• E-trade to free rates in call mart

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    Gives BSP means to finetune open market operations

    The migration of banks’ reverse repurchase (RRP) trading to an electronic queueing system will enable the central bank to finetune its open market operations. The Bangko Sentral ng Pilipinas (BSP) said it will also provide transparency to trading among banks in the overnight market.

    Through e-trading reporting of interbank call loan transactions will be done electronically making them faster and more efficient giving banks a handle on the cost of funds they need overnight.

    The creation of the RRP E-Trading System, according to Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco Jr., provides opportunity for the monetary authority to enhance the way it conducts open market operations (OMO) and handle interest rates.

    OMO is a monetary tool which involves the BSP publicly buying or selling government securities from banks and financial institutions in order to expand or contract the supply of money.

    By controlling the money supply, the BSP is able to exert some influence in the prices of goods and services and achieve its inflation objectives.

    In conducting OMO, the BSP uses two instruments: repurchase/reverse repurchase agreements; and outright purchases and sale of securities.

    With the new RRP trading system, Tetangco said monetary authority was given the flexibility to use different methods to allocate RRPs to participating banks, including possibly an auction system.

    “In turn, the option to auction RRPs will give the BSP the means to implement a full interest rate corridor for open market operations in the future,” he said.

    “Currently, our open market operations is conducted with the repurchase as the ceiling and the SDA [special deposit account]as the floor,” he said.

    Lorenzo Tan, Bankers Association of the Philippines (BAP) president Lorenzo Tan said that the efficiency, security and timeliness of the e-trading system is a significant step for the open market operations of the central bank.

    “Migration to automation and similar upgrades in the software will have a multiplier effect in terms of stability and integrity of the market. It will provide BSP an improved fine tuning capabilities of monetary policies consistent with low and stable inflation and balanced economic growth,” he said.

    The BAP president said the new system will also provide transparency, ease in access and convenience to participating entities which will eventually translate to lower cost, with banks getting access to cheaper funds.

    On Friday, the BSP and the banking industry have signed the memorandum of understanding on the RRP E-Trading System.

    The new system, which is expected to start in mid-February, is a web-based electronic platform where overnight and term RRP agreements between financial institutions and the BSP’s Treasury Department may be transacted and settled.

    With built-in security access procedures, the new electronic system will replace the manual queuing of the RRP trade orders that are posted via a combination of telephone and stand-alone trading platforms such as Reuters or Bloomberg, he explained.

    The BSP governor noted that the e-trading system will also eliminate the unintended consequence of manually collating transactions from different order sources.

    “Another benefit that users of the e-trading system will enjoy is straight through processing where reporting of interbank call loan transactions will be done electronically,” he said.

    The system should heighten the security of the full dealing, settlement and reporting cycle of RRP transactions.

    Tetangco said the central bank looks forward to continue working closely with the leaders of the country’s financial system in building financial market infrastructure and systems that are safe, secure and responsive to its stakeholders.

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