ReFlow is a novel solution to mutual funds’ liquidity needs in meeting net redemptions. It buys enough shares to offset those redemptions when cash runs out, or a pre-agreed share of them, and redeems them in the order purchased to offset net subscriptions on later days. Shares it has held for a period limit, currently 28 calendar days, are also redeemed automatically. It buys and redeems at NAV, like other shareholders, taking all the market risk in between. It charges a percentage fee determined in a daily Dutch auction. All winners in the auction pay the clearing fee, meaning the lowest winning fee bid. Winnings tied at the clearing fee are prorated.

ReFlow buys and redeems by standing contract with client funds, not on a spot market basis. All these trades occurred automatically at last market close, although amounts will not be known until later. By agreement, transfer agents and fund accountants report daily fund activity data to ReFlow on-line, excluding these last-second trades, so that ReFlow can calculate them automatically and report back. Transfer agents and fund accountants then report final data to clients, corrected to include them. ReFlow trades to offset “flow,” meaning cash flow due to current settlement of subscriptions and redemptions, before adjustment for these last-second trades with ReFlow. If flow was negative, meaning that redemptions outweighed subscriptions, and if the client had placed a winning bid, ReFlow’s purchases at close equaled any excess of those net redemptions over the client’s cash available to meet them as of close, up to ReFlow’s 3% statutory holding limit, or less according to the client’s bid parameters. When flow was positive, ReFlow has automatically redeemed any shares it owned, up to the amount of that positive flow. Winners are determined at a pre-set report deadline, typically at market opening or near it, or earlier when reports for all client funds have been received. Where client funds offer more than one class, ReFlow buys all classes prorated to AUM, or trades in a single class as agreed. ReFlow is exempted from all loads and trading fees. If transfer agents report corrections after winners are determined, winnings are adjusted from a pre-determined reserve.

The auction amount evolves automatically from one morning deadline to the next. It begins as any unwon residue of the auction amount, excluding the reserve, and then may grow or shrink during the business day as ReFlow’s investors or lenders add capital or take it out. Its most important growth typically appears as transfer agents report after market close, usually near next market opening. Since all positive reported flow means automatic redemptions of shares ReFlow holds, and since reports may also disclose calendar-driven automatic redemptions (“pushback”), or voluntary redemptions requested by clients, ReFlow adds the cash expected from all those redemptions to the auction amount. The reserve for late report corrections is a pre-set percentage of the final amount, currently 0.5%. This reserve continues to grow and shrink in the same way when late corrections are entered; redemptions due to upward revisions in reported flow raise the reserve, and auction winnings from downward revisions deplete it.

For these reasons, ReFlow’s current purchases and redemptions are generally not known for sure until the morning deadline or even later. Yet legal compliance, and everyone’s best interest, require that no event after market close can change outcomes. The auction, like an election, closes before winners and counts are known. Neither ReFlow nor its client funds can afford to be gamed through backward pricing. That is why reporting must be timely, and why all parameters must be fixed before market close.