MANILA – In a significant development for the financial landscape of the Philippines, an enhanced Peso Interest Rate Swap (Peso IRS) market has officially opened to market participants as of Monday. This initiative, announced by the Bankers Association of the Philippines (BAP), follows the recent release of updated definitions by the International Swaps and Derivatives Association (ISDA) on November 15.
The newly launched market will utilize the Philippine Overnight Reference Rate (ORR) as its anchor, a crucial component for the enhanced Peso IRS market. Paul Favila, chair of BAP’s Open Market Committee, emphasized that the primary objective of this market enhancement is to foster the development of yield curves. This, in turn, will provide essential support for the pricing of short-term credit instruments, including loans.
To facilitate this initiative, 16 member-banks of BAP have committed to acting as market-makers. These institutions will be responsible for quoting two-way prices for both short- and long-term swaps against the Philippine ORR. Notable banks participating in this endeavor include Banco de Oro, Bank of the Philippine Islands, China Bank, EastWest Bank, Metrobank, Philippine National Bank, Security Bank, Rizal Commercial Banking Corporation, Union Bank, and several international banks such as Australia and New Zealand Banking Group, Citi, Deutsche Bank, HSBC, ING Bank, JP Morgan Chase, and Standard Chartered Bank. Additionally, BDO Private Bank, Maybank, Mizuho, MUFG (Mitsubishi UFJ Financial Group), and SMBC (Sumitomo Mitsui Banking Corporation) will also play a role as regular participants in the market.
The trading platform for this enhanced Peso IRS market will be provided by Bloomberg, which is expected to streamline operations and enhance trading efficiency.
Jose Teodoro Limcaoco, president of BAP, expressed optimism regarding the launch, stating, “Now that the enhanced Peso IRS market has gone live, it is time to work together and ensure that the reforms we have pursued will fulfill their goals.” He highlighted that this initiative, alongside the establishment of a repo market for government securities, represents significant progress in the growth of the Philippine capital market.
In a related announcement, the Bangko Sentral ng Pilipinas (BSP) underscored the importance of the new interest rate swap market in enhancing trading and liquidity within the domestic bond market. The BSP views this launch as a critical step in the broader strategy to deepen local capital markets, thereby improving savings and investment opportunities across the Philippines.
BSP Governor Eli Remolona expressed enthusiasm about the launch of the Peso IRS market, stating, “We are excited for Peso IRS to go live to help boost transactions, create a benchmark yield curve, and deepen our capital markets.” He explained that establishing a benchmark yield curve is vital for banks and other lenders as it aids in pricing loans across various maturities.
The implementation of the enhanced Peso IRS market is part of a collaborative effort involving the national government, the BSP, and both Philippine and foreign banks. This initiative is one of several measures being taken to strengthen the country’s financial infrastructure and enhance its capital market capabilities.
As the Peso IRS market begins operations, stakeholders are optimistic about its potential to transform the financial landscape, providing a more robust framework for interest rate swaps and contributing to the overall health of the Philippine economy.
