The BSP issued a circular letter telling banks that they are not allowed to reduce the statutory reserves for deposit substitutes to two percent until the Bureau of Treasury (BTr) is ready to open its registry of scripless securities (ROSS) to third party custodians.
BSP Deputy Governor Alberto V. Reyes explained that some banks have already reduced their statutory reserves on deposit substitutes even before their third-party custodian opens a separate ROSS account with the BTr.
Third party custodians can not open ROSS accounts yet because the BTr and the banking sector have not reached an agreement on how to facilitate access to the registry.
According to Reyes, banks and non-bank financial institutions with quasi-banking functions are also not allowed to reduce their statutory reserves until they have issued the "pertinent market convention acceptable to the BSP."
The BSP had offered as incentive the reduction in statutory reserves for deposit substitutes in order to encourage banks to use third-party custodians for their holdings of government securities and other debt instruments.
As long as banks had third-party custodians that actually track and monitor the trading of debt instruments held by banks, the BSP said they could reduce the reserves to two percent.
The BTr has already been directed by the Department of Finance to allow custodian banks to access its ROSS but talks are still on-going on how to facilitate it.
The BTr had initially resisted opening its ROSS to third party custodians but the BSP explained that its regulations merely separated ROSS’ registry function from its custodian functions.
Although the RoSS is a record of all government securities ever issued by the BTr, it does not directly monitor the secondary trading of government securities.
Whatever information the ROSS has about the secondary market is data that it gets from the government securities eligible dealers (GSEDs) which are banks accredited to buy and trade government securities.
The BSP said that once the accredited custodians already have custody of the government securities traded in the market, it would become possible to monitor the trading of these instruments and ensure that there is no double-sale.
The BSP has so far accredited six institutions to act as third party custodians of banks namely: HSBC, Standard Chartered Bank, Citibank, Bank of the Philippine Islands, Deutsche Bank and Philippine Depository and Trust Co.