In support of the comprehensive initiative to develop the domestic local currency debt market, the Monetary Board approved the issuance of a circular assigning a zero-percent reserve requirement (RR) on repurchase (or repo) transactions under the Government Securities Repo Program (Program). This responds to the industry request to minimize the friction cost on repo transactions that conform to international best practices. This complements the earlier issuance of the Bureau of Internal Revenue providing exemption of repo transactions under the Program from documentary stamp tax.
The new BSP Circular will amend the provisions of the BSP Manual of Regulations for Banks and Manual of Regulations for Non-Bank Financial Institutions.
The BSP believes that the establishment of an organized interdealer repo market will aid the development and deepening of the domestic financial market. In particular, this will provide eligible participants the ability to quote two-way prices, thereby enhancing price discovery and market liquidity. At the same time, the BSP strongly encourages industry participants to adopt prudent governance standards in line with international best practices pertaining to trading and settlement, documentation, accounting, and market and regulatory disclosures as well as to establish appropriate safeguards to address risks such as counterparty and settlement risks.
Complementing the direct regulatory oversight by the Securities and Exchange Commission (SEC), the Money Market Association of the Philippines (MART) was granted a provisional license to act as a self-regulatory organization (SRO) of the repo market under the Program.
The operational adjustments and the new reserve requirement ratio shall take effect on the reserve week beginning 1 December 2017.