Non-residents can now invest in BSP securities

MANILA, Philippines —  To absorb excess liquidity in the financial system, the Bangko Sentral ng Pilipinas (BSP) has decided to allow trust entities (TEs) to invest in unit investment trust funds (UITFs) with minimal non-resident funds in instruments issued by the central bank.

BSP officer-in-charge Chuchi Fonacier said  the   Monetary Board has approved amendments to the manual of regulations for non-bank financial institutions pertaining to the participation of trust entities that manage UITFs with non-resident participants or those originating outside the country’s financial systems.

Under the approved amendments to the regulations, Fonacier said trust entities can now purchase BSP-issued bills and bonds in the secondary market for any UITF in which the share of net assets of non-residents does not exceed 10 percent of the net assets of the fund.

Expanding the coverage of participants in the secondary market trading of BSP securities enhances the central bank’s capability to absorb liquidity and helps transform the BSP securities as a primary tool for liquidity management.

According to the central bank, the measure aims to enusre the tradability and viability of BSP securities as a highly liquid instrument, thus allowing for better price discovery and monetary policy transmission.

The implementation of this policy supports the BSP’s prevailing monetary policy stance to increase liquidity absorption amid an elevated inflation environment, consistent with the BSP’s exit from monetary accommodation measures in response to the pandemic.

The regulator prohibits funds from non-residents to be invested in the term deposit facility (TDF), overnight deposit facility (ODF), and BSP securities facility (BSP-SF) as these instruments are deployed for the purpose of managing domestic liquidity in the financial system.

“These facilities should not be made available for opportunistic investment activities funded from non-resident sources. Further, placements in the TDF, the ODF and the BSP-SF are contractual in nature and thus shall be governed by the intent of the contracting parties,” Fonacier said.

The BSP has committed to closely monitor the sources of funds placed by trust entities in the BSP’s facilities through periodic supervisory reporting requirements.

The regulator may revisit the access of trust entities with non-resident funds to the secondary market for BSP securities depending on the results of its periodic monitoring and in line with the BSP’s prevailing stance of monetary policy and corresponding liquidity management strategies.

The central bank said it would subsequently issue a circular to amend its existing rules governing the trading of BSP securities in the secondary market.

It added that a trust entity that plans to transact BSP securities in the secondary market is required to submit a Letter of Undertaking (LOU) to the BSP through the financial markets  to signify its commitment to comply with the conditions for participation.

Earlier, BSP Governor Felipe Medalla said the regulator is planning to raise the volume of BSP-issued securities to as much as P900 billion from the current P500 billion to absorb excess liquidity in the financial system and tame inflation.