The Bangko Sentral ng Pilipinas is formulating trading- and price-setting guidelines for the country’s repo market, to help make it more attractive to investors.
BSP Governor Amando Tetangco Jr. said consultations were ongoing between regulators and industry players for the establishment of the guidelines, which are expected to help more people understand and participate in the repo market.
“The repo market is an important component of a vibrant capital market so we will pursue its appropriate development,” Tetangco told the Inquirer.
Repo is a security that is sold under the agreement that the seller will buy it back at a future date. The repo market is where such securities are traded. Currently, there are no formal rules guiding trading and price setting in the country’s repo market.
Tetangco said having guidelines is expected to encourage more trading activities, which would in turn generate more liquidity and help finance investments.
Tetangco said the guidelines were expected to include determination of rates that will serve as benchmarks for the setting of two-way price quotes for securities traded in the repo market.
“Awakening the moribund rep market [is important] so that liquidity is improved and one-sided quotes will be a thing of the past,” Tetangco said.
“The repo market will help deepen liquidity in the capital market on one hand, and create a source of income on the other,” the central bank chief added.
The central bank’s move to set trading and price-setting guidelines involving repos is consistent with the government push to deepen the country’s capital market.
Economists said the Philippines needed to deepen its capital market as emerging markets face a potential surge in foreign portfolio investments.
A deep capital market will help the economy absorb foreign capital inflows and reduce the threat of asset price inflation.
Economists said that if there were not enough instruments available in the capital market, money coming in is invested in only a few securities, and this could lead to extreme price volatility.
Money is coming into markets such as the Philippines because of the lack of adequate returns in the United States and Europe, which are hounded by slow growth and deep debt concerns.