Non-Restricted Trading and Settlement for Peso-Denominated Government Securities. Bureau of the Treasury 22 September 2014

Transcription

1 Non-Restricted Trading and Settlement for Peso-Denominated Government Securities Bureau of the Treasury 22 September 2014

2 Outline REGULATORY FRAMEWORK FOR A NON-RESTRICTED TRADING AND SETTLEMENT OF PESO DENOMINATED GOVERNMENT SECURITIES Department Order (DO) IMPLEMENTATION OF A NON-RESTRICTED TRADING AND SETTLEMENT FOR PESO DENOMINATED GOVERNMENT SECURITIES Treasury Circular Operating Guidelines to transition to a non-restricted trading across tax categories in the secondary market NON-RESTRICTED TRADING AND SETTLEMENT FOR PESO DENOMINATED GS AND THE SECONDARY MARKET FOR GOVERNMENT SECURITIES Trading Settlement Pre-trade and Post settlement TIMELINE FOR IMPLEMENTATION Q and A 2 2

3 Regulatory Framework Department Order

4 Department Order FURTHER AMENDING DEPARTMENT OF FINANCE ORDER NO , AS AMENDED, ENTITLED REVISED RULES AND REGULATIONS FOR THE ISSUANCE, PLACEMENT, SALE, SERVICE AND REDEMPTION OF TREASURY BILLS AND BONDS UNDER REPUBLIC ACT NO. 245, AS AMENDED OBJECTIVE To deepen the secondary market for government securities market To provide additional liquidity to the tax-exempt segment. SALIENT FEATURES Allow transfers of government securities holdings across tax categories (i.e., between and among a TEI, GOCC, LGU and taxable person or entity) Use of a tracking facility duly cleared by the BIR MAIN BENEFITS Liquidity, price discovery, efficient settlement to the tax exempt sector Additional liquidity to the secondary market for government securities tax exempt holdings account for 20% of total outstanding government securities 4 4

5 Implementation Treasury Circular

6 Treasury Circular (Implementing DO ) Implementing Department Order No issued on 26 August 2014 entitled, REVISED RULES AND REGULATIONS FOR THE ISSUANCE, PLACEMENT, SALE, SERVICE AND REDEMPTION OF TREASURY BILLS AND BONDS UNDERREPUBLIC ACT NO. 245, AS AMENDED. SCOPE Secondary market trading and settlement of peso denominated coupon-bearing treasury bonds of the Republic of the Philippines PARAMETERS FOR IMPLEMENTATION Trading and Settlement Convention. Prevailing market convention on transfers of holdings across tax categories and applicable law, rules and regulations on secondary market trading. Tax tracking system (TTS) and the TTS records. Use of a tax tracking facility to calculate the appropriate final withholding tax on accrued interest due to holder/seller on the basis of the holder s/seller s holding period Entries / records in the TTS shall form part of the official records of the RoSS 6 6

7 Treasury Circular (Implementing DO ) PARAMETERS FOR IMPLEMENTATION Tax tracking mechanics. SATT: RoSS Principal account capable of being tax tracked All holders must have a SATT for their holdings of peso GS to be bought or sold in the non-restricted environment Sponsored holders may use their SSA under their sponsoring broker as their SATT under such sponsoring broker Investor Code associated with a holder s SATT and corresponding cash settlement account may be assigned to each holder s SATT as per Operating Guidelines Bonds purchased shall remain in SATT of the buyer up to the coupon payment date or until sold or transferred to another holder with a SATT for purposes of tracking Reimbursement. Tax exempt holders shall be reimbursed for any final withholding tax that may have been deducted from their proceeds as seller in accordance with the prevailing market convention on secondary market trading and settlement 7 7

8 Treasury Circular (Implementing DO ) PARAMETERS FOR IMPLEMENTATION SETTLEMENT AMOUNT Prevailing market convention for taxable entities Applicable final withholding taxes COUPON PAYMENT Length of time the holder held the securities in its SATT during the relevant coupon period IMPLEMENTATION SCHEDULE 8 8

