Transactions under the Government Securities Repo Program will have a zero-percent reserve requirement (RR), the Bangko Sentral ng Pilipinas (BSP) said in Friday.
In a statement, the central bank said that the policymaking Monetary Board had approved the issuance of Circular 983 amending provisions of the BSP Manual of Regulations for Banks and Manual of Regulations for Non-Bank Financial Institutions.
Operational adjustments and the new reserve requirement ratio will take effect December 1, 2017.
The BSP said the new rules aim to support the development of a domestic local currency debt market.
“This responds to the industry request to minimize the friction cost on repo transactions that conform to international best practices,” it added.
The rules also complement an earlier Bureau of Internal Revenue issuance providing for the exemption of repo transactions under the program from the documentary stamp tax.
The BSP said the establishment of an organized interdealer repo market would aid in the development and deepening of the domestic financial market.
In particular, eligible participants will have the ability to quote two-way prices, 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,” the central bank said.
The Money Market Association of the Philippines has been granted a provisional license to act as a self-regulatory organization of the repo market under the program — scheduled to be launched on November 27.
This complements direct regulatory oversight by the Securities and Exchange Commission