BSP rushes forex measures as peso weakens anew

MANILA, Philippines — Monetary authorities are rushing a code of conduct governing all trades in the local foreign exchange market as the peso weakened anew yesterday, reentering the 54 to $1 level.

Bangko Sentral ng Pilipinas Governor Nestor Espenilla Jr. said the regulator is rushing the prudential measure to discourage speculative activities in the foreign exchange market.

“We’re looking at some other measures on the regulatory side to try to curb speculative activity. We are studying it, we want to understand better how to do it,” he said.

The peso yesterday weakened anew, reentering the 54 to $1 territory as it shed 14 centavos to close at 54.11 from Friday’s 53.97. It opened weaker at 54.1 and hit an intraday low of 54.28.

This is the weakest level for the peso in almost 13 years as it closed at 54.15 to $1 on Dec. 2, 2005.

Volume of trade jumped by 22.3 percent to $807.2 million from $660.15 million last Friday.

Espenilla said speculators continue to take advantage of the volatile fo-reign exchange market.

“It always happens. The market is very opportunistic. So on news, they operate. They can gauge that on the volume of trades,” the BSP chief said.

According to Espenilla, the BSP could use documentation to curb speculation in the foreign exchange market as most trades are through non-deliverable forward (NDF), cash-settled and usually short-term forward contract.

“There are many things to look at. Documentation is one way to tell whether a transaction is speculative if there’s no underlying documentation. A lot of the trades are NDF, and if there’s an NDF and there’s no documentation, what does that look like,” he said.

Market participants are required to follow the code of conduct covering ethics, governance, execution, information sharing, risk management and compliance. The BSP intends to adopt the global code of conduct, but would be tweaked to apply to local setting.

The code would also involve the establishment of a multilateral body to help police market participants.

The BSP has been enhancing governance and oversight over the foreign exchange markets to further improve transparency, price discovery, and market conduct.

“We already have a code of conduct but, as I have earlier described, we are pushing for reforms to the foreign exchange market organized with a code of conduct that is accountable ultimately to the BSP. We are continuing with that and we’ve been doing that even before this thing,” he said.

The BSP has so far undertaken 11 waves of foreign exchange liberalization measures in line with the central bank’s thrust to further liberalize foreign exchange rules, while maintaining a safe and sound financial system, a stable foreign exchange market, and an appropriate monetary policy.