National Treasurer Rosalia de Leon / INQUIRER FILE PHOTO
The government is eyeing to launch the repo before yearend as part of the peso debt market development roadmap to be pursued in the next 18 months, National Treasurer Rosalia V. de Leon said.
Regulators were just awaiting the Securities and Exchange Commission’s (SEC) approval and accreditation of a self-regulatory organization (SRO), a private group that will oversee the repo rollout, de Leon told reporters late Thursday.
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.
Last month, Bangko Sentral ng Pilipinas (BSP) Governor Nestor A. Espenilla Jr. said the government’s “ambition” was to see an active repo market by 2019.
The launch of the repo forms part of the reforms to be introduced to develop the domestic capital market in line with the government’s plan to finance the wider budget deficit equivalent to 3 percent of gross domestic product until 2022 through a borrowing mix mostly reliant on local sources, with an 80-percent share.
Espenilla had said that the roadmap will have three major operational priorities, the first of which was to deepen the local bond market by adopting reforms in the government securities eligible dealer (GSED) system, increase supply of short-term securities, and develop an effective regulatory framework on derivatives and repo markets,
Also, Espenilla had said it will create a reliable financial benchmark as well as valuation of financial instruments.
Finally, the roadmap will establish an integrated financial market infrastructure that Espenilla had said “will promote price discovery, transparency and orderly trading clearing and settlement of a full range of financial transactions.”
During the local currency debt market development workshop spearheaded by the the BSP, the Department of Finance, the Securities and Exchange Commission and the Bureau of the Treasury held together with market participants last month, regulators unveiled proposed reforms that were “designed to increase efficiency and reduce the cost of dealing in government bonds, provide market incentives to increase levels of participation, introduce new products including hedging tools based on global standards, and reduce current levels of variability and uncertainty in the pricing of government bonds,” the Treasury had said.
According to the Treasury, “some of the salient features and innovations that will be introduced under the reform package include: a permanent increase in the volume of treasury bills; the consolidation of government bonds into six liquid tenors: two-year, three-year, five-year, seven-year, 10-year and 20-year; the adoption of common semi-annual coupon payment dates; the designation of market makers with concomitant obligations and privileges; the introduction of a Global Master Repurchase Agreement (GMRA)-based repo market; the consideration of an SRO for a possible organized over-the-counter market; and regulatory reforms to support the adoption of a market based and International Organization of Securities Commissions (IOSCO)-compliant market pricing benchmarks.”
The Treasury had said that these reforms will be implemented over an 18-month period after a formal launch, alongside specific institutional and regulatory targets to be set every six months. JPV