Treasury allows PDS to connect to registry of scripless trading

The Bureau of Treasury (BTr) has finally allowed the Philippine Dealing System and Holdings Corp. (PDS) to connect to its registry of scripless securities (ROSS), facilitating the real-time trade transaction of government securities between banks.

The BTr said the gateway agreement would allow it to accept secondary market government securities trade transactions coming from the PDS gateway.

These transactions cover only inter-bank trading of government securities. Third party custodians still can not link-up to the BTr’s ROSS.

National Treasurer Omar Cruz said the system will use a straight-through process (STP) mode for settlement at the registry based either on real-time delivery versus payment (DVP) or free-of-payment/sans consideration.

According to Cruz, the ROSS-PDS gateway would eliminate the process of encoding settlement instructions separately for trades in the inter-dealer market.

Even securities transfer instructions arising from the over-the-counter trades between dealers and custody clients could be sent to ROSS through the PDS gateway for free-of-payment (FOP) settlement.

The agreement, however, does not resolve the row over third party custodianship of government securities and the necessary turn-over of the registry of securities to custodian banks.

The BTr has not been able to turn over its registry of scripless securities to the six custodian banks accredited by the Bangko Sentral ng Pilipinas (BSP), arguing that the ROSS is a proprietary asset of the National Government and should not be divested to custodian banks.

The BSP, on the other hand, said there is no other way to ensure a clean and orderly market for securities in general without requiring the use of third party custodians.

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.

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.

Despite BTr’s protestations, however, the implementation of the third party custodianship is already moot since the DOJ has already handed down an opinion that the BTr could no longer act as custodian of its own issues.

The concept of using third party custodians, according to the BSP, is in keeping with international best practice, designed to prevent banks from abusing their privileges.