9 Implementation Operating Guidelines (OG)

10 OG for Trading and Settlement (Implementing DO ) OPENING OF SATT For existing direct RoSS account holders, i.e., no sponsored holders, a corresponding SATT for each holder shall be opened by BTr SSRD Letters will be sent out to inform direct RoSS account holders of the SATT account opening For existing sponsored RoSS account holder (RoSS CIS), BTr-SSRD shall open a SATT for such account holder upon the request of the sponsor Sponsor shall submit an account creation request/file as prescribed by BTr to BTr SSRD Pursuant to TC , for existing sponsored RoSS accounts opened by the Dealer unit, such account shall be re-associated with a sponsoring broker, unless such RoSS account is owned by a qualified investor or QIB. The re-association shall be in accordance to the prescribed procedure of the BTr.

11 OG for Trading and Settlement (Implementing DO ) OPENING OF SATT Question: Can an Investor have several SATTs? Answer: Yes it may have. Pursuant to TC on Broker Recognition, an investor may have as many SATTs as its sponsor brokers. At least one (1) SATT per sponsor broker. Question: Can a sponsored investor have more than one SATT under a sponsor broker? Answer: Yes it may have. Since each SATT would contain details on the tax status or category of the investor, if an investor has more than one tax status or category arising from its holdings of an asset with preferential tax status, then it can have another SATT. Example. An OFW investor who wants to buy an MRTB and a peso GS opens the following SATTs: Securities Location OFW Investor s Cash Settlement Bank for corporate action Sponsored OFW investor buying MRTB through Sponsor Broker 1 Sponsored OFW investor buying Peso GS through Sponsor Broker 1 SATT 1 with tax rate of 0% SATT 2 with tax rate of 20% PDDTS-PVP account of sponsored broker s firm where OFW has account BSP DDA account of sponsored broker s firm where OFW has account 11 11

12 OG for Trading and Settlement (Implementing DO ) OPENING OF SATT Question: If an Investor has an existing SATT for its MRTB (USD) holdings, can the investor use it for his peso GS holdings? Answer: Yes. Provided that the investor tax status/category of its SATT for its MRTB holdings (20%) is the same as that for its peso GS holdings (20%), i.e., the investor is not an OFW (0% tax assumed), then such investor can use the same SATT for its MRTB and GS holdings. Example: Sponsored Investor A buying an MRTB through sponsor Broker A Sponsored Investor A buying FXTN through sponsor Broker A Securities Location SATT 1 with 20% FWT sponsored by Broker A SATT 1 with 20% FWT sponsored by Broker A Investor s Cash Settlement Bank for corporate action Sponsor Broker A s firm PDDTS_PVP account with Citibank (USD) Broker A s firm DDA with BSP (Php)

13 OG for Trading and Settlement (Implementing DO ) OPENING OF SATT Direct RoSS account holders with existing SATT for their MRTB holdings should indicate to BTr if they shall use the same SATT for their peso GS holdings under a non-restricted environment, provided that such account holders tax status for its MRTB holdings and GS holdings are the same. Sponsor brokers whose sponsored Ross account holders have existing SATT for their MRTB holdings should indicate to BTr if their sponsored holders shall use the same SATT for their peso GS holdings.

14 OG for Trading and Settlement (Implementing DO ) USE AND ASSIGNMENT OF INVESTOR CODE IN TRADING AND SETTLEMENT For purposes of tracking the appropriate final withholding tax, each trade should be associated with an Investor Code that corresponds to a SATT and cash settlement account that will be used in the settlement of the trade If buyer/seller Settlement Location Assign Investor Code (IC) to buyer/seller SATT? Who assigns the Investor Code? TP dealer * / TP QIB Own proprietary SATT Yes TP dealer * / TP QIB Taxable Sponsored Investor represented by its Broker Taxable Direct Investor (QIB) represented by its Broker (opened by BTr SSRD) Sponsored investor own SATT Sponsored investor s Broker s omnibus account (TC ) Taxable Direct investor own SATT not linked to its Broker Broker s omnibus account (TC ) Yes No, use IC of Broker s omnibus account Yes No, use IC of Broker s omnibus account Sponsor Broker Sponsor Broker Broker representing the Direct Investor Broker representing the Direct Investor 14 14

