BSP eases limit on UITF exposure

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has eased investment limits for unit investment trust funds (UITFs), allowing them to place a bigger share of assets in exchange-traded equities.

Under Circular 1234, signed by BSP Governor Eli Remolona Jr., UITFs may invest up to 15 percent of their market value in a single entity, but the ceiling is set at 20 percent if the exposure is in exchange-traded equity securities.

“The combined exposure of the UITF to any entity shall not exceed 15 percent of the market value of the UITF: Provided that, a UITF invested, partially or substantially, in exchange-traded equity securities shall be subject to a 20 percent exposure limit to a single entity/issuer,” the document said.

UITFs refer to open-ended pooled trust funds that distribute your investments in a portfolio of securities like stocks, bonds or money market instruments. These investments are operated and administered by a trust entity and made available by participation.

“In the case of an equity index-tracking UITF, the exposure limit shall be the actual benchmark weighting of the index component issuer, which may exceed 20 percent,” the BSP said.

In addition, the BSP said a trust entity should be aware of the aggregate investments of a UITF in any entity and its related parties, and must have “adequate tools and controls in place to effectively manage the overall risk exposure.”

The BSP also directed trust entities to report breaches of the cap to the supervising department, the Capital Markets and Trust Supervision Department.

The central bank said the notice should be signed by a trust officer and must contain the date of the breach, the reasons behind it and the action it has taken or will take to achieve full compliance with the exposure limit.

Breaches coming solely from mark-to-market movements of investments or other extraordinary circumstances, such as abnormal redemptions beyond the control of the trust entities, should be corrected within 30 days from the time the limit is breached.

The Monetary Board approved the recalibration of the maximum exposure limits of UITFs relative to exchange-traded equity securities in its Resolution 288 on May 6.

The circular took effect 15 days following its publication either in the Official Gazette or in a newspaper of general circulation.