Dealers push revival of repo market

MANILA, Philippines — The Money Market Association of the Philippines Inc. (MART) is looking at measures to revive the repurchase (repo) transactions under the government securities repo program.

MART president Christopher Salazar told reporters that the industry is considering measures to revive and make the repo that was launched in November last year active again.

“For the repo, we’re looking at reviving because the market has sort of dried up. It had a lot of promise and potential last year, but in the recent months volume has been zero. We’re looking for ways to sort of revive it and make it active again,” he said.

Salazar, who is also senior vice president of First Metro Investments Corp. (FMIC), said the repos are also a function of the current markets.

“Given the generally tight liquidity in the market, a lot of the participants tend to be on the same side – you’re borrowing pesos. If

you’re all on the same side, no one really wants to lend, you can’t execute a deal,” he said.

Cristina Arceo, MART director and first vice president at China Bank, said the rules on short selling should be clarified to generate liquidity in the market and help revive the repo market.

“If you’re borrowing the securities so you’re lending money, you cannot use the securities because there’s the constraint on short-selling. If the issue on short selling is addressed, it can generate liquidity by selling in the market. But that part was not clear,” Arceo said.

MART vice president Steven Michael Reyes said another constraint is the different types of global master repurchase agreement (GMRA) with big banks and smaller banks.

“I think the standardization plan has been shelved because in GMRA it’s a credit. It was considered during the start of the development of the product,” he said.

Reyes, who is also senior vice president at Rizal Commercial Banking Corp. (RCBC), said the bilateral GMRA would be entered into by two counterparties.

The government securities repo program is a key initiative under the Local Currency Debt Market Development Reform package. 

The BSP strongly believes that the establishment of an organized repo market is a key element in developing and deepening the domestic financial market.

In particular, the organized interdealer repo market is expected to boost market liquidity and enhance price discovery as it gives government securities eligible dealers (GSEDs) the ability to quote two-way prices. 

Further, the “deliver-out, true sale basis” feature of this instrument is expected to provide market makers the ability to take positions and provide them greater flexibility in managing their portfolios.

MART board director Rinaldo Fernandez said insurance companies should also be allowed to participate in repo market.

“I think also moving forward, one way we can look at it is participation. Right now, it’s basically among financial institutions but I think personally, we might already be looking at the other participants that may play a big role in this development, the insurance companies,” Hernandez said.

Hernandez, who is also vice president of Ayala-led Bank of the Philippine Islands (BPI), said insurance companies have the securities and the cash for investment.

“If they get into it, the issue of all of us are on the same side could be answered by that because these are mostly investors. Instead of placing it on regular deposits, they can look at the repos,” Hernandez said.