BSP tightens reporting rules on swaps

PANGLAO ISLAND, Bohol, Philippines – The Bangko Sentral ng Pilipinas said yesterday it would release stricter reporting rules for hedging instruments in a bid to align them with global reforms.

Central bank Governor Amando M. Tetangco Jr. said a draft memo has already been circulate to industry players containing additional reportorial requirements for dealing with over-the-counter (OTC) derivatives.

“That’s really the first step... this would be the gathering of data, we need to get information, additional data from the banks. It’s important that one can get an idea of the size of the market, what products are in the market... and get a better appreciation of the nature of the market, the products, the maturities, the pricing,” Tetangco told reporters.

OTC derivatives are used to manage and hedge risk especially for importers and exporters dealing with volatile foreign currency.

Tetangco said this is one step further in fulfilling reforms for this market, aligning the country’s OTC derivatives market with that of the advanced economies.

The Financial Stability Board, a panel of central bankers, has agreed to a comprehensive reform agenda for said markets back in 2009 in order to enhance the transparency and mitigate any risks arising from OTC derivatives transactions.

The FSB’s regional consultative group (RCG) for Asia yesterday concluded its eighth meeting here with a focus on OTC derivatives.

“We observed that many jurisdictions in Asia are finding it difficult to comply with the current global reform,” Tetangco, who is also serving as the co-chairman for the FSB’s RCG for Asia, said.

Unlike advanced economies, Tetangco pointed out the cost of putting up financial market infrastructures or exchanges for OTC derivatives may not be “economically feasible” given less activity in these markets.

“However, OTC derivatives play a critical role... so the challenge is to mitigate any resulting risk... and maintaining this balance is where our discussions are at today,” Tetangco said.

The progress of implementation of market reforms for OTC derivatives will be discussed again by the FSB later this month in a plenary meeting in Germany.

Masamichi Kono, who co-chairs the RCG for Asia with Tetangco, said attendees of the Bohol meeting agreed on a “proportionality test” for OTC derivatives markets and this will be raised at the plenary.

This “proportionality test” means OTC derivatives markets across the globe need different measures given their varying sizes and needs.

“In developing economies, in some cases, there are no liquid markets yet so you don’t apply those measures fully,” Kono, vice minister for international affairs at the Japan Financial Services Agency, said.

“The thing you want to do is collect data, establish a reporting system... find out whether that market really is important in terms of systemic risk and whether those markets are in need of sets of reforms,” Kono said.