The Bankers Association of the Philippines (BAP) will open the enhanced PESO interest rate swap (PESO IRS) market Monday, Nov. 18, with 16 BAP-member banks as market makers plus five more banks as regular participants.
In a statement over the weekend, BAP President Jose Teodoro K. Limcaoco Jr. said when the improved PESO IRS market goes live on Monday, he also reminded the banking sector to “work together and ensure that the reforms we have pursued will fulfill their goals.”
“The launch of the enhanced PESO IRS market, together with the creation of a repo market for government securities, are valuable steps towards growing our Philippine capital market,” he said. Limcaoco is also the president and CEO of Ayala-led Bank of the Philippine Islands (BPI).
The BAP pushed through with the schedule to open the PESO IRS market next week after the release of the updated International Swaps and Derivatives Association (ISDA) definitions on Nov. 15.
The Philippine Overnight Reference Rate or ORR is included in the ISDA. The BAP developed the ORR based on the Bangko Sentral ng Pilipinas’ (BSP) variable overnight repurchase rate.
Citi Philippines CEO and Country Head Paul A. Favila who is also chairman of the BAP Open Market Committee, said the PESO IRS market will further develop the local market’s yield curves to “support the pricing requirements of short-term credit instruments, such as loans, in the market.”
There will be 16 market makers for transactions, among them: BDO Unibank Inc., BPI, Metropolitan Bank and Trust Co., China Banking Corp., Philippine National Bank, Security Banking Corp., Rizal Commercial Banking Corp., Union Bank of the Philippines and East West Banking Corp.
Others include ANZ Banking Group, Citibank NA, Deutsch Bank AG, HSBC, ING Bank, JP Morgan Chase, and Standard Chartered Bank.
Five banks will serve as regular participants to the PESO IRS market, such as: BDO Private Bank, Maybank Philippines, Mizuho Bank Ltd., MUFG Bank, and Sumitomo Mitsui Banking Corp.
Bloomberg will be the trading platform for the PESO IRS market. “Through widespread trading among market participants, the BAP believes this would promote the creation of enhanced benchmarks — leading to the pricing of loans that reflect the needs of the market,” said the group.
The BSP and BAP signed last Sept. 30 this year an agreement to develop and enhance short-term benchmarks. A benchmark yield curve helps improve the pricing of bank loans and corporate bonds.
BSP Governor Eli M. Remolona Jr. has said that these two complementary initiatives – the PESO IRS and the repo market -- will create a smooth yield curve to “reflect market consensus and help in pricing credit instruments of varying maturities.”
The repo market for government securities is expected to expand the trading for government securities. The BSP and the BAP also intends to have it as alternative benchmark especially for short term loan rates.
The BAP relaunched the interbank repo market lat year. At the moment, the BSP is working with BAP to expand the market. The BSP currently “tags” securities to banks “that place cash with it via the reverse repo window.”