The Monetary Board (MB), the policy making body of the BSP, has approved the exemption of transactions involving the ROP warrants from the derivative licensing requirements set forth under Circular No. 594 dated 8 January 2008. This is to encourage maximum participation of the banking industry in the “Paired Warrants Programme” of the ROP.
Further, the bank’s holdings of said warrants booked in the Held for Trading category are likewise exempted from capital charge for market risk as long as said instruments are paired with ROP Global Bonds (Paired Bonds), up to a maximum of 50 percent (50%) of total qualifying capital.
These exemptions are in addition to the earlier relaxation granted under Circular No. 588 dated 11 December 2007 and Circular No. 602 dated 13 February 2008. Circular No. 588 assigns a zero percent (0%) risk weight to bank’s holdings of Paired Bonds up to 50 percent (50%) of its qualifying capital. Currently, unpaired ROP Global Bonds attract a risk weight of 100 percent (100%) under Circular No. 538 dated 4 August 2006 or the Revised Risk-based Capital Adequacy Framework based on the Philippine sovereign rating of “BB-“.
On the other hand, Circular No. 602 allowed the crossing of books of the investment account in the event warrants are exercised. In this case, the Peso Government Securities (Peso GS) received shall be booked under the regular banking book (RBU) although the ROP Global Bonds that were exchanged were booked under the FCDU/EFCDU book. However, said issuance required the FCDU/EFCDU book to recognize a receivable from the RBU book, which the latter has to settle within a period of six (6) months from the receipt of the Peso GS.
The “Paired Warrants” is a liability management program of the ROP that gives the holders the right to convert or exchange their ROP Global Bond holdings into Peso GS at pre-determined tenors and exchange prices (par for par) at pre-agreed coupons. This right can only be exercised upon a ROP Event of Default on its foreign currency debt.