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GOVERNMENTSECURITIES
DEALERSHIP
GovernmentSecuries(GS)
GSareuncondionalobligaonsofthesovereignstate.Itisbackedbythefulltaxingpowerofthesovereignty.Therefore,GSarepraccallyfreefromdefault.
ThePhilippinegovernmentacvelyissuestwokindsofGS:TreasuryBillsandTreasuryBonds,so-calledbecauseitistheBureauofTreasury(BTr)thatoriginatestheirsaletotheinvesngpublicthroughanetworkoflicenseddealersthroughaucons.
GovernmentSecuries(GS)
ROPBondsaretheforeigncurrency-denominatedGSissuedbythePhilippinegovernmentwhichare
infrequentlyissuedandareoriginatedthroughthe
processofsecuriesunderwring.
StagesintheLifeofaGS
Distribu(on
sellingdownofGStoinstuonalandretailinvestors
Trading
secondarymarketturnoverofGSamongGSEDsandothersecuriesdealers
Origina(on
primarymarketofferingofGStoGSEDs
SecuriesDealer
Asecuriesdealerisafinancialinstuonorganizedusuallyasacorporaonorapartnershipwhoseprincipalbusinessistobuyandsellsecuries,whetherregisteredorexemptfromregistraon,forthedealersownaccountorfortheaccountofclients.
Asecuriesdealer,beforedealinginsecuries,isrequiredtoobtainalicensefromSECpursuanttotheRevisedSecuriesAct.
GovernmentSecuriesEligibleDealer(GSED)
AGSEDisanSEC-licensedsecuriesdealerbelongingtoaserviceindustrysupervised/regulatedbygovernment(SEC,BSP,orInsuranceCommission)whichhasmetthe:
(a)P100mnunimpairedcapitalandsurplusaccount;
(b)thestatutoryraosprescribedfortheindustry,and
(c)hastheinfrastructureforanelectronicinterfacewiththeAutomatedDebtAuconProcessingSystem(ADAPS)andtheofficialRegistryofScriplessSecuries(RoSS)bothoftheBTrusingBridgeInformaonSystems(BIS),andacknowledgedbytheBTraseligibletoparcipateintheprimaryauconofgovernmentsecuries.
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Stage1:Originaon
UnderwringofsecuriesforROPs
Primarymarketaucons: DutchAuconforFXTNs EnglishAuconforT-BillsandFXTNreissues
AuconsforT-billsandFXTNsareheldonaweeklybasis: everyotherMondayforT-Bills; everyotherTuesdayforFXTNs
SelementtakesplaceT+2daysaeraucondate
OfferSize:T-BillsPHP8.5billion
FXTNsPHP8.5billion
SecuriesUnderwringforROPs
DepartmentofFinance
UnderwringTeam
GSEDs
Sec.DealersandInvestors
PrimaryMarketAuconofGS
DepartmentofFinance
BureauoftheTreasury
GSEDs
Securies
Dealers
Banks
Instuonal
Investors
DutchAucon(UniformPrice)
UsedbytheBTrtoauconFXTNs Isapurelycompe((vebiddingprocess CouponrateforFXTNtobeissuedshallbeset Auconparcipantssubmittheff:BidYieldBidVolume
ThehighestyieldacceptabletotheBTrshallbetheawardedcouponratefortheFXTNbeingissued.
DutchAucon(UniformPrice)
UniformPriceorDutchAuconisamethodofpeggingauniformcouponrateofaTreasuryBond
atthestop-outlevelofarrayedamountsofbid
withthecorrespondingyieldratetendered.
Convenonally,theratemustbedivisiblebyone-eighthof1%.
DutchAucon(UniformPrice)
Example:Auconofanewissueof7-yearFXTNswithanoffersizeofPHP7.0billion
n Ban kA - P 2. 0bn - 9 .75 %n Ban kB - P 2. 0bn - 9 .62 5%n Ban kC - P 3. 0bn - 9 .85 %n Ban kD - P 2. 0bn - 9 .74 5%n Ban kE - P 2. 0bn - 9 .70 %
Awardedcouponis9.75%.Compevestop-outis50%.