15 OG for Trading and Settlement (Implementing DO ) (con t) USE AND ASSIGNMENT OF INVESTOR CODE IN TRADING AND SETTLEMENT If buyer/seller (con t) Taxable holder (QIB) other than a TP who transacts with a dealer Tax-exempt holder or holder with preferential tax status represented by a TP (broker/dealer), either Sponsored or Direct Settlement Location Own proprietary SATT Sponsored investor own SATT Assign Investor Code (IC) to buyer/seller SATT? Yes Who assigns the Investor Code? Dealer with whom the taxable holder deals with Yes Sponsor Broker / Dealer that QIB tax-exempt holder or holder with preferential tax status deals with

16 OG for Trading and Settlement (Implementing DO ) USE AND ASSIGNMENT OF INVESTOR CODE IN TRADING AND SETTLEMENT Question: Can a SATT be assigned more than one Investor Code? Answer: As per Sec. 5.3 of TC, an Investor Code is a code associated with a: (1) SATT of a holder/investor and; (2) cash settlement account of the holder to be used in the settlement of trade. Hence, yes a SATT can be assigned more than one IC when it is associated to more than one (1) cash settlement account. Scenario 1: Sponsored investor A with SATT 1 opened and sponsored by Broker A. Example: Securities Location Cash Settlement Location for settlement of trades Investor Code Sponsored Investor A buying an MRTB through sponsor Broker A SATT 1 with 20% FWT sponsored by Broker A Sponsor Broker A s firm PDDTS_PVP account with Citibank (USD) IC = xxxxx assigned and enrolled by Broker A Sponsored Investor A buying FXTN through sponsor Broker A SATT 1 with 20% FWT sponsored by Broker A Broker A s firm DDA with BSP (Php) IC = yyyy assigned and enrolled by Broker A

17 OG for Trading and Settlement (Implementing DO ) USE AND ASSIGNMENT OF INVESTOR CODE IN TRADING AND SETTLEMENT Question: Can a SATT be assigned more than one Investor Code? Scenario 2: Direct Investor B, example, TRUST with SATT 1 opened by BTr SSRD and not linked to any Broker that represents Investor B, buys FXTN from via Broker 1 and another FXTN from Broker 2. Investor B/TRUST want to settle the securities leg of its trade in its own SATT account. Example: Securities Location Cash Settlement Location for settlement of trades Investor Code Direct Investor B/TRUST buys through Broker 1 SATT 1 with 20% FWT opened by BTr SSRD Broker 1 s firm DDA with BSP (PHP) IC = 1111 assigned and enrolled by Broker 1 Direct Investor B/TRUST buys through sponsor Broker 2 SATT 1 with 20% FWT opened by BTr SSRD Broker 2 s firm DDA with BSP (PHP) IC = 2222 assigned and enrolled by Broker 2

18 OG for Trading and Settlement (Implementing DO ) USE AND ASSIGNMENT OF INVESTOR CODE IN TRADING AND SETTLEMENT Question: Would an Investor with two (2) SATTs one for each of its two Sponsor Brokers necessarily have 2 Investor Codes? Answer. No, if the investor is taxable and opt to settle its trades in its respective Sponsor Broker s omnibus account. Yes, if the investor is tax-exempt or with preferential tax status because it is required to settle their trades in their own SATT. Yes, if investor is taxable and it will settle its trades in its own SATT. Example: Securities Location Cash Settlement Location for settlement of trades Investor Code Sponsored Investor 1 buying an FXTN through sponsor Broker A SATT A with 20% FWT sponsored by Broker A Sponsor Broker A s firm DDA account with BSP (PHP) IC = AAA assigned and enrolled by Broker A Sponsored Investor 1 buying FXTN through sponsor Broker B SATT B with 20% FWT sponsored by Broker B Broker B s firm DDA account with BSP (Php) IC = BBB assigned and enrolled by Broker B

