BSPSECURITIESEnhancing the BSP'sMonetary Policy Toolkit

B S P ' S M O N E T A R Y P O L I C Y T O O L S

BSP SECURITIES

A credit facility provided byBSP to banks using loan

paper as collateral

REDISCOUNTING FACILITY

BANK

LOAN ACCEPTED

BANK

BSP SECURITIESISSUANCE

BANK

BSP borrowing of short-term fundsfrom banks using government

securities (GS) as collateral with anagreement to buy them back

at a specified price on aspecified date

REVERSE REPURCHASETRANSACTIONS

BSP Securities as an additional monetary instrument for managingfinancial system liquidity under the Interest Rate Corridor framework

Standing liquidity windows toprovide or absorb liquidity

to/from banks

STANDING OVERNIGHT LIQUIDITY FACILITY

Fixed-term deposits bybanks with the BSP

TERM DEPOSIT FACILITYA portion of bank

deposits that is requiredto keep in reserve

RESERVE REQUIREMENT

Exchange of two currencieson a specific date and agreed

rate and deal date and itsreverse exchange

FOREIGN EXCHANGE SWAPS

Direct purchase/sale ofGS by the BSP from/to

the market

OUTRIGHT PURCHASE/SALE OFGOVERNMENT SECURITIES

Issuance of BSP SecuritiesIssuance of BSP SecuritiesIssuance of BSP Securities

BSP was allowed to issue its own debt

securities since its establishment but

only during exceptional times when

there were extraordinary movements

in price levels.

July 1993

REPUBLIC ACTNO . 7653

February 2019

Restored BSP’s authority to issue freely

negotiable debt securities for regular

monetary operations

REPUBLIC ACTNO . 1 1211

THEN NOWandandand

Tool for liquidity management operations

to influence/manage liquidity in the financial system,particularly those arising from large structural

liquidity surplus due to capital flows or additionalliquidity released from the reduction in the reserve

requirement ratios of banks

Serves as an additional short-termmonetary policy tool used by the BSP

to help manage liquidity in the financial systemsuch as term deposit facility (TDF), overnightreverse repurchase (RRP) facility, overnightdeposit facility (ODF), and overnight lending

facility (OLF)

Additional monetary instrument

for monetary policy implementation under theInterest Rate Corridor (IRC) framework to guide

short-term market interest rate toward thepolicy rate

Why are they important?What are BSP Securities?

Enhances the development of the localbond market

as an addition to the pool of risk-free assets in thefinancial system alongside the securities issued by

the National Government

Contributes to improved price discoveryfor debt instruments

and supports the monetary policy transmissionthrough the regular auction of BSP Securities

Supports the BSP’s initiative

to shift to more market-based monetaryoperations and allow the BSP to conduct

monetary operations in line with internationalcentral banking practice

BSP Securities are issued by thePhilippines’ central bank as a tool forliquidity management in the financialsystem to support monetary policytransmission.

Government Securities are issued bythe National Government through theBTr to fund the government’sspending requirements.

Issuance of BSP Securities are held in close coordination with BTr to ensure that issuances do not compete withthe issuances of securities by the National Government in terms of tenors, timing of issuance, among others.

BSP Billsshort term

The BSP will initially offer BSP Billsin view of the prevailing marketpreference for shorter tenors.

What types ofsecurities willthe BSP issue?

BSP Bondslong term

Central bank (CB) securities usually coverthe shorter segment of the yield curve.However, CB bonds with longer maturitiesare offered when there is persistentstructural excess liquidity.

In general, the offered tenors for BSP Securitiesshall be conditional on market preferencesand liquidity conditions.

What would be the tenors (maturity) of the BSP Securities?

Participantsin the auction

Initial offering of BSP bills toexisting BSP counterparties in theTerm Deposit Facility (TDF)(universal and commercial banks,thrift banks, and non-banks withquasi banking functions) at theonset; Expansion of counterpartiesmay be considered going forward

Tenors

Determination of offeredtenors will be guided bymarket demand and liquidityconditions

Wha

t ar

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atur

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f the

BSP

Secu

riti

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AuctionFrequency

Issuance to be conductedthrough auction on a weeklybasis or depending onmarket appetite as well aslatest liquidity conditions andforecasts

BTr’s National Registry of ScriplessSecurities (NRoSS) will serve as registryof successfully awarded BSP Securitiesand ensure delivery-versus-payment.

SecondaryMarket Trading

Secondary market trading to bedone through designated tradingplatform of the Philippine Dealingand Exchange Cooperation(PDEx), subject to PDEx andSecurities and ExchangeCommission (SEC) rules onsecondary market trading ofsecurities

Auction Size

Based on the BSP’s forecasts of thetotal amount of system liquidity tobe absorbed; For the initialissuance, the BSP will offerrelatively small auction volumes totest market demand as well asensure that counterparties will bethoroughly familiar with theprocess prior to scaling up theissuance size.

Auction Details

Auction to be done through theBSP’s Monetary OperationsSystem (MOS) to determineallotment of securities

Initially, secondary market trading ofBSP Securities shall be limited to thesame institutions that are allowed toparticipate in the BSP Securitiesauction. At the same time, sell-downof BSP Securities to institutional andretail clients of eligible participants isnot allowed at the initial stage. Theexpansion of access to BSP Securitiesto include other market participantswill be studied further and may beconsidered at a later phase.

MOS is a web-based electronicplatform that enablescounterparties to participate in theBSP’s peso liquidity facilities.

NRoSS is an electronic registry systemfor government securities (GS) andfacilitates the settlement and recordingof transfers of GS through anestablished interface with the tradingplatform for secondary market tradesand the BSP’s Philippine Payment andSettlement System (PhilPaSS).

"Still, our toolkit is far from exhausted, and we standready to do more if needed. Speaking of toolkit, the BSP

is set to issue our own debt securities starting today. Thiswill be an additional monetary policy instrument underthe Interest Rate Corridor (IRC) framework. The use ofBSP Securities for liquidity management supports the

shift to more market-based monetary operations."

— BSP Governor Benjamin E. Diokno "Laying the Groundwork for the Post COVID-19 Era" (18 September 2020)