Question & AnswerQ&A (BSP CIRCULAR NO. 149)
The purpose of BSP Circular No. 149 is to ensure stability and order in the foreign exchange markets by providing a facility through authorized commercial banks that allows their customers to hedge their foreign exchange obligations.
Eligible obligations are those which are registered, unhedged, booked as of December 19, 1997, and outstanding as of the date of the NDF Facility application. Obligations with no existing hedge through forward contracts, options, or matched foreign currency deposits qualify. Obligations with natural hedges such as those of exporters, oil companies, and public utilities with Currency Exchange Rate Adjustment (CERA) are excluded.
Yes, commercial banks including those without a derivatives license from BSP issued pursuant to Circular No. 102 may avail of the NDF Facility to hedge foreign exchange obligations of their borrowers.
The hedging transaction is settled through a US Dollar-Philippine Peso forward foreign exchange contract where only the net difference between the contracted forward rate and the market rate is settled at the contract's closeout, instead of delivering the full amounts agreed upon.
If an eligible obligation is denominated in a foreign currency other than US Dollars, the NDF contract executed between BSP and the commercial bank will be denominated in its US Dollar equivalent.
Banks must submit an inventory of eligible foreign exchange obligations as of December 19, 1997, within 10 banking days from the circular’s effectivity. They also must submit daily reports covering NDF transactions with BSP by 4:30 P.M. of the following banking day, including reports on canceled transactions and non-deliverable forwards.
If the obligation covered by an NDF contract is found ineligible by the BSP Foreign Exchange Department, the contract shall be automatically canceled and the commercial bank will be liable to a fine of ₱20,000 per day from the filing date of the application to the cancellation date.
The tenor of NDF contracts can be up to 12 months but must be coterminous with the final maturity date or interest repricing/resetting date of the underlying obligation.
The fixing rate is agreed one business day prior to the maturity date of the NDF, using the mid USD/PHP fixing rate on page 2990 on Telerate. The net difference between the NDF rate and this fixing rate is used to compute the Philippine Peso net settlement amount.
Both commercial banks and their customers must certify that the NDF facility is being availed solely to hedge a foreign exchange requirement under the guidelines set forth in BSP Circular No. 149.