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.

Tuesday, May 24, 2005

SPOT THE DIFFERENCE - Third Party Custodianship Rule vs. Cash Management Center Project (Paging COA and the OMBUDSMAN)

In a letter of 25 April 2005 addressed to the President of the Bankers' Association of the Philippines, BSP Officer-in-Charge wrote that "As a consequence of the aforesaid letter (of COA), the BSP Monetary Board in its Resolution No. 519 dated april 14, 2005, instructed as follows:

a.) That CMC should be suspended in the meantime; and,
b.) That a letter be prepared for the COA chairman informing him (i) that the BSP has received aforesaid letter, (ii) that the BSP shall revisit its decision relative to the project; and (ii) that it is suspending the works involved therein.

As you may realize, the foregoing developments may affect the continuance of the project.

Please be guided accordingly."



1. BSP has not satisfactorily shown that (it) will be efficient and cost-effective

2. BSP cannot delegate its power

3. There is no legal basis

4. It is violative of SEc 27 of RA 7653

5. That it is illegal, irregular, extravagant and unconscionable expenditure of the BSP

A further note on the letter of the BSP indicated " Consider determining persons who may be held primarily liable including other parties who have acted in bad faith, under the provisions of RA 3019 otherwise known as the Anti-Graft and Corrupt Practices Act"

Monday, May 23, 2005

DAFT Circular Letter

The Office of the new BSP Deputy Governor, Supervision and Examination Sector circulated a draft circular letter, supposedly, among all supervised institutions (NOTE THAT THE BUREAU OF THE TREASURY IS NOT A SUPERVISED INSTITUTION)

Excerpts from the circular letter:

To: All Banks and Non-Bank Financial Institutions Under BSP.

The Subject: Guidelines that will implement the Delivery by the Seller of Securities to the Buyer or to his Designated Third Party Custodian


Pursuant to the of the Bangko Sentral ng Pilipinas (BSP) to promote the protection of investors in order to gain their confidence in the securities market as enunciated undef Circular Nos. 392 and 428 dated 23 July 2003 and 27 April 2004, respectively , the following rules/guidelines shall be observed by banks and non-bank financial institutions (NBFI) under BSP supervision in their dealings in securities whether they are acting as seller, buyer, agent or custodian.

RULE 1 . Distinction Between a Custodian and a Registry....A securities custodian is a BSP-accredited bank or NBFI designated by the investor to perform the following functions: safekeeping, holding title to the securities, either in a NOMINEE or TRUSTEE capacity, etc..... a securities registry other than the Bureau of the Treasury, is a BSP -accredited bank or NBFI designated or appointed by the issuer to maintain the securities registry book either in electronic or in printed form. It records the initial issueance of the securities and subsequent transfer of ownership and issues registry confirmation to the buyers/holders......

RULE 2 . Registry of Scripless Securities of the Bureau of the Treasury (BTR)
.........the BTR as registry cannot act ac custodian of government securities pursuant to the opinion of the Secretary of Justice dated 17 January 2005 due to an irreconcilable conflict of loyalties, that is anathema to agency if the same institution were to act as registrar and at the same time.

RULE 3. Delivery of Securities..... securities sold on a without recourse basis shall be delivered by the seller to the purchaser, or to his designated BSP-accredited custodian.....

RULE 4. Mode of Delivery....The delivery must be supported by a confirmation of book-entry transfer to be issued by the securities registry in case of a nmae on registry or by a confirmation receipt to be issued by the cusotdian in case of delivery to the purchaser's designated custodian.

RULE 5. Client Information....the choice of the custodian is the sole prerogative of the securities purchaser. The Seller or dealer may, however, indicate to their clients their preferred custodian. Attached as Annex "A" is a suggested template to the client.

RULE 6.Custodianship Agreement

RULE 7. Authority of the Securities Owner/Purchaser to Revoke Special Power of Attorney (SPA)

RULE 8 . Reports of the Custodian

RULE 9 . Right of the Securities Owner to Sell his Securities

RULE 10. Undelivered Securities Sold

RULE 11. Compliance with the Anti-Money Laundering Act of 2001....

(c) the custodian has unchallenged access to the KYC records/documents of the referring seller/issuer pertaining to the referred client;
(e) the seller/issuer must provide the custodian with the following MINIMUM information/documents: for individuals # 1-10 and for corproations, #1-10.....

RULE 12 . Safekeeping of Customers' Identification Documents.....Notwithstanding RULEs 11 and 12, the Custodian is not precluded from conducting its own KYC activities and maintaining direct custody of the KYC documents of its clients.

For your guidance.



ANNEX A of Circular Letter

Template of a three page Letter To Investor

Annex A


Dear Investor:

We wish to inform you that the Bangko Sentral ng Pilipinas (BSP), in July of 2003, issued Circular No. 392, Series of 2003, which requires all securities sold by banks on a “without recourse basis” (i.e., the bank has no liability to the buyer of securities in paying the obligation due on the security) to be delivered to the buyer/purchaser of securities through any of the following means:

a. If the security is evidenced by a certificate of indebtedness, the certificate must be transferred in the name of the purchaser/buyer and physically delivered to the purchaser/buyer OR to his designated BSP-accredited third-party custodian.

b. If the security is immobilized or dematerialized (i.e., that the security is not evidenced by a certificate of indebtedness and instead a security account is created in the electronic books of the registry in the name of the purchaser/buyer or his designated custodian):

i. The security must be delivered by book-entry transfer to the appropriate securities account of the buyer in the registry of said securities, which must be evidenced by a confirmation in writing by the registrar to the buyer. The confirmation of sale or document of conveyance shall be physically delivered by the seller or dealer to the buyer, or

ii. The security must be delivered by book-entry transfer to the appropriate securities account of the BSP-accredited third-party custodian designated by the buyer/purchaser in the registry of said securities, which must be evidenced by a confirmation in writing by the registrar to the said BSP-accredited third-party custodian, who shall in turn issue to the securities owner a delivery receipt acknowledging receipt of the securities.

