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BAP launches dollar-peso cross-currency swap mart

THE BANKERS Association of the Philippines (BAP) on Monday launched the dollar-peso cross-currency swap (USDPHP CCS) market to help member banks manage foreign exchange and interest rate risks through hedging instruments.

The initiative is led by the BAP Open Market Committee, with the support of the Money Market Association of the Philippines and ACI Philippines.

“The BAP launches the dollar-peso cross-currency swap market in line with its commitment to promote market development,” the BAP said in a statement.

“This initiative enables its members to utilize hedging instruments critical to them and in response to the needs and requirements of their customers to better manage foreign exchange and interest rate risks,” it added.

Cross-currency swaps are transactions between two parties where interest payments and principal in one currency are exchanged for principal and interest payments in a different currency at an agreed upon exchange rate. 

Interest payments are swapped at fixed intervals during the agreement. Cross-currency swaps are highly customizable and can include variable, fixed interest rates, or both.

“The USDPHP CCS market involves a Philippine peso fixed rate and a US dollar floating swap with standard tenors of 1 year, 2 years, 3 years, 4 years, 5 years, 7 years and 10 years,” the BAP said.

This will use the US dollar Secured Overnight Financing Rate (SOFR) as the floating benchmark for the US dollar leg.

The SOFR is a benchmark interest rate for dollar-denominated derivatives and loans that replaced the London Interbank Offered Rate, which will expire globally on June 30.

According to the BAP, seven banks have signed up as regular participants in the USDPHP CCS, namely China Banking Corp., Rizal Commercial Banking Corp., Robinsons Bank Corp., Union Bank of the Philippines, Inc., Mizuho Bank Ltd., MUFG Bank Ltd., and the Australia and New Zealand Banking Group.

Market makers in the dollar-peso cross-currency swap market include BDO Unibank Inc., Metropolitan Bank & Trust Co., Philippine National Bank, Security Bank Corp., Citigroup, Inc., Deutsche Bank AG, HSBC Philippines, ING Bank, JPMorgan Chase Bank, and Standard Chartered Bank.

Voice-broker participants are Amstel, GFI, Tradition and Tullet Prebon.

The USDPHP CCS market is supported by Bloomberg, a global trading platform provider for various financial products. The USDPHP CCS is traded in Bloomberg’s FIQ<GO>, the BAP said.

The USDPHP CCS market is guided by the rules and regulations of the Bangko Sentral ng Pilipinas, the ISDA Master Agreement, and the Foreign Exchange Global Code.   

The ISDA Master Agreement is the most commonly used master service agreement for over-the-counter derivatives transactions worldwide.

Meanwhile, the Foreign Exchange Global Code is a set of guidelines to promote the integrity and effective functioning of the wholesale foreign exchange market globally. — Keisha B. Ta-asan

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