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.

Friday, March 18, 2005


Question 1 – Will the custody rule of the BSP prevent a Third Party Mutual Fund scam similar to the Stanchart case raised by Senator Enrile (a point likewise raised in today's issue of the BusinessWorld)?

Answer: No, and this is the paradox, if Stanchart stands accused of an infraction if a Third Party Rule exist, why then accredit the bank and force the BTR to deal with the bank as among its agents under Circular 392 and 428?

The Stanchart alleged sale of unregistered securities to the public is squarely a supervisory concern. Bangko Sentral has an existing rule that gives licenses to banks looking to engage in derivatives transactions. The Bangko Sentral has given the Stanchart a derivatives license , hence , it was able to engage in selling its Third Party Mutual Fund product. The rules for engaging in derivatives are for the Bangko Sentral to enforce.

The contention that a Third Party Custodian can prevent the custodization of fraudulent or unregistered securities is overly optimistic since a custodian functions under the instructions of the party that lodges the security in the Registry (and as such is not responsible for doing due diligence on what security is being put in). To use an analogy, if I put a fraudulent land title in my safety deposit box, and claim to an interested buyer that I hold good title, the bank is in no position to determine the authenticity of the document kept in custody.

Question-2. Is PHILIPPINE DEPOSITORY & TRUST CORPORATION (PDTC) a quasi-public corporation? Who are the owners? Who were the incorporators?

Answer : No. PDTC is not a quasi-public corporation. It is a private corporation. BAP and IHAP, among others, became investors by virtue of their investments in Philippine Clearing and Depository Corporation, a losing corporation and the forerunner of PDTC.

Question 3. Is it true the securities purchased by investors are recorded in the name of the GSEDs in the RoSS?

Answer: NO, Government securities sold are recorded in the RoSS in the name of the individual investors under its RoSS –Client Interface System (CIS). Since its inception in 1996, the RoSS was built from the start to register securities in the name of the individual investors (hence the name, Registry of Scripless Securities) . As shown during the small investors program launched in 1998 , the maturity values of the Small Denominated Tbonds even the individual investor’s bank accounts were directly credited.

Question 4. Is it true that the use of the Third Party Custodians is voluntary?

Answer: Section 1 c and d of BSP Circular 457 describes the fate of investors who “decline to deliver their existing securities to a BSP accredited third party custodian” as follows:

“c) Any BSP regulated institution shall not enter into securities transactions with a client who has outstanding securities not delivered to a BSP accredited third party custodian, and

d) It shall be the responsibility of an BSP regulated institution to satisfy itself that the person purchasing securities from it has no outstanding securities holdings which were not delivered to a BSP accredited third party custodian. “

Question 5. Isn’t BAP an owner of PDTC?

Answer: BAP had holdings in the former Philippine Central Depository, Inc. which was folded , after certain valuations, into the PDTC . Hence, BAP’s share in PDTC.

Question 6. – Will the custody rule of the BSP prevent a recurrence of the Bancap scam?

Answer: Bancap has often been misused as example to defend the Third party rule. Unfortunately, the scam took place when the Tbills and Tbonds were still certificated and the Bangko Sentral was in charge of the issuance, settlement and redemption of Tbills and Tbonds.

The Real Time Gross Settlement (RTGS) and Delivery –versus-payment (DVP) conventions now fully implemented in RoSS on both the securities and cash legs of the transactions effectively ensure that it will not be possible for dealers to sell securities they do not have.

Question 7. – Is the claim of the PDS that transactions will be seamless and that there will be straight through processing true?

Answer: No, it will be more cumbersome and risky because the process will not be straight through. There will be re-encoding from the front end to settlements. It is inefficient and non-compliant to BRS standards, among others.

Question 8 – Why did I resist circular 392 and 428?

Answer: The title of National Treasurer bears the responsibility of managing the borrowing program of the government. In other words, to borrow at the most competitive price for government.

