BSP Guidelines on USD Repurchase Agreement

Eligible borrowers are RBUs and FCDU/EFCDUs of banks with FCDU/EFCDU authority that can demonstrate legitimate funding needs.
Borrowings must be for the account of the applicant bank.
Borrowings are restricted to legitimate liquidity requirements of FCDU/EFCDU or RBU for local operations, covering:
- Compliance with FCDU/EFCDU cover requirements;
- Servicing of withdrawals of FCDU/EFCDU; and
- Servicing trade-related requirements.
Borrowings must not be used to fund liquidity requirements of the foreign head office, foreign branches, affiliates, or subsidiaries.

The acceptable collateral must be eligible securities covering US Dollar-denominated evidences of indebtedness issued directly by the Government of the Philippines (ROP Bonds) held by the applicant bank.
The ROP Bonds that will be pledged may be lodged in these BSP-portfolio categories:
- Available-for-Sale (AFS);
- Held-for-Trading (HFT); and
- Held-to-Maturity (HTM).
ROP Bonds to be pledged must be transferred/credited to BSP’s designated securities account before availment of the USD R/P facility.
The tenor of the underlying security must not be shorter than the overlying instrument.

The haircut on the underlying securities is determined by the Treasury Department, with the concurrence of the Governor.
Collateral coverage is maintained through periodic margin calls as specified in the repurchase agreement.
Valuation is subject to periodic review and is modified when necessary.

The available credit line is based on outstanding US Dollar-denominated evidences of indebtedness issued directly by the Government of the Philippines (ROP Bonds) held by the applicant bank as of 30 September 2008.
The rate of the USD R/P facility is set by the Treasury Department, with the concurrence of the Governor, taking into account prevailing liquidity/market conditions.
The term of the USD R/P facility is set by the Treasury Department, with the concurrence of the Governor.
If a bank becomes disqualified for the USD R/P facility, the outstanding repurchase agreement immediately becomes due and payable.
USD R/P trading time is set for:
- 10:00 AM to 12 Noon, and
- 1:00 PM to 2:00 PM.

The applicant bank must submit the required information/documents, and such other documents as may be necessary, to the Treasury Department, copy furnished the appropriate Central Point of Contact Department (CPCD) of the Supervision and Examination Sector (SES), to enable BSP evaluation.
The bank must file an application for availment that states:
- The amount,
- The requested term,
- The specific purpose of the borrowing, and
- The specific collateral, including the source (i.e., whether RBU or FCDU/EFCDU).
The bank must submit a notarized undertaking/certification signed by:
- The President (for local banks), or Country Manager (for local branch of a foreign bank),
- The Compliance Officer, and
- The Head of Treasury.
The notarized undertaking/certification must indicate:
- The specific purpose of fund utilization;
- That proceeds of borrowing will be used exclusively to fund liquidity requirements of FCDU/EFCDU or RBU local operations; and
- That the bank is not a conduit for another bank and will not take arbitrage positions on the availment of the R/P facility.

Banks with outstanding USD R/P agreements must submit to the appropriate CPCD of the SES:
- A report on the deployment/utilization of USD repo borrowing and other documents and supplemental information, as may be required, to enable BSP to assess the legitimacy of fund utilization, within three (3) banking days from release of the proceeds of the R/P agreement; and
- All documents and records relative to the bank’s availment and use of proceeds of the USD R/P facility must be made available to BSP upon request.

The repurchase agreement may be paid at any time before maturity, subject to mutual agreement of both parties.
The BSP may unilaterally pre-terminate the borrowing arrangements if:
- Funds are found to have been used for ineligible purposes; or
- Collateral margins, if any, are not met.
Documentation requires that the repurchase transaction be covered by a master repurchase agreement, repurchase agreement confirmation, and such other documentation as may be necessary to facilitate the transaction.
Accounting treatment requires that the USD R/P facility be treated as collateralized borrowings from BSP and be accounted for under the Financial Reporting Package (FRP) issued under Subsection X161.3 of the MORB, as amended.
Eligible securities booked under the HTM category are subject to the tainting provision under Subsection X388.5 of the MORB upon default/non-payment of the amount due three (3) banking days after maturity of the R/P agreement or disqualification of borrowers.

Violations of the terms and conditions of the USD R/P facility are governed by sanctions under BSP Circular No. 627 dated 23 October 2008, as amended, including:
- Termination of eligibility, and
- Pre-termination of any outstanding balance through repayment and/or sale of the collateral.
BSP Memorandum No. M-2008-034 supersedes BSP Memorandum No. M-2008-031 dated 23 October 2008.