Hi! I am Nina Lasala, former Treasurer of the Philppines. This blog is meant to be an open forum for investors, fellow finance professionals, and other interested parties to discuss the state of Philippine Debt Management.

Thursday, February 24, 2005

My Reply to the an article in the Today Newspaper Feb. 21, 2005

We write in response to the article published in yesterday’s issue of TODAY. The article was unfair and misleading. It did not constitute balanced reporting as the side of Treasurer Norma L. Lasala was not sought. It was written with an obvious slant in favor of the Bangko Sentral and an attempt to denigrate the character of Treasurer Lasala. Please consider the following:

It was reported that the so-called THIRD PARTY CUSTODIANSHIP plan as designed under circular no. 392 and 428 would prevent the recurrence of double selling of securities like that of the BanCap scam. This is not correct!

The Bancap scam occurred in 1994 when government securities were still evidenced by certificates. In 1996, due to the reforms introduced by the Department of Finance and the Bureau of the Treasury (Bureau), government securities have become paperless or what is known as “scripless” through the adoption of advanced computer technology which allows transactions to be recorded at the very moment they take place. Moreover, the holdings of each investor is recorded individually under his account name; thus “double selling” of his shares like that of the Bancap scam can no longer happen.

The article also insidiously remarked that Treasurer Lasala has maintained a stand against the Third Party Custodianship because her view has been colored by her relationship with the banks. This is FALSE!

The reason why Treasurer Lasala has consistently opposed the third party custodianship is because the same is NOT EFFICIENT and is COSTLY. It adds another layer to an already simplified securities transaction at an added cost to the investing public. These are unnecessary costs because transactions can be completed without them! These costs will discourage investors from investing in government securities. It can also translate in added costs to be borne by the government and ultimately by the Filipino people in the form of higher cost of borrowings. These will add to the nation’s fiscal crisis. Treasurer Lasala’s objective and that of the Bureau is to fund the requirements of the Republic at the most efficient and most economical means.

What the article DOES NOT SAY is that the Third Party Custodianship plan, if implemented will give the custodians access to the computer system of the Bureau once it is compelled to connect its computers to them. Computer data will now be parceled out to different custodians. What was once a whole system capable of producing vital information in the nick of time now becomes fragmented and information becomes unavailable or available only after a tedious process of reconciliation. The timeliness, and consequently, the reliability of debt data will be compromised. This data is VITAL TO THE NATION and any doubt cast upon it can IMPERIL THE GOVERNMENT’S ABILITY TO FUND ITS REQUIREMENTS.

What the article ALSO DOES NOT SAY is that the Third Party Custodianship is NOT a genuine market reform! The additional costs will limit the market to the big players thereby depriving the small investors of access to government securities.

What the article ALSO DOES NOT SAY is that the proponents of the Third Party Custodianship plan are fast tracking the removal of Treasurer Lasala because they are aware that given until March 31, 2005, the Bureau under her leadership would have come up with enhancements to its systems that would render the third party custodians irrelevant.

What the article FINALLY DOES NOT SAY is that the third party custodianship is all about PROFIT!!! As blatantly represented by the proponents of the third party plan to their prospective capital investors, they will rake in profits to the tune of billions of pesos per day – certainly a staggering amount!!

It is easy for the proponents to make the public dismiss Treasurer Lasala’s objections as mere stubbornness because the public is not fully aware of its subtle implications!




Anonymous Anonymous said...

The assertion that since the securities are scriptless, then no double selling can occur is misleading. Current practice is that the securities are registered in the name of the selling bank, not the investor, unless the investor has a Ross account, which is remote, especially for individuals. The sale to the investor is not recorded at the RoSS level, but at the bank level, i.e, in the banks computer records. The bank can still sell the same security multiple times, since it is the bank which issues a confirmation of sale, the only evidence of the transaction that the investor holds. What happens is that the banks records of securities held on behalf of all investors will not tally with the RoSS records. But does anyone outside of the bank check this? Probably not. So double selling, triple selling, quadruple selling can still happen. I am not taking sides, but this is just a statement of fact.

12:23 PM

Anonymous lonely bean counter said...

To Anonymous:

i think you are precisely arguing for Treasurer Lasala. she has already posted the system capabilities of ROSS.besides, BPI and other banks had already registered 40,000 accounts in RoSS prior to the DOJ ruling!

had those name accounts been allowed to be in ROSS, then those individuals would be protected.

think about it...the custodians don't have a better safeguard either.

3:01 PM

Anonymous Anonymous said...

In other words, the current system can accomodate registering these securities under the investor's name.

Moreover, BSP examination should uncover if there were double selling of securities or not, if they honestly do this examination properly. They should do there JOB!

I agree that this 3rd part custodian crap is in the pursuit of profit...FOREIGN BANKS profit that is! I think only BPI is the local bank allowed to act a custodian. Bwisit!

6:56 PM

Anonymous Anonymous said...

agreed. it is an example of yet another corrupt system being put in place by our perpetually corrupt government! at least nina lasala is courageous enough to fight corruption!

12:13 PM

Anonymous Anonymous said...

The BTr has already put in place an efficient system which will register the investor's name at RoSS to prevent double selling and will provide the investors with timely movement of their securities account in RoSS. Why do we still need the third party custodians? They will just be added layer of costs and ineffeciency . Everything is very smoothly processed in RoSS and it is user friendly. We don't want another system in our backroom like the PDTC which is very expensive. We don't understand why the BSP is pushing this entity to the banks. ?

11:06 AM

Anonymous Anonymous said...

