QuestionsQuestions (BSP CIRCULAR NO. 591, S. OF 2007)
The BSP’s policy is to support the deepening of Philippine financial markets. Customers may use FX forwards to hedge market risks from FX obligations and/or exposures, and may use FX swaps to cover funding requirements, subject to specific eligibility, documentation, and “no over-hedging/double hedging” limits.
Banks may engage only if the customer is hedging market risk or covering funding requirements. The circular also prohibits double multiple hedging and requires that the total notional amount not exceed the amount of the underlying FX obligation/exposure.
There shall be no double multiple hedging at any point in time. The total notional amount of the FX derivatives transactions must not exceed the amount of the underlying FX obligation/exposure.
Customers may no longer be allowed to buy FX from the banking system for FX obligations/exposures that are fully covered by deliverable FX forwards and FX swaps.
An actual commitment to repatriate or pay a specific amount of foreign currency to a non-resident or an Authorized Agent Bank (AAB) on a pre-agreed date.
An FX risk arising from an existing commitment that will lead to actual payment of FX to, or receipt of FX assets from, non-residents/AABs based on verifiable documents on deal date. Also, FX risks from BSP-registered foreign investments without specific repatriation dates are considered exposures.
Customers include: (a) resident banks (other than commercial and universal banks) and non-bank BSP-supervised entities (NBBSEs) not authorized as dealers; (b) resident non-bank entities; and (c) non-residents, both banks and non-banks.
A transaction involving the actual exchange of two currencies (principal only) on a specific date at a rate agreed on deal date (first leg), and a reverse exchange of the same two currencies at a future date at a (different) rate agreed on deal date (second leg).
An FX forward is a contract to purchase/sell a specified amount of currency against another at a specified exchange rate for delivery at a specified future date that is three or more business days after deal date.
An NDF is an FX forward contract where only the net difference between the contracted forward rate and the market (fixing) rate at maturity is settled on the forward date. For NDFs with residents, all contracts must be settled in pesos.
Minimum documentary requirements in the attached Annex ‘A’ must be presented on or before deal date to the banks (unless otherwise indicated).
For hedging: stamp supporting documents as ‘FX HEDGED/DELIVERABLE’ or ‘FX HEDGED/NON-DELIVERABLE’. For funding: stamp as ‘FX SOLD’ indicating the contract date and amount involved, signed by the bank’s authorized officer; retained copies must also be marked ‘DOCUMENTS PRESENTED AS REQUIRED’ and signed.
Tenor/maturity must not be longer than (i) the maturity of the underlying FX obligation, or (ii) the approximate due date/settlement of the FX exposure. For deliverable forwards, it must be co-terminus with the underlying obligation’s maturity or the exposure settlement date, subject to permitted pretermination (e.g., prepayment of foreign currency loans with prior BSP approval).
No restriction on tenor for FX swaps.
They must be submitted for prior clearance to the BSP. However, every roll-over of short-term (ST) deliverable forward contracts need not be prior-approved if strict conditions are met (e.g., underlying transaction is an investment in long-term PH government securities with a BSP registration document; roll-over during the tenor; settlement coincides with intended capital repatriation; forward value does not exceed maturity/net proceeds at the agreed forward rate; and compliance with documentary requirements for repatriation/remittance).
Eligibility Test (supported by Annex ‘A’ documents), Frequency Test (reasonableness based on bank’s documented justification), Counterparty Test (counterparty acknowledgment such as signature/conforme), and Mark-to-Market Test (booking/recording and settlement fully supported by documents showing valuation and related accounting entries, e.g., debit/credit tickets and mark-to-market computations).
Banks must report electronically in Excel format to the BSP not later than five (5) banking days after the reference month, using the format in Annexes ‘B’ and ‘C’ (for certain swap reporting). Reporting must be sent to the specified BSP email addresses and copied to the SDC addresses indicated in the circular.