The government is firming up plans for the establishment of a repo market by year-end or early next year.
National Treasurer Roberto B. Tan said the implementation of the repo program would “depend on how soon the regulatory and implementing agencies can be ready with the tax ruling, applicable reserve treatment and/or guidelines, and the trading platform and system required.”
A repo, short for repurchase agreement, allows a dealer to sell and repurchase short-term government securities such as treasury bills to a lender at a specified future date and an agreed price.
Repos are said to provide lenders low risk and are usually used to raise short-term capital.
Bangko Sentral ng Pilipinas Governor Amando M. Tetangco Jr. earlier said the repo system would help deepen the local debt capital market by giving banks and other holders of bonds the ability to liquefy these holdings at better prices when faced with sudden cash requirements.
“It will provide greater liquidity to the market. If you’re a holder of government securities, you can repo those for cash and deploy the cash. In short, you can use your government securities to generate liquidity,” Tetangco had said.
The repo scheme would also open the door to the practice of short selling of securities, legally, according to Tetangco.
The repo is one of the “legacy reforms” that Tetangco wanted to implement in his last year in office in a bid to boost domestic bond trade.