Circular No. 392 is part of the package of reforms instituted to support the development of the domestic capital market through enhanced investor protection and greater market transparency. It provides for more defined role and responsibilities for the custodians and registrars and a stricter supervision and regulation thereof by the BSP. It aims to provide the client the following benefits:

a. Full control and possession of the securities purchased;
b. Independent validation of the existence of securities purchased;
c. Regular reporting of securities holdings; and
c. Capability to choose most competitive counter-parties as to sale, pledge, transfer, and lending of securities.

Moreover, Circular No. 392, which amends CBP No. 437-74, seeks to address the changes in the legal framework brought by the developments in the market, i.e., where purchase of securities may be evidenced not only by transfer of certificates but also by electronic book-entry transfer of ownership in the books of the registrar for said security.

As an investor, therefore, of securities which is dematerialized or scripless, you have the option to require your dealer/broker to deliver the securities to you by requiring them to have the securities registered directly in your name in the registry of said securities or by requiring them to have the securities registered in the name of the BSP-accredited third-party custodian of your choice who in turn will credit your securities account with them.

The registry is a BSP-accredited bank or non-bank financial institution (“NBFI”) designated or appointed by the Issuer to (1) maintain the securities registry book; (2) record the (a) issuance of the securities and (b) subsequent transfers of ownership thereof and (3) issue registry confirmation to the buyers/holders of security.

The custodian, on the other hand, is a BSP-accredited bank of NBFI designated by the investor to safekeep the security by allowing it to hold title to the security, either in a nominee or trustee capacity, to enable it to perform the following administrative functions/services related to investing in a security or various securities: i) Mark to market valuation of security that will enable the client to know the value of his investment at any period in time; ii) compute and collect the interest due on the security; iii) render statements on outstanding securities under safekeeping; iv) represents the client (per its instruction) in the events of default or breach of contract of the Issuer; and v) lend the security of the clients as “agent” that will enable you to earn additional income on the security.

The registrars and custodians underwent a rigorous evaluation process by the BSP to determine whether they have the following: i) adequate capital to cover for potential operating risks related to performing its custody functions; ii) competent management team to manage the company with responsibility and proper corporate ethics, iii) robust technology system to operate the custody business efficiently; and iv) favorable track record or significant experience in the custody business or related business. They will also undergo regular audit from the BSP to ensure that they comply with the BSP rules and regulations and will be subject to penalties and administrative sanctions for any violation thereof.

As of date, BSP has accredited the following registrars and custodians: Bank of the Philippine Islands, Citibank N.A., Deutsche Bank, Hongkong and Shanghai Banking Corporation, Philippine Depository and Trust Corporation and Standard Chartered Bank. The Bureau of the Treasury (BTr), as operator of the Registry of Scripless Securities (RoSS), which serves as the official registry for the government securities, is not subject to BSP accreditation and is exempted from the independence requirement under Circular No. 428. Please note however, that the BTr, as registry, cannot act as custodian of government securities pursuant to the opinion of the Secretary of Justice rendered on 17 January 2005 due to irreconcilable conflict of loyalties that is an anathema to agency if the same institution were to act as registrar and custodian at the same time.

The custodian shall render reports on you account balances on a quarterly basis, or at such interval as you may require. Moreover, the custodian shall issue to you a confirmation of any transfer of ownership as it occurs, in either electronic or printed form. Said reports shall be delivered/mailed directly at your address unless you give a written instruction directly to the custodian to deliver the said reports to you designated person/entity. You are, however, required to acknowledge in the written instruction that you are designating another person/entity to receive the periodic reports from the custodian, notwithstanding contrary advice of the BSP.

Please note that the above-mentioned arrangements may change once the BSP issues more detailed implementing rules and guidelines to the above-mentioned circulars. We will update you if and when these developments occur.

Please fill up and sign the required documentation of your chosen custodian and we will forward the same to them so that your securities account can be opened as soon as possible. You may, however, designate/appoint an agent for this purpose.

If you have any further questions, please call us so that we can refer the matter to the appropriate custodian/registrar.

Very truly yours,


Grow up to be...
Isn't he cute?

Friday, May 13, 2005

Decrease Revenues and Increase Costs

In yesterday's issue of BusinessWorld, I came accross an article that read,

"The country’s pioneer fixed income exchange wants regulators to ease trading restrictions to make it easier to trade debt securities between private investors and tax-exempt state entities.

Doing so will help improve trading volumes on the Fixed Income Exchange by allowing entities like state pension funds to participate in the secondary bond market, according to Philippine Dealing and Exchange Corp. President Cesar Crisol said.

Present regulations prohibit tax-exempt institutions like the Social Security System and Government Service Insurance System -- both voracious buyers of government bonds -- from trading these debt securities with private firms to prevent abuse of their tax status.

Mr. Crisol, however, believes that easing these restrictions will help boost market activity.

The Department of Finance and the Bureau of Internal Revenue should "look at the tax environment for securities and the exempt institutions so we can create a bigger market," Mr. Crisol stressed."