19 OG for Trading and Settlement (Implementing DO ) HANDLING OF HOLDER S SELL AND BUY TRANSACTIONS IN HOLDER S SATT For sell transaction Bonds are earmarked against the balance on a FIFO basis Bonds are deducted from the SATT balance only upon settlement of the trade For buy transaction Bonds shall only be part of the buyer s SATT balance after the trade is settled in the SATT QUOTING CONVENTION Prevailing market convention on secondary market trading Tax exempt entities and entities with preferential tax status shall trade subject to the prevailing market convention SETTLEMENT CONVENTION Prevailing market convention on settlement of secondary market trades

20 Trading and Settlement Landscape GS under a Non-Restricted Environment

21 Transaction Flow Dealers CURRENT PROCESS RESTRICTED TRADING TP - SELLER TP - BUYER X-stream PDS Gateway ROSS System FXTN T-Bills Zeroes PSALM NON-RESTRICTED TRADING X-stream PDS Clear TP - SELLER CAAC Sub-Registry system FXTN PDS Registry Direct PDS Gateway ROSS System ROSS System FXTN SR system TP - BUYER T-Bills Zeroes PSALM 21 21

22 Transaction Flow Dealer-QI (buyer) TP - SELLER Same TP BUYER for QI CURRENT PROCESS RESTRICTED TRADING X-stream PDS Gateway ROSS Dealer ROSS FXTN T-Bills Zeroes PSALM RoSS QI NON-RESTRICTED TRADING X-stream PDS Clear TP - SELLER CAAC Sub-Registry system Dealer QI PDS Registry Direct PDS Gateway ROSS System ROSS System FXTN SR system PIC Same TP BUYER for QI T-Bills Zeroes PSALM 22 22

23 Executing Dealer-QI Trades in the Non-Restricted Trading Environment Qualified Investor (QI) Side Dealer Side Dealer inputs PIC for QI in the Neg ticket of QI side PIC

24 24 24 Transaction Flow Brokers CURRENT PROCESS RESTRICTED TRADING PRE-TRADE PRE-TRADE RoSS CIS (Client) Thomson Reuters RoSS (dealer) Registry Direct Depository (Broker) RoSS CIS (Client) Investor Direct Sub-Registry (Client) X-stream TP - SELLER TP - BUYER NON-RESTRICTED TRADING TP - SELLER TP - BUYER PIC PIC X-stream CAAC PDS CLEAR PDS CLEAR Depository FXTN T-Bills Zeroes PSALM RoSS CIS SR System FXTN T-Bills Zeroes PSALM

25 Post-Settlement with Broker Recognition A. If PIC points to the GSB Sponsor s Omnibus w/o Client Account: Broker 1 Omnibus w/0 client account P 10 MM Broker 1 Omnibus w/ client account Broker 1: Client 1a: P 10 MM Broker 1: Client 1b: Account Transfer to the Client s Sub- Registry Account SATT- Securities Account for Tax Tracking B. If PIC points to the Client s Sub- Registry Account (for 0% FWT & tax rates other than 20% Clients) Broker 1 Omnibus w/0 client account Broker 1 Omnibus w/ client account Broker 1: Client 1a: P 10 MM Broker 1: Client 1b:

26 TIMELINE GS under a Non-Restricted Environment

27 27 27 TIMELINE Activity Date Issuance of Department Order Sept. 22, 2014 BTr briefing on Non-restricted environment Sept. 22, 2014 (M) User Training Period : Investor Direct / Registry Direct Week of Sept Period of GSB Recognition Briefing /Application Creation of Brokers Account in RoSS and Sub- Registry System Creation of Dealers Account in the Sub-Registry System Market Wide Testing : ETE = Trading to Settlement Oct. 1-3 Start of Re- Association/ Affirmation Re-association of RoSS CIS accounts from Dealer to Broker Sponsor Creation of RoSS CIS accountholders SATT in the Sub-registry Sept. 29- Oct 13, 2014 Oct 13- Oct 24, 2014 Target Live Date Oct. 27, 2014

28 End of Presentation Thank You For any concerns or questions, please