The Monetary Board (MB) approved new guidelines that fundamentally reaffirm the policy requiring the listing of Long Term Negotiable Certificates of Time Deposits (LTNCTDs) in an accredited exchange. This is part of a broader set of initiatives to promote transparency in the pricing of financial instruments.
The new guidelines clarify that LTNCTDs must be immediately listed on an accredited exchange upon its issuance. This move by the MB enhances transparency and nurtures the market’s discovery of the respective prices of various LTNCTDs upon their trade.
The new guidelines then delete the prior requirement of designating certain financial institutions as “market makers.” This is possible because the continuing discovery of prices of a listed LTNCTD is effectively the same task previously asked of market makers.
LTNCTDs are instruments issued by banks to secure funds. These are denominated in pesos with a tenor of at least five years. LTNCTDs may be traded by one investor to another but the principal amount cannot be withdrawn during the term of the investment. As such, LTNCTDs behave much like a tradable security. Listing of LTNCTDs thus promote price discovery.
Furthermore, the new regulation lengthened to one year the period to complete the issuance of LTNCTDs released in tranches. The prior limit was six months. The longer period provides banks with more flexibility to time the issuances according to their needs in consideration of changing market conditions.
Promoting transparent pricing in financial instruments is in line with the policy objectives of the Bangko Sentral ng Pilipinas to foster capital market development and to enhance Financial Stability.