BSP eases rules for banks’ bond issues
Financial institutions may now borrow from the capital market without having to seek the approval of bank regulators after the Bangko Sentral ng Pilipinas approved a policy shifting responsibility for ensuring the viability of these debt instruments to the issuer.
The central bank said, however, that banks must not act as the so-called market maker— the party responsible for ensuring the tradability of a security by providing buying and selling prices—for the debt instruments that they issue to prevent influencing their market value.
“The issuance of bonds or commercial paper does not need prior approval of the Bangko Sentral,” the regulator said in a statement. “Universal, commercial and quasi-banks only need to submit a certification of compliance with the prudential criteria and other supporting documents reflecting that the debt issuance has undergone the required process of approval by the board of directors and that it has been considered in the overall funding plan of the institution.”
“In addition, [banks] should submit a written undertaking to enroll or trade the bonds in a market which is organized in accordance with the Securities and Exchange Commission’s rules and regulations,” the BSP added.
The central bank said its Monetary Board approved the enhanced rules for the issuance of bonds and commercial papers in line with its thrust of contributing to the development of the domestic capital market.
The new rules set out the eligibility criteria for universal, commercial and quasi-banks to issue these instruments and require enrollment of the bonds in a market that is organized in accordance with SEC rules and regulations.
“The enhanced rules aim to promote the objectives of an orderly and efficiently functioning market for debt securities and to protect the interest of the investing public,” the regulator said.
The enhanced policy also requires issuing banks to enroll or trade the bonds in a market recognized by the SEC to promote price discovery and transparency.
The BSP prohibits the issuing banks—including related parties, except trust departments or trust entities—from holding and acting as a market maker of the banks’ listed bonds to prevent possible undue price influence and backdoor pre-termination.
Likewise, the registry bank, including the underwriter or arranger of the issuance, is required to be an independent third party.
Meanwhile, the BSP will continue to apply a 6-percent reserve requirement rate for bonds, which are considered deposit substitute instruments. This rate is lower than that required for other deposit substitute instruments.
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