Optimizing Liquidity

The New Normal of Managing Global Liquidity in a Basel III World

TEXPO - April 2015

Ruben Bela

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Biographies

Stephanie Potter VP Asst Treasurer Monogram Residential Trust, Inc.

Stephanie Potter is Vice President, Assistant Treasurer of Monogram Residential Trust, Inc. She has over 25 years of experience in corporate cash management, financial risk management and project management. In her role as Assistant Treasurer, she is responsible for the companies cash management, accounts payable, bank relationship management, and tailoring banking products to support the various business entities at Monogram.

Stephanie received her bachelor’s degree from Louisiana State University and a MBA from University of Texas at Dallas. She is a Certified Treasury Professional (CTP) and a member of the Corporate Treasurer’s Council sponsored by the Association for Financial Professionals. Stephanie is a long time member and former president of the Dallas Association for Financial Professionals.

Matt Roush Senior Treasury Analyst HollyFrontier

Matt Roush is a Senior Treasury Analyst at HollyFrontier Corporation. He has worked in various Treasury and Credit roles within the company since 2010. Prior to joining HollyFrontier, Matt served in various Credit roles at both Leggett & Platt, Inc. in Carthage Missouri and Love’s Travel Stops and Country Stores headquartered in Oklahoma City.

Matt earned his Certified Treasury Professional (CTP) credential in January 2015. He graduated from Missouri Southern State University with a BSBA and earned his MBA degree from Missouri State University in Springfield, Missouri. He has been active with the Dallas Association for Financial Professionals since 2013 where he currently serves on the Board. Matt is based at HollyFrontier’s corporate office located in Dallas, TX.

Ruben Bela Director, Bank of America

Ruben Bela is responsible for delivering regional and global cash optimization services to multinational corporations and sovereign governments. Leveraging an extensive background in liquidity product management and core cash management service development, Ruben provides critical insight and counsel to clients across a broad range of industries. In the new regulatory environment, he has also played a key role in implementing the bank's balance sheet strategy.

Ruben joined Bank of America Merrill Lynch in 2008 and previously worked more than a decade with JPMorgan Chase where he held various roles in Liquidity Cash Management and Trust & Custody Services. Ruben holds a Bachelors Degree in Business Management from Texas Tech University.

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Company Profile

Stephanie Potter VP Asst Treasurer Monogram Residential Trust, Inc.

Monogram Residential Trust, Inc. (NYSE: MORE), is a fully integrated self-managed real estate investment trust that invests in, develops and operates high quality multifamily communities offering location and lifestyle amenities. Monogram invests in stabilized operating properties and properties in various phases of development, with a focus on communities in select markets across the United States. Monogram’s portfolio includes investments in 56 multifamily communities in 12 states comprising 16,126 apartment homes.

Matt Roush Senior Treasury Analyst HollyFrontier

HollyFrontier Corporation ("HollyFrontier") (NYSE: HFC) is among the largest independent petroleum refiners in the United States with operations throughout the mid-continent, southwestern and Rocky Mountain regions. Subsidiaries of HollyFrontier produce and market gasoline, diesel, jet fuel, asphalt, heavy products and specialty lubricant products. HollyFrontier is headquartered in Dallas, Texas and, through its subsidiaries, operates five complex refineries with 443,000 barrels per day of crude oil processing capacity. Subsidiaries of HollyFrontier manufacture and market lubricants and specialty products, asphalt products, and other heavy products at the five refineries and at the asphalt terminals. HollyFrontier owns a 39% interest in Holly Energy Partners, L.P. (NYSE: HEP), which includes the 2% general partner interest.

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Agenda

Trends & Objectives

Global Regulatory View

Considerations & Key Takeaways

Questions

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European Union AIFMD Bank recovery & resolution directive CRD IV package ECB’s comprehensive assessment EMIR EU money market fund reform Financial transaction tax MiFED 2 Single supervision mechanism SEPA/direct debits Solvency II

A world tour of change

The evolution of the regulatory environment continues to affect the flow of commerce around the world. Designed to protect, regulations also create challenges both from an interpretation and an implementation perspective.

