Regulators, stakeholders start local currency debt market reforms

August 26, 2017 - 5:00 PM
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BSP Governor Nestor Espenilla: Successful treatment for cancer. REUTERS FILE PHOTO

MANILA – Regulators are now formulating measures to further deepen the local currency debt market, with the program set for gradual implementation within the next 18 months.

In his speech during the Economic Journalists Association of the Philippines (EJAP) economic forum in Ayuntamiento de Manila in Intramuros, Manila Friday, Bangko Sentral ng Pilipinas Gov. Nestor A. Espenilla Jr. said the first meeting was held Friday among the representatives of the central bank, the Bureau of the Treasury (BTr), the Securities and Exchange Commission (SEC), the Department of Finance (DOF) and other stakeholders.

“We are unveiling soon, in fact this afternoon, with partner government agencies, a definite game plan to accelerate the development of the local currency debt market,” he said.

The regulators are proposing three major operational priorities, first of which is the deepening of the local bond market.

This will be done by implementing reforms on government securities eligible dealers (GSED) system, increasing supply of short-term securities, and developing an effective regulatory framework on derivatives and repurchase markets.

The second priority is the institution of reliable financial benchmarks and valuation of financial instruments while the third is the establishment of an integrated financial market infrastructure targeted “to promote price discovery, transparency, and orderly trading clearing and settlement of a full range of financial transactions.”

Espenilla said the central bank will ensure that its regulated institutions “have the capacity to manage risks so that we don’t get into a situation of financial instability.”

BTr, in turn, is tasked to “improve supplies of government securities.”

The central bank chief said the supply of government securities (GS), to date,” is “relatively fragmented” and that despite the over-all high liquidity system in the economy some market segments are illiquid.

Ensuring that GS supply remains ample and that these are liquid is “an important piece of the reform,” he said.

Espenilla added that “primary market is important because it is also directly connected to the secondary market for government securities .”

“The government security market, in effect, is a most important element because it sets the risk-free yield curve which is foundation for pricing all other kinds of instruments,” he said.

Espenilla said BTr is also tasked to lay down the foundation of the repurchase market, noting that the “repo market is important for creating liquidity for government securities.”

Repurchase facility allows GS dealers to sell securities and buy it back, normally the following day.

The role of the SEC in this partnership is to “elevate game in market conduct so market becomes a well-regulated market,” Espenilla said.

“The approach is we have put together a definitive roadmap which was informed by technical assistance from international experts.”

“We’ll put out the roadmap to engage industry. (It will be) finalize(d) shortly thereafter and implement in phases over the next 18 months after launch today. That’s a very definite game plan,” he added.