Authority to Avail of the NDF Facility
- All commercial banks, including those without a BSP derivatives license, may use the NDF Facility.
- Hedging is done via US Dollar-Philippine Peso forward contracts settling only net differences rather than actual currency delivery.
- For obligations in foreign currencies other than USD, the NDF contract is denominated in the USD equivalent.
- Banks and customers must certify that the NDF is used strictly as a hedge under the circular's guidelines.
Terms and Conditions of the NDF Facility
- Specific terms are detailed in Annex 1, including tenor limits, pricing mechanisms, fixing rate determination, and settlement procedures.
Reporting Requirements
- Banks must submit an inventory of eligible foreign exchange obligations as of December 19, 1997, within ten banking days after the circular's effectivity.
- Daily reports on NDF transactions with BSP and related reports on cancelled and non-deliverable forwards must be submitted by 4:30 PM the next banking day.
- Failure to timely submit reports may incur monetary penalties as per BSP regulations.
Sanctions for Non-Compliance
- If an NDF contract is found to cover an ineligible obligation, BSP will cancel the contract automatically.
- The concerned commercial bank will face a penalty of P20,000 per day from application filing until cancellation.
Implementation and Effectivity
- The Circular took immediate effect upon adoption on December 22, 1997.
Implementing Guidelines on NDF Family Tenors and Pricing
- NDF tenors may be up to 12 months and must coincide with the maturity or reset date of the underlying obligation.
- BSP's Treasury Department sets forward rates for standard tenors (30, 90, 120, 360 days) and may add others.
- Pricing is based on a BSP-determined formula.
Fixing Rate and Settlement Calculation
- Fixing occurs one business day before NDF maturity using the USD/PHP mid-rate from Telerate.
- Net settlement equals the difference between NDF contract rate and fixing rate, applied to the USD amount, converted to PHP.
- Settlement payment is made on the maturity date via bank accounts with BSP.
Application and Transaction Process
- Customers submit applications via commercial banks certifying the obligation qualifies and lacks existing hedges, supported by required documents.
- Banks request NDF rate quotes from BSP Treasury, available from 9:30 AM daily.
- Executed contracts are reported daily to the BSP's Foreign Exchange Department for compliance verification.
- Settlements occur between customers and banks, with banks settling balances through their BSP demand deposit accounts.