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BSP Approves Trust Deed Constituting ABF Philippines Bond Index Fund

04.26.2006

The Bangko Sentral ng Pilipinas (BSP) approved on 10 April 2006 the trust deed constituting the ABF Philippines Bond Index Fund. This Fund is one of the nine bond funds announced by the Executives’ Meeting of East Asia Pacific Central Banks (EMEAP) last May 2005 under its ABF2 initiative. It may be recalled that the ABF2 comprises the Pan-Asian Bond Index Fund (PAIF) and eight single-market funds. To date, the PAIF has been launched for investment by the public, along with the single-market funds for Hong Kong, Malaysia, Singapore and Thailand.

The ABF Philippines Bond Index Fund is a unit investment trust fund (UITF) product that will invest in peso-denominated bonds issued by the government and quasi-government institutions. It will be a passively managed fund designed to track the iBoxx ABF Philippines Bond index. The Bank of the Philippine Islands (BPI) will be the fund manager and distribution/marketing agent while The Hongkong and Shanghai Banking Corporation Limited (HSBC) will be the trustee and the custodian of the fund.

The ABF Philippines Bond Index Fund contains several features that are currently not found in other UITF products. These include the separation of fund management and trustee roles in line with the principle of check-and-balance. The responsibility of the fund manager will be to grow the fund and meet the investment objectives stated in the trust deed while the function of the trustee will be to safeguard the rights and interest of the investors. By separating the roles, the trustee can independently check the compliance of the fund manager to the provisions of the trust deed. As a result of the separation of the fund management and trustee functions, the trustee is allowed to act as the custodian of the fund.

The Fund also incorporates the establishment of a supervisory committee (SC) as an additional mechanism for good corporate governance. The SC is an oversight body that will primarily represent the interest of the unit holders.  Decisions that will require SC approval include listing of the fund and changes in the funds’ manager, trustee or auditor. The SC will meet at least once a year.

The BSP believes that the ABF2 initiative, particularly the introduction of the ABF Philippines Bond Index Fund, will contribute towards efforts in developing the domestic capital market. In particular, the BSP expects the Fund to play a catalytic role in promoting new products, enhancing market infrastructure as well as encouraging better fund management structures and practices. For its part, the BSP will be reviewing its guidelines on the UITF to incorporate desirable features of the ABF Philippine Bond Index Fund to further align the regulatory environment with international practice.

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