The Bangko Sentral ng Pilipinas said Tuesday it expanded access of Unit Investment Trust Funds to BSP securities in the secondary market to enhance its ability to absorb liquidity amid elevated inflation.
The Monetary Board, the policy-making body of the BSP, said Tuesday it allowed trust entities to invest UITFs, with minimal non-resident funds, in the BSP securities.
Trust entities, or companies that manage assets or wealth on behalf of individuals or organizations, at present may invest in BSP securities through their UITFs provided that there are no non-resident participants in the invested UITFs.
UITFs refer to investment funds managed by trust entities.
“Under the approved amendments to the regulations, trust entities may purchase BSP securities in the secondary market for any UITF in which the share of net assets of non-residents does not exceed ten percent of the net assets of the fund,” the Monetary Board said in a statement.
The BSP said this would enhance its ability to absorb liquidity in the market.
“Expanding the coverage of participants in the secondary market trading of BSP securities enhances the BSP’s capability to absorb liquidity and helps transform the BSP securities as a primary tool for liquidity management,” it said.
The measure is also aimed at ensuring the tradability and viability of BSP securities as a highly liquid instrument, allowing for better price discovery and monetary policy transmission.
It said the implementation of the policy supports the prevailing monetary policy stance to increase liquidity absorption amid an elevated inflation environment, consistent with the BSP’s exit from monetary accommodation measures in response to the pandemic.
“In this regard, the BSP shall also be closely monitoring the sources of funds placed by trust entities in the BSP’s facilities through periodic supervisory reporting requirements,” the board said.
The BSP said it would revisit the access of trust entities with non-resident funds to the secondary market for BSP securities depending on the results of the periodic monitoring and in line with the BSP’s prevailing stance of monetary policy and corresponding liquidity management strategies.
The BSP said it would subsequently issue a circular to amend its existing rules governing the trading of BSP securities in the secondary market. A trust entity that plans to transact BSP securities in the secondary market is required to submit a letter of undertaking to the BSP through the financial markets to signify its commitment to comply with the conditions for participation.