BNY is about to become the third manager of a money market fund dedicated primarily to stablecoin reserves, following a new Form N1-A registration filing for "BNY Dreyfus Stablecoin Reserves Fund." It tells us, "The fund pursues its investment objective by investing in (i) U.S. Treasury bills, notes, or bonds (collectively, U.S. Treasury securities), (ii) overnight repurchase agreements collateralized solely by U.S. Treasury securities, and (iii) cash. The fund is a money market fund subject to the maturity, quality, liquidity and diversification requirements of Rule 2a-7 under the Investment Company Act of 1940, as amended, and seeks to maintain a stable share price of $1.00. The U.S. Treasury securities in which the fund invests have a maturity of 93 days or less." (Last week, Goldman Sachs filed for its pending Stablecoin Reserves Fund and BlackRock launched Circle Reserves Fund, USDXX, in late 2022. See our Aug. 13 News, "Goldman Files to Launch Stablecoin Reserves Fund; Circle Q2 Earnings;" our August 7 News, "August MFI: BNY Portal Tokenizes; ICD's Tory Hazard; Stablecoins in Q2;" and our July 24 News, "BNY's LiquidityDirect Portal Announces Plans to Tokenize Money Funds.")
BNY's N1-A explains, "The fund is a 'government money market fund,' as that term is defined in Rule 2a-7, and as such is required to invest at least 99.5% of its total assets in securities issued or guaranteed as to principal and interest by the U.S. government or its agencies or instrumentalities, repurchase agreements collateralized solely by cash and/or government securities, and cash. The fund seeks to enter into repurchase agreements that present minimal credit risk, based on an assessment by Dreyfus, a division of Mellon Investments Corporation (Dreyfus), the fund's sub adviser, of the counterparty's credit quality and capacity to meet its financial obligations, among other factors. Shares of the fund are intended to serve as reserves backing outstanding payment stablecoins. The fund does not invest in stablecoins."
It continues, "An investment in the fund is not a bank account or a bank deposit. It is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. You could lose money by investing in the fund. Although the fund seeks to preserve the value of your investment at $1.00 per share, it cannot guarantee it will do so. The fund's yield will fluctuate as the short-term securities in its portfolio mature or are sold and the proceeds are reinvested in securities with different interest rates."
The filing tells us, "BNY Mellon Investment Adviser, Inc. and its affiliates are not required to reimburse the fund for losses, and you should not expect that BNY Mellon Investment Adviser, Inc. or its affiliates will provide financial support to the fund at any time, including during periods of market stress. The fund is subject to the following principal risks: Interest rate risk ...; Liquidity risk ...; and, Market risk."
Under "Stablecoin reserve risk," it says, "Shares of the fund are intended to be held by stablecoin issuers as reserves backing their outstanding payment stablecoins. The assets of the fund are therefore expected to fluctuate depending on the creation (minting) of additional stablecoins or the redemption (burning) of such stablecoins. Stablecoins are relatively new and may face periods of uncertainty, resulting in the potential for rapid and/or unexpected requests by stablecoin issuers for redemption of the fund's shares (including requests by multiple stablecoin issuers at the same time)."
BNY states, "Such redemption requests could adversely affect remaining fund shareholders, the fund's liquidity, and the fund's ability to maintain a stable price per share, particularly if such redemptions occur in times of overall market turmoil or declining prices. Future legislative or regulatory developments, including, but not limited to, rulemaking pursuant to the Guiding and Establishing National Innovation for U.S. Stablecoins Act (GENIUS Act), may affect the investments or investment strategies available in connection with managing the fund and may impact the ability of the fund to be used as a reserve backing the outstanding payment stablecoins of stablecoin issuers."
They add, "Because the fund intends to invest only in certain eligible reserve assets pursuant to the GENIUS Act, the fund's yield may be lower than that of other money market funds that are permitted to invest in a wider universe of investments and with longer maturities."
The filing also cites, "Large shareholder risk, writing, "From time to time, one or more shareholders may own a substantial number of fund shares or may own or control a significant percentage of the shares of the fund. The sale of a large number of shares could adversely affect remaining fund shareholders, the fund's liquidity, and the fund's ability to maintain a stable price per share, particularly if such redemptions occur in times of overall market turmoil or declining prices. Because shares of the fund are intended to be held by stablecoin issuers as reserves backing their outstanding payment stablecoins, this risk is heightened to the extent there is an event impacting multiple stablecoin issuers at the same time, or impacting stablecoins in general, that causes such investors to redeem their shares at the same time."
BNY Dreyfus also says, "The fund's investment adviser is BNY Mellon Investment Adviser, Inc. (BNYIA). BNYIA has engaged its affiliate, Dreyfus, a division of Mellon Investments Corporation, to serve as the fund's sub-adviser.... The fund is designed for purchase by stablecoin issuers and institutional investors. The fund's shares are intended to serve as reserves backing the outstanding payment stablecoins of permitted payment stablecoin issuers pursuant to the GENIUS Act."
Finally, they comment, "The fund's shares are also available for purchase by institutional investors, acting for themselves or in a fiduciary, advisory, agency, brokerage, custodial or similar capacity. In general, the fund's minimum initial investment is $[blank], with no minimum subsequent investment, unless: (a) the investor has invested at least $[blank] in the aggregate among the fund and any of the Cash Management Funds, the Preferred Funds or Dreyfus Treasury and Agency Liquidity Money Market Fund; or (b) the investor has, in the opinion of BNY Institutional Services, adequate intent and availability of assets to reach a future aggregate level of investment of $[blank] in such funds."
