DOF lifts GS trading restrictions

MANILA, Philippines - The Department of Finance has lifted trading restrictions on government securities, allowing the transfer of these debt instruments between and among tax exempt and taxable institutions.

Finance Secretary Cesar Purisima said the move is aimed at boosting liquidity and developing a robust secondary government securities market.

The Finance Department has amended order 141-95 or the rules on non-restricted trading and settlement for peso-denominated government securities to allow transfer across tax categories as a result of advancements in technology and electronic transfer tracking systems.

National Treasurer Rosalia De Leon said the government intends to roll out the non-restricted trading environment this month.

“Implementation mechanics for the transition to a non-restricted trading across tax categories shall be issued by the Treasury in order to prevent any disruption in the government securities market,” De Leon said.

Under the previous rule, securities held by government owned and controlled corporations (GOCCs) and local government units (LGUs) could be transferred prior to maturity only with GOCCs and LGUs which maintain securities account in the book entry of the Bureau of Treasury (BTr).

In the same manner, tax exempt institutions (TEIs) could sell their government securities prior to maturity only to TEIs

Purisima said this was also a necessary step to protect the investing public from fraud or loss by ensuring the proper assessment and collection of taxes on the transfer of government securities. 

De Leon said this initiative “will see an increased number of market players being able to participate in the secondary market trades for government securities.” 

Tax exempt institutions are also expected to benefit from this as they are now given access to price discovery and efficient settlement infrastructure long enjoyed by the active taxable sector of the market.

 “The government believes that this initiative will give rise to the development of new capabilities that should positively impact the best practices in portfolio investments and hedging strategies of both taxable and tax exempt investors alike,” De Leon said.

Aside from this, the move will enable the BTr to engage  or employ facilities/systems that will enhance the existing registry capabilities of the Registry of Scripless Securities (RoSS).

The reason for the original prohibition or restriction against the transfer of government securities between and among taxable entities, TEIs, GOCCs and LGUs, is the system’s limitation to tax track transfers,” said Finance Undersecretary Carlo A. Carag.

In recognition of this limitation, the BTr has partnered with various donor agencies to lay down the blueprint for treasury systems enhancement including the RoSS and the ADAPS (current systems). 

Any engagement shall be duly cleared by the Bureau of Internal Revenue to ensure its capability to accurately calculate and account for the appropriate taxes on relevant coupon period across tax categories.

To date, TEIs hold 21 percent of government securities, mostly held-to-maturity.