Philippines: Market makers exempted from loan limit, says BSP

MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) has approved the exclusion of debt securities held by market makers from the credit exposure limit to a single borrower as part of measures to maintain confidence and liquidity in the financial markets amid the global health crisis.

BSP Governor Benjamin Diokno has issued a circular excluding debt securities held by market makers from the single borrowers limit (SBL).

A market maker or liquidity provider is a company or an individual that quotes both a buy and a sell price in a financial instrument or commodity held in inventory, hoping to make a profit on the bid–ask spread.

Diokno said debt securities acquired as a result of market-making activities pursuant to the rules and guidelines of the Securities and Exchange Commission (SEC), as well as the market or exchange where such securities are traded and enrolled, are excluded from the loan limit.

In the circular, Diokno said that securities which would be acquired from Aug. 1 to July 31 next year would be excluded from the SBL for a period of 90 days, while those acquired from Aug. 1 next year onward would be exempted from the loan limit for 60 days.

Diokno said the market-making positions should be taken up in the trading book in accordance with the investment activities of the BSP-supervised financial institutions.

He also said that the market-making positions should be properly identified and segregated from the institutions’ propriety positions.

Furthermore, he said the BSP-supervised financial institutions should periodically monitor the value of the debt securities as well as the number of days the securities have been outstanding from the date of acquisition.

The SBL prevents an overconcentration of credit risk, and imposes a ceiling on the amount of loans, credit accommodations and guarantees which a bank or financial institution can extend to a single borrower or its related entities.

The Monetary Board has extended the effectivity of higher SBL of 30 percent until March 21 next year as part of regulatory relief measures for banks amid the economic fallout from the pandemic.

The regulator has implemented measures to maintain confidence and liquidity in the financial markets, taking full cognizance of the extraordinary situation due to the outbreak.

Last March 11, the BSP issued Memorandum 2020 – 011, raising the SBL to allow banks to lend more to borrowers affected by measures which were imposed by government to slow the spread of the virus.