetary Authority) √ effective Jan 2015 Consultative paper published

Japan

BOJ (Bank of Japan) /

Japan FSA (Financial Services Agency) /

SESC (Securities and Exchange Surveillance Commission)

Preliminary rules published Nothing published

China

PBOC (People's Bank of China) /

CBRC (China banking Regulatory Commission) /

SAFE (State Administration of Foreign Exchange)

√ effective Jan 2015 √ effective Jan 2017

India RBI (Reserve Bank of India) √ effective Jan 2015 √ effective Jan 2018

Indonesia BI (Bank Indonesia) /

OJK (Indonesia Financial Services Authority) √ effective Jan 2016 Consultative paper published

Korea Korea FSS (Financial Supervisory Service) √ effective Jan 2015 Nothing published

Malaysia BNM (Bank Negara Malaysia) √ effective Jun 2015 √ effective Jan 2018

6

Basel III: Continuing to Evolve the Focus

Non-Operating Operating

HQLA Loans/ Securities

Unreliable Reliable

Increased Return Limited Return

Liabilities

Assets

7

QUALITY

Effectively employ operating balances for bank funding.

CONSISTENCY

Ensure stable funds. Smooth volatility.

TIMELINESS

Reduce reliance on intraday liquidity. Avoid intraday credit line usage.

Considerations: • Increased focus on

operating products

• Certain products deemphasized

Considerations: • Deposit spike management

• Balancing natural fluctuations of operating business and predicting funding levels

Considerations: • Currency liquidity

• Potential for capital allocations

8:00 AM 9:00 AM 10:00 AM 11:00 AM 12:00 PM 1:00 PM 2:00 PM 3:00 PM 4:00 PM 5:00 PM

Inflow

Outflow

INTRADAY OVERDRAFT

Net

Non-Operating Operating Liabilities

Unreliable Reliable Deposits

Payments

Days

Days

Impact of Stable Funding on Liquidity Management

2019 Basel III global deadline for financial institutions

necessitates thinking differently about liquidity

8

Adapting to a New Environment

Match Funding and Liquidity

Treasury Involved in Clearing Decisions

Yield/Cost Optimization Integration, Visibility and Agility Key

Comprehensive cash control for today and

in stress periods

9

Solutions for a New Age in Liquidity Management

View, control and optimize cash: what you need, how and where you need it

Strategic investment in technology innovation as foundation for new solutions

APIs Blockchain Big Data

TODAY

TOMORROW

INTEGRATION VISIBILITY AGILITY Link payments, FX and

liquidity flows A new level of

information and insight Towards a just-in-time

liquidity ecosystem

¥ £

$

€

OPTIMIZATION Impact the income statement across

geographies

Today’s Value-Added Solutions for the New Liquidity Environment

Real-time Account Services

Just-in-Time Funding

Cross-Currency Sweeping

Core Cash Management Account

¥ £

$

€

Real-Time Account Services

Facilitates balance and transaction reconciliation from end-of-day to any time of day

One standard solution for all the regions with a direct feed to client ERP

Reconcile incoming funds with purchase orders and release the goods/complete the order

Facilitate central treasury / HUB to establish confirmed intraday liquidity positions

Confirms transaction and balance information at any time of the day

JP Morgan Ordering Payment Bank API

Real-time feed

Real-time Connection

ERP /

TMS /

Apps

Customer side processing

Just-in-Time Funding

Automate funding to facilitate payment execution in local currencies

Centrally fund local currency payments precisely when needed

Automate funding, FX and forecasting processes where possible

Eliminate residual, idle balances in non-functional currencies

Minimize management of non-core currencies for payments

Manage currency exposures while increasing payment efficiency

Use liquidity to support and drive payment flows

$ efficiency cost savings risk management liquidity optimization

Cross-Currency Sweeping

Automatically convert and centralize balances efficiently while reducing FX exposures

Fund local currency accounts in non-functional currencies from one central account in your functional currency

Retain onshore local currency accounts for local currency payments and collections without compromising central liquidity

Enable real-time FX conversion and reduce FX exposure

Reduce the number of non-functional currency accounts held centrally

Use automated FX tool to support and drive payment flows

$ efficiency cost savings risk management liquidity optimization

GBP EUR CHF

SGD YEN HKD

USD

GBP SGD

GBP USD

USD SGD

¥ ₹

$

€

14

Core Cash Management Account

Earn enhanced yields on operating balances

Increases in operating payment values drives size of benefit. Accounts can benefit from participation

