Gov’t eyes to roll out repurchase market for banks next month to deepen market

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File photo of Bangko Sentral ng Pilipinas (BSP) Governor Nestor Espenilla — Photo: Jino Nicolas/BW FILE PHOTO

THE GOVERNMENT is looking to roll out a repurchase market for banks next month, the country’s central bank chief said, forming part of an industry-wide initiative to deepen the debt market and get more funds moving in the financial system.

“By November of this year, we also look forward to the first trade in the repo market,” Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla, Jr. said in a speech last week as he discussed various capital market reforms in the pipeline.

The BSP, the Bureau of the Treasury and the Securities and Exchange Commission (SEC) are working to set up a repo market which would allow more financial players to buy and sell securities and generate fresh liquidity.

Under a repo agreement, one party trades debt papers — such as Treasury bills and bonds — to another with the promise to buy them back at a specified price and a future date, in the process providing the seller with short-term liquidity which it can use to hand out fresh loans and service client withdrawals.

This forms part of a six-pronged industry road map unveiled in August by the BSP, SEC, Treasury, and the Department of Finance, which will be finalized and implemented over the next 18 months.

“The initial phase will focus on improving benchmark markets as this is critical in pricing risk assets and other capital market instruments,” Mr. Espenilla said.

Apart from setting up the repo market, the reforms would entail increasing the volume of Treasury bills being auctioned, providing a “transparent” mechanism in issuing government debt securities, establishing a reliable yield curve, identifying and developing duties and incentives of so-called “market makers,” and greater regulatory oversight over the repo and fixed income markets.

The BSP chief said they have so far seen “improved” performance among banks who participate in the regular Treasury auctions, as they now see a narrower spread in yields which they submit as bids.

In a separate statement, the BSP’s Monetary Board announced simpler rules for banks and quasi-banks in floating debt papers to stoke more bond issuances.

The changes include the removal of minimum bond features including the requirement on eligible collaterals.

“The new regulation aims to provide greater flexibility to banks and quasi-banks in tapping the capital market as an alternative funding source.  This is also consistent with the initiatives of the BSP, together with other financial regulators, to spur the development of the domestic bond market,” the central bank said. — Melissa Luz T. Lopez