BANGKO Sentral ng Pilipinas assigned a zero reserve requirement on repo transactions under the government securities repurchase program.
The regulator said in a statement Friday the move was 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,” Bangko Sentral said.
“This complements the earlier issuance of the Bureau of Internal Revenue providing exemption of repo transactions under the program from documentary stamp tax,” it said.
A repo allows a dealer to sell and repurchase short-term government securities such as treasury bills to a lender at a specified future date and an agreed price. Repos are said to provide lenders low risk and are usually used to raise short-term capital.
The new Bangko Sentral circular will amend the provisions of the BSP Manual of Regulations for Banks and Manual of Regulations for Non-Bank Financial Institutions.
The central bank said the establishment of an organized inter-dealer repo market would aid the development and deepening of the domestic financial market. This will give eligible participants the ability to quote two-way prices, thereby enhancing price discovery and market liquidity.
The Bangko Sentral has encouraged 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, the Money Market Association of the Philippines received a provisional license to act as a self-regulatory organization of the repo market under the program.