BSP expands access of UITF to BSP securities in the secondary market

The Monetary Board has decided to allow trust entities (TEs) to invest unit investment trust funds (UITFs) with minimal non-resident funds in the  BSP Securities.

Currently, TEs may invest in BSP Securities through their UITFs provided that there are no non-resident participants in the invested UITFs.

Under the approved amendments to the regulations, TEs may purchase BSP Securities in the secondary market for any UITF in which the share of net assets of non-residents does not exceed ten percent (10%) of the net assets of the fund.

Expanding the coverage of participants in the secondary market trading of BSP Securities enhances the BSP’s capability to absorb liquidity and helps transform the BSP Securities as a primary tool for liquidity management.

The measure is also aimed at ensuring the tradability and viability of BSP Securities as a highly liquid instrument, thus allowing for better price discovery and monetary policy transmission.

The implementation of this policy supports the BSP’s prevailing monetary policy stance to increase liquidity absorption amid an elevated inflation environment, consistent with the BSP’s exit from monetary accommodation measures in response to the pandemic.

In this regard, the BSP shall also be closely monitoring the sources of funds placed by trust entities in the BSP’s facilities through periodic supervisory reporting requirements.

The BSP may revisit the access of trust entities with non-resident funds to the secondary market for BSP Securities depending on the results of its periodic monitoring and in line with the BSP’s prevailing stance of monetary policy and corresponding liquidity management strategies.

The BSP shall subsequently issue a Circular to amend its existing rules governing the trading of BSP Securities in the secondary market.

A TE that plans to transact BSP Securities in the secondary market is required to submit a Letter of Undertaking (LOU) to the BSP through the Financial Markets (FM) to signify its commitment to comply with the conditions for participation.

In addition, in view of the revised terms and conditions, existing participants shall update their submitted LOUs.