By Luis Leoncio
The government has started its repurchase market which is envisioned to further strengthen the domestic capital market.
Finance Secretary Carlos Dominguez III said the reforms being undertaken by the Bureau of the Treasury (BTr) to develop the domestic capital market, among them, the launch of its first government securities (GS) repurchase (repo) transaction, which is among its initiatives to enhance funding and trading liquidity in the local market.
The Securities and Exchange Commission (SEC) earlier approved the self-regulatory organization (SRO) for the repo market.
SRO is a private group that will monitor the implementation of the reforms set for the development of the local debt market.
Reforms in the local repo, or repurchase agreement, market is seen to support the government’s infrastructure program since this would allow for a more resilient debt market and provide for longer-term funding.
Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. said, under the program, the SRO will ensure that players meet the reserve requirements while the Bureau of the Treasury (BTr) will provide the inter-dealer rules.
National Treasurer Rosalia de Leon said in a repo transaction, one party sells government securities to another for cash with the agreement that this will be repurchased back at an agreed date.
Financial services firm Bloomberg, in partnership with Bankers’ Association of the Philippines (BAP), Money Market Association of the Philippines (MART) and Philippine Depository & Trust Corp (PDTC), recently launched an electronic repo trading platform for financial market participants in the Philippines.
In support of the country’s roadmap to establish a peso repo market, the new platform is linked directly to PDTC, enabling straight-through processing and surveillance of all repo trades, a first in Asia.
The inaugural repo trade was conducted and witnessed by Dominguez, de Leon, Espenilla, and Securities and Exchange Commission Chairperson Teresita Herbosa, other government officials, and bank presidents and treasurers during the 120th anniversary celebration of the Bureau of Treasury.
Repurchase agreements, or repos, are a well-established source of money market funding in the global financial market. Repo markets are essential in developing and deepening debt and money markets as an active repo market allows credit risk free access to funding.
“While our local currency bond market has grown over the last decade, it still remains as one of the smallest in the regions. Understanding the importance of a deeper, a more active capital market to compliment bank lending to serve as an alternative source of industry financing, we made a bold commitment and unveiled the road map for developing the local debt market. This includes organising the repo market for government securities,” Espenilla said.
With Bloomberg’s repo platform in place, repo counterparties now have a standardized calculation and communication platform with complete transparency of collateral details.
Once trades are electronically confirmed on Bloomberg, PDTC’s gateway will automatically pick up and display the trades for final verification and settlement authorization.
MART has also set up a new governance structure to oversee the repo market and will have full visibility of all trades for efficient monitoring and surveillance.
“This is a significant milestone for the Philippines money market. With Bloomberg’s electronic repo trading platform, the self-regulatory organization (SRO) will have visibility on all trades, which in turn will strengthen regulatory oversight and ensure the repo market grows in an orderly manner and will aid reforms to develop the local debt market,” MART president Michael Delfino said.
“The Philippines is setting a benchmark by being the first country in Asia to adopt straight- through-processing and achieving full transparency in a repo market,” said Andrea Mosconi, Bloomberg’s Head of Sales, ASEAN. “We are pleased to support the establishment of an active repo market in the Philippines by 2019 and will continue to bring scalable and best-in-class technology to ensure optimal efficiency of the market in the long-term,” he added.
Last year, Bloomberg launched its tri-party ticketing system for the interbank community in the Philippines, providing real-time access to brokered foreign exchange forward transactions to market participants.
The system allows brokers to seamlessly trade with clients and report their trades, hence improving operational workflow and enhancing market transparency.
Dominguez said the inaugural GS repo transaction “represents one of the key reforms of the Bureau: the development of the local debt market program.”
“This program enhances funding and trading liquidity in the GS market because it allows market participants to actively take positions in GS as well as provide bid and offer quotes. All in all, this enhances price transparency in all transactions,” he said.
Along with the launching of the “repo,” the BTr also recognized the country’s Top Ten Enhanced GS Eligible Dealers (GSED)-Market Makers, which will grant these awardees additional privileges such as market consultations and funding syndication.
De Leon said the BTR’s repo “aims to deepen liquidity in the secondary government securities (GS) market by paving the way for market making among GS Eligible Dealers (GSEDs).”
“It will now allow dealers to post buying and selling rates without keeping an inventory of GS, which exposes them from potential losses due to adverse market movements. Repos would provide a source of liquidity both from the cash and securities side, which they can use in their funding needs and providing bid/offer rates resulting in a more efficient and liquid domestic debt markets,” she added.
Dominguez said the reforms being done at the BTr, currently headed De Leon, are among the numerous efforts of the Department of Finance (DOF) to apply new technologies for greater efficiency and more transparency.
“I am happy that the Treasury is fully utilizing available communication technologies to empower its engagement with the market. Doing so improves both efficiency and transparency. These are the essential virtues of e-government,” Dominguez said.
“The Department of Finance, after all, spearheads the effort to cut red tape, make the bureaucracy more responsive to citizens and make government an enabler for the community,” he added.
Dominguez noted that in the government’s main revenue agencies—the Bureaus of Internal Revenue (BIR) and of Customs (BOC)—collections have improved with the introduction of new digital technologies.
“We are now able to build databases across government agencies to better serve our clients, the people,” he said.
In congratulating the BTr on its 120th anniversary, Dominguez lauded the Treasury for its “good work for the Republic.”
“We have come a long way since the first national treasurer kept money in a vault and disbursed it in cash. Today, the Treasurer of the Philippines presides over a complex operation that includes trading public securities and looking after the cash position of the entire Republic,” Dominguez said.