Gov’t to roll out repurchase market by end-2017

By Melissa Luz T. Lopez, Senior Reporter

THE government is looking to establish a repurchase market within the year, as part of plans to develop a new capital-raising platform that would unlock fresh funds in the local financial system, the National Treasurer said.

The Bureau of the Treasury and the Securities and Exchange Commission (SEC) are working to set up a repo market in order to allow more financial players to buy and sell securities in order to generate fresh liquidity, National Treasurer Rosalia V. De Leon said, as one component of an industry-wide initiative to deepen the country’s capital markets.

“The target is hopefully within the year,” Ms. De Leon told reporters in a briefing on Thursday.

“It all depends on the SEC because they are the ones to accredit the SROs (self-regulatory organizations),” she added, referring to the approval of applications for market players looking to participate in the new facility.

Under a repo agreement, one party sells a security – such as Treasury bills and bonds – to another which it will buy back at a specified price and a future date, in the process providing the seller with short-term liquidity which it can use to hand out loans and service additional client withdrawals.

Last month, the SEC, Treasury, Department of Finance, and the Bangko Sentral ng Pilipinas (BSP) opened an industry roadmap to deepen the domestic debt market, which they plan to finalize and implement over the next 18 months.

Ms. De Leon said they are also working on standard valuations for mark-to-market rates for bonds, as well as enhance the benchmarking process so that bank loans will be priced more accurately using yields on government securities as the baseline.

The National Treasurer added that they are also starting to “grade” securities dealers to monitor their bids for the regular auctions.

“Every month we give them a report card in terms of their participation in the primary market,” Ms. De Leon said, explaining they compare a bank’s submitted bid against the results of the actual auctions.

At present, the government raises fresh funding through the offering of Treasury bills (T-bills) and bonds every week. However, volumes offered and tenders received for each tenor varies, with market players showing stronger preference for short-dated notes.

The Treasury offers T-bills which come with maturities of three months, six months, and one year; while T-bonds range from two to 20-year issuances.

BSP Governor Nestor A. Espenilla, Jr. said he expects to see “more regular” bond auctions across all maturities, which in turn is expected to spur more bond offerings from private companies as well.

“[T]he goal is for a company to be able to sell bonds to the public directly or through the exchange,” Finance Secretary Carlos G. Dominguez III also told reporters, citing the need to make the local markets “more mature.”

“That takes quite a bit of doing, it won’t happen overnight again but the direction is there and I think we are making good progress towards that.”