BTr to launch special repurchase program

MANILA, Philippines - The Bureau of the Treasury will launch a special repurchase program, which allows market players to quote two-way prices for government securities, as part of efforts to boost liquidity in the local fixed-income market.

The special repo program involves an investor selling bonds to the other and agreeing to buy them back at a specified future date.

 It is being structured in cooperation with market regulators (Bangko Sentral ng Pilipinas and the Securities and Exchange Commission), partner development agencies (Asian Development Bank) and other key market participants such as the Bankers Association of the Philippines.

This program is under the sponsorship of the Bureau of the Treasury in partnership with the Money Market Association of the Philippines (MART) as proponent from the market side.

The BTR inked an agreement with the Bureau of Internal Revenue, which will set out the proper tax treatment for the special repo, as well as provide guidance and basic parameters for its structure, operational mechanics and taxation-regulatory compliance by potential market participants in the program.

Under the MOA, the BIR and BTr will cooperate to ensure proper monitoring of repo transactions, directed to establishing audit and surveillance trails and mechanisms to ensure tax assessments and collections in compliance with tax regulations.

The special repo transactions are being envisioned for the interbank/professional market participants.

The program will be governed by the Global Master Repurchase Agreement (GMRA), an internationally accepted repo master agreement developed jointly by the Securities Industry and Financial Markets Association (SIFMA) and the International Capital Market Association (ICMA).

The “deliver-out, true sale basis” feature of this instrument is expected to give potential market makers the ability to take positions in GS and provide them greater ability to manage their portfolio.

The Treasury repo market provides the primary means for large dealers to finance their inventories, and it is a source of financing for purchasers wishing to acquire leveraged long positions.

The rate on a repurchase agreement may depend on which treasury security is used as collateral.