The Bankers Association of the Philippines, the lead organization of universal and commercial banks, said Monday it launched the dollar-peso cross currency swap market in line with its commitment to promote market development in the country.
The 44-member BAP said in a statement the initiative, spearheaded by the BAP Open Market Committee, enables its members to utilize hedging instruments critical to them and in response to the needs and requirements of their customers to better manage foreign exchange and interest rate risks.
“The BAP Open Market Committee, with the strong support of the Money Market Association of the Philippines and ACI Philippines, ensures that the USDPHP CCS market is guided by the rules and regulations of the Bangko Sentral ng Pilipinas as well as the adoption of the ISDA Master Agreement and Foreign Exchange Global Code,” BAP said.
Market makers in the dollar-peso cross currency swap market include BDO Unibank Inc., Bank of the Philippine Islands, Metropolitan Bank & Trust Co., Philippine National Bank, Security Bank, Citibank, DB, Hongkong and Shanghai Banking Corp., ING Bank, JP Morgan and Standard Chartered Bank.
Banks that signed up as regular participants include China Bank, Rizal Commercial Banking Corp., Robinsons Bank, Union Bank of the Philippines, ANZ, Mizuho and MUFG.
Voice-broker participants in the market include Amstel, GFI, Tradition and Tullet Prebon.
A cross currency swap is a transaction between two authorized parties that involves an exchange of principal amounts and interest payments in one currency for principal and interest payments in another currency at an agreed upon exchange rate and at an agreed schedule.
The USDPHP CCS market involves a Philippine peso fixed rate and a US dollar floating swap with standard tenors of 1 year, 2 years, 3 years, 4 years, 5 years, 7 years and 10 years. This will use the US dollar Secured Overnight Financing Rate, or SOFR, as the floating rate benchmark for the US dollar leg.
The USDPHP CCS market is supported by Bloomberg, a globally-recognized trading platform provider for various financial products.
BAP is comprised of 20 local banks and 24 foreign bank branches.
The group earlier endorsed the use of BVAL (Bloomberg Valuation) methodology as a reference rate. The Bangko Sentral ng Pilipinas agreed to create an overnight rate initially based on the 28-day BSP bill rate and later on six-month yield curve that would serve as reference rate for various financial transactions in the country with the scheduled phase-out of the London Interbank Offered Rate or Libor on June 30.
Libor, or the average borrowing rate between London banks, has influenced short-term interest rates around the world including the Philippines for decades.