SEC OKs rules on listing of bank-issued bonds

The Securities and Exchange Commission (SEC) has approved the framework for the listing of bonds issued by banks as well as the trading of unregistered securities on fixed income trading platform Philippine Dealing System & Exchange (PDEx).

In a chance interview on the sidelines of a recent forum held by financial technology firm First Circle, SEC Commissioner Ephyro Luis Amatong said the corporate watchdog had approved the new PDEx rules in support of a newly issued memorandum circular from the Bangko Sentral ng Pilipinas (BSP).

“So we expect the banks to be able to issue on the fixed income market very quickly,” Amatong said.

The BSP used to require participants to back up 100 percent of their bonds with government securities as collateral. If the bank won’t use government securities as collateral, then the value of collateral must exceed that of the issue size.

BSP circular 1010 series of 2018 scrapped this collateral requirement.  A part of the new requirement is that the bonds should be enrolled or traded in a formal market.

Debt issuances of banks are exempted from the registration requirement of SEC. This is because banks are presumed to be highly regulated by the BSP and by nature, they already have access to public funds via deposits.

The trading of bank securities, however, is still subject to SEC-regulated listing and trading rules. If their securities are listed on PDEx, for instance, this will involve SEC-licensed fixed income market salesmen who deal with retail investors.

Under the BSP’s rules, a bank or quasibank may issue bonds and/or commercial papers without prior BSP approval provided that it meets “prudential” criteria, such as a rating of at least 3 in “CAMELS” —an international rating system used by banking regulators based on metrics represented by the acronym: capital adequacy, asset quality, management, earnings, liquidity, sensitivity. Furthermore, the bank must not have any major supervisory concern in governance, risk management systems, internal controls and compliance system.  It must have complied with directives and/or is not subject of specific directives and/or enforcement actions by the BSP.

Amatong added the SEC had also approved the rules on the secondary trading of unregistered securities with 19 or less investors.