BSP to allow pre-termination of peso NDFs

The Bangko Sentral ng Pilipinas (BSP), is set to introduce amendments to its foreign exchange (FX) regulations, allowing for the pre-termination of peso non-deliverable forwards (NDFs).

A draft circular has been issued by the BSP, inviting banks to provide comments and recommendations by June 15.

The BSP has also outlined additional guidelines for cancellations, roll-overs, and non-delivery of FX forward and swap contracts.

Peso NDFs, as defined by the BSP, refer to forward FX contracts involving the peso against a foreign currency, with settlement based on the net difference between the contracted forward FX rate and the spot exchange rate on the fixing date.

The proposed amendments aim to enable banks to pre-terminate these contracts, a practice not previously permitted.

Under the updated draft circular, all NDF contracts settled in peso and involving residents can be pre-terminated before their fixing date.

Meanwhile, for deliverable contracts of FX deliverable forward contracts and the forward leg of swap contracts, the validity of cancellations, roll-overs, or non-delivery will be subject to an eligibility test and reporting requirements.

Under the reporting requirements, banks engaged in derivative transactions will continue to adhere to existing reporting rules for financial derivatives.

However, cancellations, roll-overs, or non-delivery of NDF contracts and transactions related to the forward leg of swap contracts will need to be electronically reported within five banking days after the reference month.