Question & AnswerQ&A (BSP CIRCULAR NO. 102)
The BSP policy is to help deepen the Philippine financial markets by allowing alternative instruments for risk management, including financial derivatives products, under a properly regulated environment for the protection of market participants.
Any bank, non-bank financial intermediaries performing quasi-banking functions (NBQBs), and/or their subsidiaries/affiliates engaged in financial allied activities may engage in financial derivatives activities upon prior approval of the BSP.
Applicants must have the required minimum capital for their specific category or a net worth of at least P200 million, whichever is higher, and must comply with net worth-to-risk assets ratio requirements for the last 60 days before application.
Key officers or traders responsible for derivatives must have a minimum of two (2) years experience as office/trader in treasury, international operations, and/or risk management.
They may enter into any derivatives contract either as end-user, dealer/trader, or agent/broker, provided that contracts entered as end-user or dealer are for hedging purposes, and no open positions are taken in commodity- or equity-based contracts.
They must adopt a policy manual containing the minimum features and principles of the Risk Management Guidelines for Derivatives and provide risk disclosure statements to clients advising them of the risks involved in derivatives activities.
They must submit a monthly report on derivatives activities to the BSP within five banking days after the end of each reference month, using the prescribed format and sending copies to the Foreign Exchange Department and the Supervision and Examination Sector.
Sanctions include suspension or revocation of authority to engage in derivatives activities if the entity violates provisions, is in danger of insolvency, or likely to incur continuous losses, and fines for delayed, incomplete, or erroneous submission of major reports.
Previously authorized banks may continue existing derivatives activities for ninety (90) days, or six (6) months for foreign exchange swaps and forwards, and must secure new BSP authority afterward unless they have a net worth of at least P200 million, in which case their authorization continues until BSP acts on new applications.
Applications are submitted to the Foreign Exchange Department of the BSP, and monthly reports are submitted to the Foreign Exchange Department (original) and the appropriate supervising and examining department of the Supervision and Examination Sector (duplicate).