Definition and Scope of RBCA
- RBCA is defined as the minimum capital required for licensed or applying Broker Dealers.
- The standard considers various risks including liquidity, market, credit, and operational risks.
Guiding Principles for RBCA Model Development
- Alignment with IOSCO’s Objectives and Principles of Securities Regulation.
- Consistency with regional and global securities regulators’ standards.
- Inclusion of liquidity risk and other significant risks faced by Broker Dealers.
- Adoption of internationally accepted practices for risk quantification.
- Incorporation of local market conditions without being below Basel Standards.
- Simplicity in implementation.
- Support risk-based supervision and minimum risk management standards.
- Prescribed frequency for RBCA computation and submission.
- Early warning indicators integrated into reporting.
- Compatibility for transitioning to electronic reporting systems.
Risks Covered by RBCA Model
- Position or Market Risk.
- Credit Risks: Counterparty Risk, Settlement Risk, Large Exposure Risk, Margin Financing Risk.
- Operational Risk.
Integration with Existing Capital Requirements
- RBCA supplements the current Net Capital Rule focusing on liquidity risk.
- Current net capital computation to be enhanced for additional risks.
- Revisions will address asset, liability, and equity treatment to reflect economic realities.
Calculation Methodology
- Application of risk conversion factors to exposures.
- Factors based on actual market data volatility from Philippine equities and fixed income securities.
- Review and possible revision of minimum capital levels and related provisions.
Implementation Procedures
- RBCA draft rules to be released for public comment by early August 2004.
- Market participants encouraged to engage during comment period.
- Post-comment, the Commission will coordinate with the Exchange on implementation and transition.
- The Exchange will develop risk-based supervisory processes for Trading Participants.
- Broker Dealers are expected to observe sound risk management practices.
Effective Date
- Circular effective fifteen (15) days after publication on the Commission’s website.
Legal Authority and Adoption
- Issued pursuant to the Commission’s regulatory and supervisory powers.
- Adopted on 13 July 2004 by the Chairperson of the Commission.