BSP Implements FX Reforms, Expands Derivatives Market

By Mariela Angella Oladive

The Bangko Sentral ng Pilipinas on May 23 began enforcing Circular No. 1212, which introduces major reforms to the country’s foreign exchange regulatory framework.

The circular expands the range of FX derivative instruments that banks and financial institutions can offer and trade.

In addition to previously allowed deliverable and non-deliverable forwards, FX swaps, and cross-currency swaps, the new rules permit trading of non-deliverable swaps, non-deliverable cross-currency swaps, and FX options.

It also broadens the scope of transactions eligible for hedging and removes the requirement that deliverable forwards must match the maturity of the underlying exposure.

The reforms introduce pretermination provisions and clarify rules for non-deliverable contracts.

“These changes will enhance the ability of banks to offer more flexible risk management solutions to their clients,” said BSP Deputy Director Catherine C. Sarmiento of the International Operations Department during a May 22 briefing at the BSP Iloilo branch.

The circular also establishes an online application system for registering foreign investments, aiming to improve efficiency and transparency in reporting.

It clarifies guidelines on proprietary trading and customer transactions involving FX derivatives.

Banks and financial institutions have a six-month transition period to comply with the updated regulations and reporting requirements.

The BSP said these reforms are part of broader efforts to liberalize and modernize the Philippine financial market.

According to BSP data, FX derivative transactions averaged more than USD5 billion per month in 2023, primarily from non-deliverable forwards and swaps.

The inclusion of new instruments is expected to increase trading volume, enhance price discovery, and boost market liquidity.