Provides daily liquidity; operating cash is available for use throughout the business day

Automatically applied benefits offer a simple cash management solution

Enjoy similar operational functioning to standard demand deposit accounts

Benefit from consolidating payments and liquidity

$ efficiency cost savings liquidity optimization

Average Balances

Payment Flows

Tier 1 Tier 2 Tier 3 Tier 4

$0 - $100 Rate A Rate B Rate C Rate D

$100 - $200 Rate B Rate B Rate C Rate D

$200 - $300 Rate B Rate C Rate C Rate D

Tomorrow’s Long-Term Vision and Strategic Investment Quick and easy connections

Alerts

Mobile Apps

Regulatory Reports

Client Analytics

Virtual Account Management

Agile delivery Actionable Business Intelligence

Tax

Billing

Statements Reference Data

‘Live’ Analytics Micro-Services

Sweeps

10100100100100110001 11001001100101100101 100110101€0010010011 10010010011010100100 0011001€010101010011 10001001101010101011 100010010101€1000100 011100101101001010111 100100€1111101001011 011100101101001€10111 1001001111101001011

example: netting opportunity

Enabling global cash management

Master Account

Sub ledger account

Sub ledger account

Sub ledger account

Sub ledger account

More tightly manage payment and liquidity flows

Deepen understanding of

your global liquidity position

Mobilize liquidity to the right place at the

right time

Optimize yields while minimizing

liquidity management costs

It’s time to think differently about liquidity management

Integration Visibility Agility Optimization

¥ £

$ €

Liquidity is coming out of the system The cost and the availability of liquidity is changing

Disclaimer

This presentation was prepared exclusively for the benefit and internal use of the JPMorgan client to whom it is directly addressed and delivered (including such client’s subsidiaries, the “Company”) in order to assist the Company in evaluating, on a preliminary basis, the feasibility of a possible transaction or transactions and does not carry any right of publication or disclosure, in whole or in part, to any other party. This presentation is for discussion purposes only and is incomplete without reference to, and should be viewed solely in conjunction with, the oral briefing provided by JPMorgan. Neither this presentation nor any of its contents may be disclosed or used for any other purpose without the prior written consent of JPMorgan.

J.P. Morgan, JPMorgan, JPMorgan Chase and Chase are marketing name for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide (collectively, “JPMC”). Producats or services, including those referred to herein, may be marketed and/or provided by commercial banks such as JPMorgan Chase Bank, N.A., securities or other non-banking affiliates such as J.P. Morgan Securities LLC. or other JPMC entities. JPMC contact persons may be employees or officers of any of the foregoing entities and the terms "J.P. Morgan", “JPMorgan”, "JPMorgan Chase" and “Chase” if and as used herein include as applicable all such employees or officers and/or entities irrespective of marketing name(s) used. Anything herein to the contrary, nothing in this presentation is intended to or shall be deemed to constitute a solicitation by JPMC of any product or service the solicitation of which by the JPMC personnel providing and discussing this presentation with the Company would be unlawful under any applicable United States, state, local or foreign law or regulation.

This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. JPMorgan believes the information contained in this material to be reliable but do not warrant its accuracy or completeness. The investments and strategies discussed herein may not be suitable for all investors. This material is not intended to provide, and should not be relied on for, accounting, legal or tax advice or investment recommendations. Please consult your own tax, legal, accounting or investment advisor concerning such matters.

Not all products and services are available in all geographic areas. Eligibility for particular products and services is subject to final determination by JPMorgan and or its affiliates/subsidiaries. This presentation does not constitute a commitment by any JPMC entity to extend or arrange credit or to provide any other products or services. The investments and strategies discussed herein may not be suitable for all investors. All services are subject to applicable laws and regulations and services terms. Any proposal is subject to JPMorgan applicable internal and regulatory approvals and notifications, and therefore JPMorgan reserves the right to withdraw at any time.

Notwithstanding anything in this presentation to the contrary, the statements in this presentation are not intended to be legally binding. Any products, services, terms or other matters described in this presentation (other than in respect of confidentiality) are subject to the terms of separate legally binding documentation and/or are subject to change without notice.

© 2017 JPMorgan Chase & Co. All Rights Reserved. JPMorgan Chase Bank, N.A. Member FDIC.

Q & A