Canada Liquidity adequacy

requirements OSFI governance guidelines U.S. foreign bank organization

rules United States CCAR & stress tests Enhanced Prudential Standards Enhanced customer due

diligence Dodd-Frank 1073 Dodd-Frank Title VII FATCA FBAR LIBOR & Forex fixings Recovering & resolution

planning SEC money market fund reform Latin America Anti-bribery rules Anti-money laundering Currency controls Governance Treating clients fairly

Global Anti-money laundering (AML) Anti-bribery and anti-corruption

(ABAC) Basel 3 Pillar 1 – capital &

leverage Basel 3 Pillar 2 – supervision Basel 3 Pillar 3 – market

disclosures Basel 3 Liquidity – LCR & NSFR Data privacy Financial Stability Board G-SIBs Interchange Too big to fail (TBTF) Treating clients fairly (TCF) Ukraine-related & Iran sanctions

United Kingdom Banking Reform Act Depositor preference LIBOR & Forex fixings

South Africa Financial sector regulation bill

Asia Pacific Interest rate regulation Market liberalization

China Yuan deregulation

Hong Kong Risk weighting adjustments Stable funding requirement

Singapore Risk-based capital (RBC)

Australia APRA Basel 3 implementation Committed liquidity facility (CLF)

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What is Basel III?

Basel III: International framework for liquidity risk measurement, standards and monitoring, Dec. 2010. More information on the BCBS’ capital and liquidity standards can be found here: http://www.bis.org/publ/bcbs188.htm

3 key components of

Basel III

The Basel Committee on Banking Supervision (BCBS) under the Bank of International Settlements (BIS) released guidance to strengthen global capital and liquidity regulations.

The Basel III framework is implemented by the jurisdictions that make up the BCBS. Basel III:

Provides internationally agreed upon standards adopted through local regulators (still evolving)

Strengthens existing risk-weighted capital requirements

Introduces two new concepts: Liquidity and Leverage Ratios

Although LCR is a bank measure, it will also have an impact on bank clients.

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Non-operational balances have a greater runoff factor than balances tied to day-to-day operational activity. Banks are required to hold more HQLA against non-operational balances.

The LCR lays out a consistent way for the industry to classify operational vs. non-operational balances. Some general indications may include:

Basel III LCR : Classifying Operational Deposits

What classifies as operational vs. non-operational?

Indications of operational

Indications of Non-operational

Held at the bank to fund critical operational activity

Fungible across multiple products / providers

High switching costs Cash is sensitive to and may

move to alternatives for yield

Balance fluctuates day-to-day

Balances are stagnant or large and short-term

The final U.S. rules laid out specific qualitative and quantitative criteria U.S banks must satisfy to meet the definition of operational. Banks are tasked with implementing systems to properly identify this criteria.

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Working capital efficiency gains

Increased need to gain control over internal liquidity, decrease dependency on external funding and manage risk

Regulation and market changes

Regulatory impact including Basel III, FATCA and Dodd Frank have come into force. Deregulation in key markets carries downstream implications

Global banking technology

Increased automation, multibank visibility and centralization of cash and liquidity management as well as tools for forecasting, in light of new regulation are all issues being solved with technology

Trends Impacting Liquidity Management

Low rate environment

Historically low interest rate environment and corporates becoming more bullish about yield, investment policies need to be reviewed and refined allowing for longer tenure of investment or lower rating of vehicle

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Meeting Liquidity Objectives

BEST PRACTICES Enhance yields on operating, excess, strategic and reserve cash

Better control over regional and global liquidity

Comply with a rapidly changing regulatory environment

OBJECTIVES

Improve cash forecasting through enhanced visibility

Capitalize on yield-producing opportunities globally

Consolidate bank relationships and accounts

Deploy cash management effectively to respond to changing regulations

Utilize online tools — view cash position and investments in real time

Optimize working capital Consolidate multiple currencies across multiple markets

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Liquidity Management helps you achieve the following: • Ensure that cash is available when and where it is needed

