BSP, BAP working to expand GS repo market

THE BANGKO SENTRAL ng Pilipinas (BSP) and Bankers Association of the Philippines (BAP) are seeking to include fund managers and trust entities in the government securities (GS) repurchase agreement (repo) market in their bid to help deepen the country’s capital markets.

The BAP on Monday said it is working with the Money Market Association of the Philippines (MART), Fund Managers Association of the Philippines, and Trust Officers Association of the Philippines on the matter.

The BSP and BAP earlier this month announced their plans to enhance the interest rate swap market and the GS repo market to improve benchmarks for a smoother yield curve and deepen the Philippines’ capital markets.

The repo market for government securities will be expanded to boost trading and provide an alternative benchmark for short-term loan rates.

The BSP is currently working to shift the current system of “tagging” securities to banks that place cash with it via the reverse repo window to instead allow for the full delivery of these securities. Banks would then be able to trade these securities.

“We need to start developing our capital markets to work hand in hand with the banking market to be able to generate capital that is needed to support all of these endeavors,” BSP Open Market Committee Chairman Paul Raymond A. Favila said at a briefing on Monday.

“Of course, you have the more developed economies, even within Asia. Obviously, one would be Singapore. And in Singapore, they do have a capital market, relatively vibrant. They have the ability to develop their capital markets well ahead of what the countries’ needs are,” he said. “In the Philippines, it’s the other way around. We need it, we need it tremendously, but in terms of development, we are nowhere near where we want to be.”

Mari Toni Bautista, president of the National Association of Securities Broker Salesmen, Inc. (NASBI), which is organized by the BAP, said that repos will help deepen liquidity in primary and secondary bond markets.

“Repos enhance market liquidity by providing a funding source for investments in government bonds and for financing dealer inventory of securities held for trading,” she said during the same briefing.

These also help facilitate price discovery and transparency of bond prices, which allows for the development of risk mitigation tools and the broadening of the investor base, she added.

“The repo market is actually open to all government securities eligible dealers (GSEDs) and we are looking to expand the participants to include non-GSEDs,” she said.

“My estimate is that we have around seven to 10 banks who can deal now in the MART GS repos, but we have a lot of banks in the pipeline, (just) working on the GMRAs with each other,” she added.

The Global Master Repurchase Agreement (GMRA) is a legal agreement for repo transactions.

The GS repo market, which is operated by MART, was launched in 2017 and only allowed GSEDs to first “test the waters,” Ms. Bautista said.

She said the development of the market took a bit of time as the GMRAs needed to be executed. The pandemic also slowed down this process, she added.

“Currently, the trust entities are speaking with the Bureau of Internal Revenue to expand Revenue Memorandum Circular No.095-17 on the MART GS repos outlining DST (documentary stamp tax) exemption for GSEDs only.” — L.M.J.C. Jocson