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EnglishAucon(PriceDiscriminaon)
ThePriceDiscriminaonorEnglishAuconisamethodinwhichsuccessfulcompevebidders
paythepricetheyhavebid,andallthewinning
biddersmaypaydifferentprices.
EnglishAucon(PriceDiscriminaon)
UsedbytheBTrtoauconT-BillsandFXTNreissues
Compe((veandnon-compe((vebiddingallowed
Forcompevebids,bothyieldandvolumearesubmiedbyGSED.
n AwardedYield=YieldSubmiedbyGSED
Fornon-compevebids,onlyvolumeissubmiedbyGSED.
n AwardedYield=AverageYieldDuringAucon
CompeveBid
Acompevebidisatendertobuyanamountofgovernmentsecuriesatayieldrateperannum
thataGSEDbelieveswillwrestanawardforthe
GSEDbyout-biddingotherGSEDsintheprimary
marketauconofgovernmentsecuries.
Non-CompeveBid
ANon-CompeveBidisatendertobuyaspecifiedamountofgovernmentsecuries,bya
GSEDintheprimaryauconofgovernment
securies,withoutindicanganyyieldrate,onthe
understandingthattheawardshallbeattheweightedaverageyieldrateofthecompeve
bidsawardedatthesameaucon.
EnglishAucon(PriceDiscriminaon)
Example:Anewissueof91-dayT-BillswithanoffersizeofPHP2.0billion.
Non-compevebids
n BankA - P500mn
n BankB - P500mn
Compevebids
n BankA - P550mn - 6.124%
n BankB - P300mn - 6.00%n BankC - P150mn - 6.245%
n BankD - P400mn - 6.30%
AuconResults:
High - 6.25%
Average - 6.125%(fornon-compbids)
Low - 6.00%
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AuconGuidelines
Thecut-offmeforsubmissionofbidstotheBTrduringaucondateis1pm.
AminimumamountofP10mnmaybetenderedbyaGSEDperbid.
Amaximumofseven(7)compevebidsandone(1)non-compevebidpertenormaybe
tenderedbyaGSED.
AutomatedDebtAuconProcessingSystem
(ADAPS)
ADAPSisanelectronicmodebywhichtheNaonalGovernmentsellsgovernmentsecuriestoa
networkofGSEDswhicharelinkedtotheBTr
throughBIS
AuconSelement
SelementofGStakesplace2daysaeraucondate.
GSEDmusttransferfundselectronicallytotheDDAof
theTreasurerofthePhilippinesmaintainedwithBSP.
Uponreceiptofthefunds,theBTrwilltransferthe
newlyissuedsecuritytothePrincipalSecuriesAccount
oftheGSEDintheRegistryofScriplessSecuries(RoSS).
ThisselementprocedureiscalledDvP-RTGS(Delivery
versusPayment-RealTimeGrossSelement)
RegistryofScriplessSecuries(RoSS)
TheRoSSistheofficialrecordofabsoluteownership,legalorbeneficialtleorinterestinGS.
PurchaseofGSsecuritycredited
SaleofGSsecuritydebited
GSEDsmaintainPrincipalSecuriesAccountinRoSS.
OthersecuriesdealersmaintainClientSecuriesAccountinRoSS.
Non-AuconSelement
AsecuritytransferviatheRoSSduetoanon-aucon(secondarymarket)GStransaconbetweentwoGSEDsmayonlybeeffectedif,attheendoftradinghours,thereexistsa
matchedtrade(confirmedbybothpares).
ThematchedtradewillthenbereferredtotheBSPforselement(debitDDAofGSED-buyerandcreditDDAofGSEDseller.
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Non-AuconSelement
ThisprocesscompletesthesecondarymarkettradeandeffecvelyconformswiththeG-30
RecommendaonsofDvPthroughNengbut
Same-DaySelement.
