The Bangko Sentral ng Pilipinas (BSP) is allowing universal and commercial banks to electronically submit six foreign exchange (FX) transaction documents to lessen risks of COVID-19 transmission in the handling of hardcopy.

Based on a new memo (BSP Memorandum Order No. M-2020-089) that BSP Deputy Governor Chuchi G. Fonacier signed on December 11, all covered banks will electronically submit required documents to the Department of Supervisory Analytics starting from the December 15 cut-off. These are submissions due on December 18 relating to the computation of banks’ open FX position.

The digital submission will expedite the processing of reports and “minimize the need to submit in hardcopy during this time of ongoing Covid-19 pandemic,” said Fonacier in the memo.

The FX transaction reports that are shifted to digital submission includes the details of accounts excluded in the computation of net open FX position, the consolidated FX position report and the summary of delta-weighted positions of foreign currency options per currency.

Also for digital submission are big banks’ foreign currency options purchased/sold outstanding, the summary of notional amounts of foreign currency options per currency and foreign currency options purchased outstanding.

Fonacier said these documents should be electronically transmitted within three banking days from reference date.

On the day that the memo was signed was also the deadline for banks to submit feedback on the BSP’s proposed new limit to the overbought and oversold FX position of banks.

Based on the draft circular, the BSP is proposing a new limit to the net open FX position from $50 million to $100 million.

The proposal is that bank’s consolidated net open FX position should not exceed 25 percent of its qualifying capital or $100 million, whichever is lower.

The current allowable open FX position is not specified as a net position, and it is the lower of 20 percent of a bank’s unimpaired capital or $50 million.

Any excess of the allowable limit is settled on a daily basis. The current rule imposes a penalty of P30,000 per day, per transaction, whenever a bank is in excess of its oversold or overbought FX limit.

The proposed circular noted that instances of breaches that will be evaluated will be based on frequency and the gravity of the breaches, and the underlying cause or causes of the breaches and the extent to which these are consistent with the authorized agent banks’ (AAB) declared business strategies, said the BSP. To be evaluated are also the strength of the AAB’s risk management system and actions taken by the AAB, if any, to address the breaches and restore compliance with the limit.

An open FX position refers to the “extent that banks' FX assets do not match their FX liabilities”. These are either FX assets exceeding FX liabilities which will be in positive/long/overbought position, or FX liabilities exceeding FX assets to indicate negative/short/oversold position.

Basically, an overbought position is when banks’ FX position leads to an extended upside price movement that is consistent and with no significant retreat. The oversold position is the opposite, or downward price movement.