• Manage funds from receivables and for payments as efficiently as possible

• Conduct short-term borrowing and investments in a timely and efficient manner that minimizes costs and maximizes returns

Working Capital Optimization

Many CFOs believe that better management of

working capital will

improve profitability Source: Bank of America Merrill Lynch, 2014 CFO Outlook Asia

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Investment Policies

76% of organizations had a written cash investment policy

An average of 4.4 short-term investment vehicles were permitted beyond bank deposits

New regulations (e.g. Basel III and MMMF Reform) will increase the need for policy review

Approximately 83% of short-term investments had a maturity of 90 days or less

The most widely cited permissible investment vehicles beyond bank deposits were:

Treasury securities Commercial Paper Diversified money market

mutual funds

Investment objectives:

68% surveyed said safety was their top investment objective

28% surveyed said liquidity was their top investment objective

4% surveyed said yield was their top investment objective

safety

liquidity

yield

15 July 2014 AFP Survey: https://www.citizensbank.com/pdf/commercial/AFP_Liquidity_Survey.pdf

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Investment Policy - Robust Risk Controls

CREDIT QUALITY DIVERSIFICATION

DURATION LIQUIDITY

Credit quality

▪ Establish minimum credit ratings for all security types utilized

▪ Focus on setting levels appropriate to avoid concentration issues

Diversification

▪ Concentration limits based on security type

▪ Treasury/Agency = no limits*

▪ 5% maximum per issuer (or less)*

Maturity/duration

▪ Stability of cash

▪ Investment horizon

▪ Company situation

Liquidity

▪ Liquidity required (percentage or stated amount)

▪ Cash flow overlay

▪ Investments are liquid/there are deep secondary markets

A solid investment policy balances four critical risk factors: maturity/duration, diversification, credit quality and liquidity.

*For illustration purposes only.

Diversification does not ensure a profit or guarantee against loss.

CREDIT QUALITY DIVERSIFICATION

DURATION LIQUIDITY

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Investment Policy – Holly Frontier Review

Investment Concerns - Holly Frontier

-Preservation of Capital

-Need for Daily Liquidity

-Upcoming MMMF Reform

Investment Policy

SCOPE

-This policy shall apply to Holly Frontier Corporation and all subsidiaries.

-Applies to cash managed in-house and cash with external managers, if any.

- Not applicable for benefit/retirement plan related investments.

OBJECTIVES (in order of priority)

- Safety of principal is foremost.

- Maintain liquidity sufficient to meet company’s projected cash requirements.

- Maximize after-tax return (net of fees) consistent with safety of principal and liquidity objectives.

PARAMETERS

- Permitted Investments

- Credit Quality

- Diversification / Concentration

- Maturity Restrictions

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Investment Policy – Monogram Residential Review

Investment Concerns - Monogram

-Preservation of Capital

-Daily Liquidity

-Mitigate concentration risk

-Upcoming MMMF Reform

Investment Policy

SCOPE

-Policy applies to Monogram Residential Trust, Inc., current and future subsidiaries. -Apply to funds managed by External Investment Management firms.

-Approved by Board of Directors and reviewed annually by the Chief Financial Officer

OBJECTIVES

-Safety and preservation of principal by investing in high quality, diversified portfolios

-Liquidity sufficient to meet the Company’s cash flow requirements

-Maximize total return consistent with the Company’s stated objectives, conservative risk tolerance and tax position.

-Maintain proper fiduciary control of all Company investments and avoid inappropriate concentration of investments

-Comply with all legal and tax requirements

PARAMETERS

-Assets must have readily ascertainable market value as quoted from external market sources.

-All eligible securities must carry at least one credit quality rating.

-Diversification / Concentration - no more that 5% of the portfolio with any one issuer; US Government :no limits

- Maturity Restrictions

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Key Takeaways

Bank deposits will have higher regulatory scrutiny.

Large short-term flows may be hard to place.

Maintaining a proactive review of your investment policies can help you adapt to the new rules of engagement.

Broadening the pool of permissible investments to provide flexibility.

Using cash flow forecasting models is critical in improving cash efficiency.

Questions

Thank you

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