- August 13, 2018
- Posted by: Atty. James Biron
- Categories: Banking, Commercial, Legal News
Financial institutions may now borrow from the capital market without seeking approval of bank regulators after the Bangko Sentral ng Pilipinas (BSP) approved a policy changing the responsibility for ensuring the practicality of these debt instruments to the issuer.
The regulator said the issuance or commercial paper (CPs) does not need an advance approval of the Bangko Sentral. Universal and commercial (U/KBs) and quasi-banks (QBs) only need to submit a certification of compliance with the prudential criteria and other supporting documents indicating that the debt issuance went to the required process of approval by the board of directors and that it has been considered in the overall funding plan of the institution.
Banks should also 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, added by the BSP. This is to promote price discover and transparency.
The BSP said banks, including related parties, except trust departments or trust entities, must not act as so-called market maker – party responsible for ensuring the tradability of a security by giving buying and selling prices – for the debt instruments that they issue, to prevent influencing their market value and backdoor pre-termination. The registry bank, including the underwriter or arranger of the issuance is also required to be an independent third party.
The Monetary Board by the central bank approved the enhanced rules for the issuance of bonds and commercial papers along with its push of contributing to the development of the domestic capital market. The regulator said that the enhanced rules target to promote the objectives of an orderly and efficiently functioning market for debt securities and protecting the interest of the investing public.
The new rules prescribe the eligibility criteria for universal, commercial and quasi-banks, issuing these instruments and required enrollment of the bonds in a market that is organized in accordance with SEC rules and regulations.
The BSP, for the meantime, will continue to apply a 6% reserve requirement rate for bonds which considered as deposit substitute instruments. It is lower than that required for other deposit substitute instruments.
Image source: Proptiger
