BUSINESS CORRIDOR

As promised in the previous piece, I am now introducing BVAL, which plays a very critical role in the setting up of the new benchmark with the passing on of PhiRef (Philippine Interbank Reference Rate) Friday next week and the final interment of LIBOR. From what I heard along the walls of the Bangko Sentral ng Pilipinas (BSP), there appears to be meeting of the minds for the establishment of a new overnight (O/N) rate using the 28-day BSP Bill as the underlying asset in drawing up a replacement rate that will be effective “on or before June 30” as well as setting January 2024 as the fighting target “to have a credible yield curve in place.” The BSP Townhall (sounds like a CNN program during an election campaign in the US) discussion Tuesday with the market stakeholders was a positive step to clear all issues hounding the makings of the new benchmark. “A compromise has been reached,” my muted source tells me. This may sound welcoming. In fact, the chair of the Open-Market Committee of the Bankers Association of the Philippines (BAP) MichaelAngelo R. Aguilar, president of Bank of Commerce, wrote Senior Assistance Governor for Systemic Risk Management that the influential banking group is “ready to assist the BSP in disseminating to our members banks the formal BSP announcement of the publication of the O/N rate translated from the 28-day BSP bill which will serve as a successor to PhiRef.” This is where BVAL (Bloomberg Valuation Service) comes into play. At the Town Hall meeting, one of the views raised during the TownHall discuss was on the alleged truthfulness of BVAL, the electronic financial information service provider that gives out “credible, transparent and defensible valuations across a broad spectrum of financial instruments, including fixed income, derivatives and structured notes Based on what I gathered through, the mood changed altogether following the statement issued by the BSP on the need to have a “a credible yield curve,” which for a keen market observer seems to be out of bounce. Am I just overreading or overthinking? But I could sense certain enmity. I must concur that credible yield “is in everyone’s best.” Apparently, though, the way it was worded did not sit well with the market stakeholders. Do I take it to mean that the curve the market is using at the moment is not credible? And voila, the supportive mood dissipated on thin air.  While the BAP stressed that they “share the view with the BSP in desire to have a yield curve based on actively traded securities” they refute points raised on the truthfulness of BVAL. First, the BAP opined the country is “fortunate that the Philippines market is supported by globally recognized methodology utilized in over 100 jurisdictions.” BAP is the administrator of the Philippine BVAL benchmark. The organization has been licensed by the Securities and Exchange Commission (SEC). And given the current environment of a “limited market capability,” BAP as the administrator of “remains credible.” Compared to other markets in the region, the Philippines “still strives to have a deeper and vibrant securities market.” It was pointed out that for now, the local market has 5-7-10 years securities actively traded. But here’s the thing: the 12-15-20 years bonds are “receviing strong interest from market participants and inventors.” Thus, these, securities provide banking industry “sufficient support in pricing” bank products such as loans and mortgages as well as market-to-market of banks’ portfolio. And from my vantage point, it’s kinda oxymoron that the BSP now raised BVAL’s truthfulness when in fact it is “compliant” to the principles of the International Organization of Securities for financial benchmarks, has been accepted by the country’s board of accounting professionals and more importantly “supported by regulation issuances” of the BSP and SEC. All things considered, BVAL as a benchmark is “accepted by the Philippine financial and capital market participants.” The steadfast confidence of the market in the use of BVAL is a “result of vigorous bank testing and its ability to perform straight through processing, a critical to deliver efficient and convenient services to bank customers.” All that said, and as the wheels of discussion continue to churn, amidst certain reservations BAP still welcomes the BSP initiatives to enhance the benchmarks.” It, too, has committed to continue to “work actively with the regulators to ascertain any foreseeable benchmark implementation that undergoes system wide testing, accreditation and general acceptance  by all market stakeholders.” Talkback to me at [[email protected]](mailto:[email protected])