Over-the-Counter(OTC)orTapMethod
TheOTCorTapMethodisanothermodeoforiginangGSforspecificinvestors,namelythe
GovernmentOwnedandControlled
Corporaons(GOCCs),theLocalGovernment
Units(LGUs),andtheTaxExemptInstuons
(TEIs),e.g.,pensionfunds,GSIS,SSS,etc.
Itisnon-compe((veandisopeneveryday.
Over-the-Counter(OTC)orTapMethod
TheapplicableyieldratesforT-BillsissuedtoGOCCs,LGUs,andTEIsshallbebasedontherateoftheimmediatelyprecedingT-Billaucon.
GOCCslowestacceptedyieldrate
LGUsweightedaverageyieldrate
TEIs90%oftheweightedaverageyieldrate
Over-the-Counter(OTC)orTapMethod
FXTNsissuedtoGOCCs,LGUs,andTEIsshallbepricedbasedonthecurrentmarketyield.
GOCCsandLGUsapplicablecouponratebasedoncouponratecorrespondingtotheauconed
FXTN
TEIsapplicablecouponratebasedon90%ofthecouponratecorrespondingtotheauconedFXTN
InterprengtheISIN
PIBD0507B435
CodeforPhilippines
CodeforFXTN
TenorofGS
MaturityYear
MonthofIssuance
GSSeries
Uponissuance,eachGSisassigneda
uniqueISINwhichactsasitsidenfierandis
internaonallyaccepted.
InterprengtheISIN
PIBD0507B435
InthePhilippinebondmarkets,ashortcutisassignedforeachFXTNseries.IntheaboveISIN:5-43.
ISINforotherGS
PIBLT-bills PIIDRTBs PIBZZeroes PIPN-PNs
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Stage2:Trading
Systema(cdealershipandposioningofGS
SecondarymarketdealingofGSamongandbetweenGSEDs,banks,investmenthouses,insurancecompanies,mutualfunds,andotherfinancialinstuons.
PrimaryraonalefortradingistostrategicallyprofitandmanageexposuresbyacvelybuyingandsellingGSinthesecondarymarket
SecondaryMarketTradingofGS
GovernmentSecuri(es
EligibleDealerGSED)
GovernmentSecuri(es
EligibleDealerGSED)
GovernmentSecuri(es
EligibleDealerGSED)
OtherBanksand
FinancialIns(tu(ons
OtherBanksand
FinancialIns(tu(ons
OtherBanksand
FinancialIns(tu(ons
TwoParestoaGSTransacon
QuongParty(Market-Maker)nThepartygivingthetwo-wayprice
CallingParty(Price-Taker)nThepartyaskingfortheprice
Note:Thecallingpartyhastodealatthepriceofthequongparty.
QuongBank/Market-Maker
ForPHP50mn91-dayT-Bills
Iquote:6.56.25
BIDOFFER
TwoWayPrice
QuongBanksTwo-WayQuote
BidRateof6.5n RateatwhichquongbankiswillingtoBUY91-dayT-Bills
OfferRateof6.25n RateatwhichquongbankiswillingtoSELL91-dayT-Bills
Bid-OfferSpreadof0.25%or0.0025n Differencebetweenbidandofferyieldn Traderstrytoquotenarrowerspreadtoencedeals
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InterprengBasisPoints
1basispoint=0.01ofa%point 10basispoints=0.10ofa%point 100basispoints=1.00ofa%point
Example:The6.5/6.25two-wayquotehasabid-offerspreadequalto25basispointsor0.25ofa%
point.
CallingPartysPerspecve
BidRateof6.5nRateatwhichcallingpartymaySELL91-dayT-
Bills
OfferRateof6.25nRateatwhichcallingpartymayBUY91-dayT-
Bills
BidandOfferQuotaonsforGS
IndicaveQuoteAnindicavequoteisnotafinalpriceandmaybechangedbythequongpartyduringthecourseofatrade;maybedealtatonlyoncethequongpartyhasfirmeduphis/herprice.
FirmQuoteAfirmquoteisatypeofquotaonwherethequongpartyhasgivenadefiniteandfinalpriceinwhichthecounterparesmaydealat.
