MART seeks SRO status to trade overnight swaps
THE Money Market Association of the Philippines (MART), an umbrella group of banks and nonbank financial institutions, wants to be granted a self-regulatory organization (SRO) status by the Securities and Exchange Commission (SEC) as it seeks to trade overnight index swaps (OIS).
The group has already filed its application with the SEC last Nov. 4. “[T]he SEC is currently reviewing our application and hopefully within the month we would get a reply, and assuming we do get a favorable one, we would launch it,” MART President Raul Martin A. Pedro told reporters in a media roundtable on Tuesday.
There are currently two SROs: the Philippine Stock Exchange (PSE) which operates the bourse where equities are traded, and the Philippine Dealing System (PDS) for the fixed-income market.
Along with its application for an SRO status, MART also submitted to the regulators its planned product, the OIS, which members of MART will be able to trade among themselves.
“It allows us the opportunity to at least control this particular product, this particular market within a particular framework where we agree that we follow these rules and it will be [ in] CTRs ( covered transaction reports),” said Dalmacio D. Martin, senior vice- president of BDO Unibank, Inc. and board member of MART.
The proposed OIS will be derivative in nature and is a peso dominated product that has no foreign exchange component.
A derivative is a financial instrument used to manage investment risks. Its value is based on the outlook of future price movements of an asset.
Mr. Martin said the product can be used as a hedging tool. “Basically, participants — the banks — hedge their GS ( govern--
ment securities) portfolios, loan portfolios. But that will take time, siyempre (of course) the market, as it just starts, kaunti lang yan (volume will be thin).”
“But eventually if it demonstrates robustness and transparency, it will be an actively traded market where banks are allowed to hedge, so it’s an additional hedging product,” he added.
Mr. Martin said that in the long run, the OIS “can be used as a reference for peso loans, which becomes important because currently the mechanism is the R2,” referring to the Philippine Dealing System Treasury ( PDST) Reference Rate at the fixed-income market’s close.
“It’s very volatile, without anything happening in the market nagiging (it’s becoming) volatile… So hopefully this will be a bit less volatile and because it does relate to pure peso activity, it will have some correlation to that loan market,” he said.
With a less volatile reference rate, “it will be easier to price loans”, China Banking Corp. Vice President Cristina P. Arceo said, with the development of the OIS market expected to create a new yield curve that could be an alternative benchmark to existing interest rates.
Under the OIS, there will be a benchmark rate that member banks are “more comfortable with” since the index is based on overnight trades where we actually lend either to the BSP (Bangko Sentral ng Pilipinas) or to each other,” Mr. Pedro said.
The product will have shortterm tenors of one-, three-, sixmonths and one-year.
“We always wanted to come up anything that would help the market... we had difficulty [in the past] because of regulation. And the most encouraging fact about this particular initiative, we have the regulator’s support to pursue it. So for as long as conditions are similar, anything that the market would need... we have the OIS,” the MART president said.