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MB Enhances Rule on Delivery of Securities

03.26.2015

The Monetary Board (MB) amended the rule on the delivery of securities by adding the use of a central securities depository (CSD) as another option available to investors. The MB specifically allowed the “Name-on-Central Depository” facility to be compliant with previously issued Circular No. 392.
This provides greater flexibility to investors on where to place the securities they purchase for safekeeping and to avail of auxiliary services from the CSD, should the investor desire. A CSD is an entity authorized under the rules of the Securities and Exchange Commission (SEC) and is considered by global best practices as a key infrastructure in handling securities settlement.

Securities are lodged at the CSD in electronic form and referred to as book-entry system. Instead of physical pieces of paper securities, an electronic form expedites the transfer of securities between buyers and sellers. There are specific guidelines put in place to ensure the integrity of the securities holdings as well as the manner in which securities are delivered against the availability of payment.
The Name-on-Central Depository facility allows securities to be recorded at the CSD in the name of individual investors. This provides added transparency for investors. This is in contrast to being lodged in so-called “omnibus accounts” which aggregate the holdings of all investors but without segregating the holdings of one investor from another.

Aside from allowing a CSD as an acceptable mode of delivery of securities, the revised rule requires independence of third party custodians, securities registries and CSDs. Under the independence provision, these entities must not belong to the financial conglomerate or banking group that issued or sold the securities to investors which the CSD now holds in compliance with Circular No. 392 as amended.

This reform initiative is in line with the broader objective of the Bangko Sentral ng Pilipinas to further enhance the handling of securities for the protection of investors. This is essential to capital market development and mitigates the potential build-up of systemic risks in the Philippine financial system.

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