Treasury readies ‘specials repo’ to boost liquidity in local market

MANILA, Philippines–Two agenices under the Department of Finance shall put in place the tax mechanism for a so-called “specials repo” instrument aimed at encouraging market makers to improve liquidity in the government securities market.

On its website, the Bureau of the Treasury (BTr) announced that it had inked a memorandum of agreement with the Bureau of Internal Revenue (BIR) for the specials repo program, which the former described as “a key initiative directed to developing the domestic fixed income market.”

“Introducing the specials repo will allow market players the ability to quote two-way prices for government securities,” the BTr explained.

Specials repo transactions would attract “inter-bank/professional market participants,” the BTr said, citing that the “‘deliver-out, true sale basis’ feature of this instrument is expected to give potential market makers the ability to take positions in government securities and provide them greater ability to manage their portfolio.”

According to the BTr, the agreement with BIR shall “set out the proper tax treatment for the specials repo, as well as provide guidance and basic parameters for its structure, operational mechanics and taxation-regulatory compliance by potential market participants in the program.”

Also, the two agencies will jointly monitor repo transactions by establishing audit as well as surveillance trails and mechanisms ensuring that tax assessments and collections are in compliance with tax regulations, the BTr said.

Following its agreement with the BTr, the BIR would issue a revenue memorandum circular to govern the specials repo program.

Such transactions shall be governed by a global master repurchase agreement, an internationally accepted repo master agreement that was developed by the International Capital Market Association as well as the Securities Industry and Financial Markets Association, the BTr said.