Alam nyo ba na ang mga bumibili ng treasury bills and treasury bonds ay nirerequire na magexecute ng special power of attorney (SPA)in behalf of the 3rd party custodian without even explaining to these investors why it is needed? Ibig bang sabihin nito na magagawa na ng mga custodians na ito kung ano ang gusto nila sa investments ng mga tao? So nasaan ang protection na sinasabi nila kaya nila pinupush ang BSP Cir 392 and 428. Tapos may added cost pa sa mga investors. Paano na kami na maliit lang ang investments? Baka mas malaki pa ang kita ng mga custodians na ito kaysa sa aming maliliit na investors. Paano na yung RTBs namin. Sabi nila may bayad di yung every transactions, so quarterly ang coupon duon so apat na beses din kaming magbabayad sa kanila. ano ba yan...wala ng natira sa amin...o baka maging negative carry pa kami kaysa kumita. Para yatang may discrimination dito. Akala ko ba na ang gobyerno eh pinapaaccess kaming maliliit na investors sa mas high yielding at safe na investment katulad ng tbills and tbonds. eh sa scheme na ito parang di na kami makakabili ng tbills at tbonds dahil mas liliit ang aming kita dahil sa added cost. mas malaki pa ang kikitain nitong mga custodians na ito na mayayaman na at gusto lang magpayaman pa at the expense ng mga investors and government.

Tapos may naririnig pa ako na kapag di ka nagexecute ng SPA eh hindi ko na maroroll-over ang investment ko? bakit ganoon??nasaan na yung freedom of choice ko???

8:57 AM

Anonymous matanglawin said...

Huwag naman natin patayin ang adhikain ng 3rd party custodian dahil sa pamamaraaan ng pagpapatupad nito. Kailangan ang 3rd party custodian para pangalagaan ang interes o kapakananan ng mamamayang retail investor. Ihalintulad na rin natin into sa isang safety deposit box o 'escrow account' para sa mga mahahalang bagay sa ating buhay.

Tulad ng sinabi no sa naunang post, dahil TY lang ang servisyong ito ng ating bangko, hindi natin malalalman (at hindi impapaalam sa atin) na nagkakaroon ng double, triple, quadruple selling. HIndi ito makikita ng BSP auditors kasi nasa 3rd part books na ito. Ang mga GS na binenta na ay napupunta sa 'Items for Safekeeping' na hindi gaanong supervisado at pinagtutuunan ng pansin ng BSP auditor.

At, hindi po ni-ro-rollover ang GS. Deposito lang po ang puedeng i-roll over. Ang GS, bonds, commercial papers aty iba bang certificates of indebtedness ay may issue date, face amount/par, maturity date, interest/coupon payment dates, interest/coupon dates, at maturity/redemption date. Sa maturity o redemption date ng GS, binabayaran po ang pagkakautang, hindi po into ine-extend. Kung bibili muli kayo ng GS, ibang series at ibang tranche na ito.

At kung sakaling magbebenta tayo ng GS bago ang maturity/redemption date, hindi po pre-termination ang tawag dito. Hind po tayo subject to pre-termination penalty sa pagbebenta ng GS. Ang tama po ay, ibinebenta (SALE) natin ang ating GS at 'market value'. Habang lumalapit ang redemption date, natural na tumataas ang presyo ng GS. Nangangahulugan ito na mas malaki ang halaga ng hawak nating GS kaysa nang unang binili natin ito. Ang pag-akyat ng halaga ay hindi lamanag dahil sa accrued interest, kundi dahil na rin sa dicount rate na applicable para sa remaining tenor ng GS. Nangangahulugan into na may 'capital gains' kapag nagbebenta ng GS.

Tanong lang po, kung nagbebenta tayo ng GS sa ating bangko bago ang maturity/redemption date, hindi ba't yung interes lang ang bibinigay sa atin. Hindi tayo binabahagian sa kita dahil mas mataas na ang presyo ng GS. Madaya ano?! Hindi ba't isa into katiwaliaan na dapat isatama. Pero hindi, wala tayong magagawa dahil wala tayong 'choice'. Kung kanino natin binili ang GS, sa kanya lang tayo pwede magbenta, dahil hindi tayo pinapayagang lumipat sa ibang bangko para magbenta.

Malungkot, pero totoo.

Ang isyu ay mas malalim pa sa 392/428 at mga personalidad ng mga taong nagpapatupad at sumasalungat dito. Alamin natin at intindihin ang mga isyu kung tunay nating ninanais na makilahok at matupad ng reporma sa capital markets.

9:13 AM

Blogger donj said...

does the ROSS have internal audit system or some third party auditor to check the integrity of its records? if banks with its computer systems still fail to detect all double selling, what makes ROSS different?

12:11 AM

Anonymous Anonymous said...

Dear matanglawin,

Don't be so condescending. What the investor means is that he will invest his funds in a new security. Misuse of terminologies should be forgiven. There is a proper way to inform the investor of the correct terminology to use and unfortunately, your approach is not one of them. Be careful with your wordings next time. I hope you don't treat your clients that way.

Besides, don't mince words anymore. A person who uses negative carry is obviously one who knows what he is talking about. Maybe the use of the word "roll-over" is intended.

Andali mo naman kumagat sa bitag. You should't pounce on other people's mistakes just to make you feel good about yourself.

5:10 PM

Blogger donj said...

i have the impression that when multiple selling of government securities is discovered, only the guilty staff and some too trusting officers are penalized not the bank. if some banks do it undetected and get away with it, that's because the existing electronic/ manual audit are not enough. with ross, is there an independent auditor to verify the integrity of the records?

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