Some of the objections I had against the circulars include:

  1. The circulars do not add value, and are unnecessary
  2. They increase costs for both government and the investing public
  3. They expose the government and the investing public to risks by mandating that government give up over 1 Trillion worth of securities that it currently manages to a custodian called PDTC that is capitalized at only 450 million pesos .
  4. They nullify existing laws and executive orders
  5. They create an agency agreement without any liability assumed by the agents
  6. They will result in the awarding public infrastructure for private gain without any public bidding.
  7. They reverse the democratization process undertaken by BTR and tends to cartelize once again the bidding process for Government Securities
  8. They render inefficient what once was an efficient process of issuing, settling and redeeming Philippine Government Securities through the RoSS, a core function of the Bureau of Treasury
  9. They parcels out a mandate of the BTR to private entities without public bidding or consultations being made.
Question 9– How can the Bangko Sentral salvage Cir 392 , 428 , 457, itself and the FIE?

As a former Treasurer who has served both in the public and private sector, I am fully supportive of reforming the capital markets and increasing liquidity in the trading of government and private debt instruments. However, the implementation taken by the banking industry should have followed a strategy wherein all stakeholders in the project are in close coordination with each other to come up with a solution that is mutually beneficial.

There are still a lot of issues that have to be properly mapped out and addressed. What we as members of the financial community should do is to sit down and have a dialogue rather than have one industry player impose its will on the other stakeholders. What the FIE should be is infrastructure for our country. We as Filipinos all stand to gain by having this infrastructure in place, but this infrastructure should be suited to the needs of the local market, it must be cost effective and self sustaining, and above all, it MUST BE TRANSPARENT AND BENEFICIAL TO ALL STAKEHOLDERS.

In other countries that have implemented similar Fixed Income Exchange projects, the SEC, the Treasury, the Central Bank, Private Custodians, Stock Transfer Agents, Brokers and Dealers all sat down to figure out what kind of infrastructure is needed. I recommend that we do the same.


Anonymous Anonymous said...

In today's BusinessWorld, Sen. Angara is saying that there is no need for an inquiry into this matter. Grabe. Looks like a lot of lobby work has gone against Mrs. Lasala on this issue. I hope this all will work out for you in the end!

I hope Sen. Pimentel and Sen. Roxas will not be swayed by the well funded lobby group(s) that are trying to get this issue killed in the senate.

12:46 PM

Anonymous Anonymous said...

Ano ba iyung tinatago ng BSP at ng PDS na ayaw nilag ipaalam sa taong bayan kung ano ang totoong nangyayari.

Wala namang nagsasabi na bawal gumawa ng pribadong negosyo. Ang pinapausisa lamang sa senado ay kung tama nga ba ang pag-tatatag ng nesosyo sa pamamagitan ng paggamit ng kapangyarihan ng pamahalaan upang paandarin at palawigin ang pribadong negosyo. Lalo nang dahil sa pagkaselan ng sistema ng bayaran at pag-tala ng pag-aari sa ating pambansang pananalapi dapat lang usisiin di lamang ng senado kungdi ng buond sambayanan, lalo na ng mga gumagamit ng mga palengkeng pananalapi. Wasto nga ba ang pag-akin ng isang pribadong istitusyon ang buong makinarya ny palengke? Wasto nga ba ang pag-pairal ng regulasyon na nakakabuti lamang sa isang pribadong kompanya?

Karapat dapat lamang na managot ang mga kinaukulan sa sambayanan upang maintindihan ang proseso at mapanatag ang loob ng madla.

2:29 PM

Anonymous Anonymous said...

P300million lang yata and capitalization ng PDTC; PDEx I believe is P150million;and I think PSSC is even lower? Very good manipulator talaga si **** para 'catch all' of all business ang PDS, parang One stop shop; isn't this called monopoly??

2:12 PM

Anonymous Anonymous said...

I'd call it a VICtorious building of a CASTLE-like group of companies in order to house a Golden Parachute.

1:30 PM

Anonymous Anonymous said...

Speaking of castle, isn't that the logo of the group?

It is a symbol of isolation, unreachability and unassailability.
It is also the image of being able to snipe at your enemies from afar.

perfect trademark for an aloof set of fascist individuals...

2:35 PM

Anonymous Anonymous said...

Isn't it also totally VAINGLORIOUS to have a logo which is the pictorial representation of your own insulares family name?

1:06 PM

Anonymous Anonymous said...

He thinks he owns the market... what did you expect...

6:16 PM

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