Monetary Board okays creation of depository for government securities

The Bangko Sentral ng Pilipinas (BSP) has approved the proposed creation of the Philippine Depository and Trust Co. (PDTC) that would function as custodian and depository for government securities held by non-bank institutions and investors.

In its meeting last week, the Monetary Board approved the plan in principle. The final approval will follow after the submission of key documents required by the BSP.

BSP deputy governor Amando Tetangco Jr. said the proposed depository was being spearheaded by the private sector. It will serve as the counterpart of the BSP which will be the depository and custodian of government securities held by banks.

According to Tetangco, the depository’s main function is to serve as depository, securities registry and custodian of government securities held by non-bank investors.

Tetangco said the PDTC would also undertake securities lending and borrowing, separate from the securities lending and borrowing of the BSP.

"The BSP acting as depository of government securities held by banks is easy because we already hold the demand deposit accounts of banks," Tetangco explained. "So when government securities held by banks are traded, all we need to do is debit or credit it to their accounts."

Since non-bank institutions and private investors are not under the BSP, Tetangco said it is necessary to create a different depository and custodian for their government securities holdings.

According to Tetangco, the establishment of the PDTC is part of the preparations for the subsequent creation of the fixed income exchange where government securities could eventually be traded.

The BSP has agreed to act as the custodian for government securities held by bank and non-banks with quasi-banking institutions with the primary function of safekeeping, maintenance of bank records and the processing of transactions relating to the results of the auction of government securities.

Like the PDTC, the BSP would also provide intra-day liquidity to banks using the government securities as collateral as well as facilitate securities lending to the participants.

The appointment of the BSP as custodian and the creation of the PDTC would reduce the systematic settlement risk usually associated with the secondary market for government securities.

Tetangco said the PDTC would be ready for incorporation pending the submission of documents required by the MB.

The BSP’s target was to get the system up and running by the end of October although the central bank said it should be ready to go live by Sept. 30 before the actual start of operations.

The BSP has already assigned the technical working group to formulate the business rules and convention for the conduct of this function as well as figure out the staffing requirements, the applicable fees and overall cost of operating as custodian for government securities.