FinancialMarketQuotaons
Ratesarequotedbybanksdirectlytocustomers,otherfinancialinstuons,andotherbanksintheinterbankmarket.
Ratesarealsoquotedthroughbrokers.
MarketinformaonserviceproviderssuchasReuters,MoneylineTelerate,Bloomberg,etc.,alsocarryratequotaonsontheirscreens,althoughtheseareonlyindicaveandnotdealingprices.
TakingProfitfromGSDealership
RuleofThumb:BuyHigh-SellLow
BankAbuys5-yearFXTNfromBankXat8.375 BankAsellssame5-yearFXTNtoBankYat8.25 Spreadof12.5basispointsbetweenbuyingand
sellingyieldistheprofitofBankA
8.375 8.25
BankX BankA BankY
Pricevs.YieldQuotaons
ForT-Bills,FXTNs,andRTBsn QuotaonsaremadeonaYieldbasis
ForROPBondsn QuotaonsaremadeonaPricebasis
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QuongBank/Market-Maker
ForUSD1.0mnROP31
Iquote:101101.625
BIDOFFER
TwoWayPrice
TakingProfitfromGSDealership
RuleofThumb:BuyLow-SellHigh
BankAbuysROP31fromBankXat101.50 BankAsellssameROP31toBankYat101.625.
101 101.625
BankX BankA BankY
SecondaryMarketGSSelement
SecuriesTransferViaRegistryofScriplessSecuries(RoSS)ViaThirdPartyCustodian
SelementCashSelement(notveryfrequent)CheckSelement(subjecttocheckclearing)AutomacDebitArrangementRealTimeGrossSelement(RTGS)
3rdPartyCustodianship
BSPCircular392,Seriesof2003,mandatesthatallPesoorforeigncurrencydenominatedsecuries
soldtoinvestorsmustbedeliveredtoaBSP-
accreditedcustodianforsafekeeping.
TheCircularprohibitsthebankand/oritsaffiliateswhichissuedand/orsoldthesecuritytoactas
custodianforthesamesecurityitissuedand/orsold.
3rdPartyCustodianship
BenefitsofBSPCircular392(InvestorProtecon)FullcontrolandpossessionofthesecuriespurchasedIndependentvalidaonoftheexistenceofsecuries
purchased
RegularreporngofsecuriesholdingsCapabilitytochoosemostcompevecounterpares
incaseofsale,pledge,transfer,andlendingof
securies
3rdPartyCustodianship
WhatsecuriesarecoveredbyBSPCircular392?Allsecuriessoldbybanksonawithoutrecourse
basismustbedeliveredtoaBSP-accredited
custodianforsafekeeping.
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3rdPartyCustodianship
BSPAccreditedCustodiansDeutscheBankStandardCharteredBankBankofthePhilippineIslands(BPI)Cibank,N.A.HongKongandShanghaiBankingCorporaon(HSBC)PhilippineDepositoryandTrustCorporaon(PDTC)
GSDocumentaon
ConfirmaonofPurchase(COP) ForRoSSTransfers
ConfirmaonofSale(COS) ForRoSSTransfers
SelementInstrucons Custodian-specific
SafekeepingReceipt PriortoBSPCircular392
DealingThroughBrokers
BANKA5.7/86.30
BANKB6.1/86.1/4
BANKC6.06.35
Broker6.1/86.35
FinancialMarketDealingEthics
Confidenality
Dealingforpersonalaccounts
Entertainmentandgis
Usingbrokers
Pricequotaons
Namedisclosure,switching,andpassingofnames
Stage3:Distribuon
Selling-downofGStoinstuonalandretailclients
ClientstypicallyhavenobargainingpowerfortheGS
theyarepurchasing
Oneoftheywaysinwhichbankscangetridof
problemGS
Clientsarerequiredtogettheservicesofa3rdparty
custodiantosafekeeptheirGSholdings.
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References
TreasuryCerficaonProgram(TCP)MoneyMarketModuleAteneo-BAPInstuteofBanking
BureauoftheTreasury(BTr)Website
BloombergProfessional
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