So-called long-term negotiable certificates of time deposits (LTNCDs) must now be “immediately listed” on an accredited platform upon issuance as part of the larger goal of promoting price discovery, the Bangko Sentral ng Pilipinas (BSP) said on Friday.
According to the BSP, the policy-making Monetary Board (MB) approved the new guidelines primarily intended to shine more light on how the financial instruments are priced so that more of these may be traded freely in the market.
LTNCDs are a form of liability, the full measure of which must be as transparent to investors as possible, the BSP explained.
LTNCDs are instruments issued by banks to secure funds. These are denominated in pesos with a tenor of at least five years. LTNCDs may be traded by one investor to another but the principal amount may not be withdrawn during the term of the investment.
As such, the BSP said LTNCDs behave much like a tradable security and that the listing of LTNCDs thus promote price discovery. The BSP said the approval of the new guidelines “fundamentally reaffirm” the policy requiring the LTNCDs’ listing and is part of a “broader set” of initiatives to promote transparency in the pricing of financial instruments.
“This move by the MMB enhances transparency and nurtures the market’s discovery of the respective prices of various LTNCDs upon their trade,” the BSP said.
Thus, the new guidelines now delete the prior requirement of designating certain financial institutions as “market makers.”
This is possible because the continuing discovery of prices of a listed LTNCD is effectively the same task previously asked of market makers.
Also, the new guidelines include the lengthening of the period to complete the issuance of LTNCDs released in tranches. In particular, LTNCDs can now be completed in one year, as opposed to the six months prior limit.
“The longer period provides banks with more flexibility to time the issuances according to their needs in consideration of changing market conditions,” the BSP said.