HELP FOR INVESTORS
Introduction
Financial intermediation is the process of acquiring funds from surplus economic units for the purpose of making available such funds to deficient economic units.
Financial institutions exist primarily for facilitating this intermediation process. They play an important role in business and the economy. Hey mobilize funds which can be accessed by borrowers for liquidity, working capital or capital expansion or in the case of national government, mainly for financing budgetary deficits. Financial institutions act as buffers between suppliers and users of funds, gathering funds in quantities and at terms that are acceptable to savers, and supplying funds in quantities and at terms acceptable to the users.
The money market is a market for low risk, highly liquid short terms evidences of indebtedness. It as conceived as a vehicle for mobilizing funds which can be accessed by borrowers at a relatively short period of time. It is a structure revolving around the trading of fixed income instruments issued by corporations, financial institutions, and the government.
I. Inter Bank Call Loan
| Product Definition | ||
| The Inter Bank Call Loan market is a system that permits banks with excess reserves over the required position for the day to lend out the same excess to reserve deficient banks. | ||
| Features: | ||
| Participants | : | Bangko Sentral ng Pilipinas, banks and quasi-banks |
| Term | : | One day although at times the term exceeds more than one day |
| Tax feature | : | Interest income with maturities of 5 days or less are deemed taxable and subject to prevailing corp. tax rate. Interest income with maturities of more than 5 days are subject to 20% final withholding tax |
| Type of income | : | Subject to tax feature |
| Interest computation | : | Simple interest/Add-on |
| The borrowing institution is required to put up reserves equivalent to one percent (1%) of the borrowed principal. This reserve requirement is applicable for all types of IBCL transactions.
Borrowing IBCL transactions with the BSP require the borrowing party to earmark securities as collateral in the ROSS account with the Bureau of Treasury. Alternately, lending with the BSP requires the BSP to earmark securities with an equivalent face value of the amount borrowed. IBCL transactions between banks and quasi-banks are on a clean basis. |
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II. Reverse Repurchase Agreement
| Product Definition | ||
| A Reverse Repurchase Agreement (RRP) is defined where the Bangko Sentral ng Pilipinas (BSP) sells securities to a bank or financial institution that has quasi-banking licenses, with a commitment to buy this back on a specified date and specified rate. The RRP serves as a monetary tool of the BSP to control money supply using open market operations. | ||
| Features: | ||
| Issuer | : | Bangko Sentral ng Pilipinas |
| Term | : | Subject to the discretion of the BSP oftentimes overnight, 14, and 30 days |
| Tax feature | : | Interest income with maturities of 5 days or less are deemed taxable and subject to prevailing corp. tax rate. Interest income with maturities of more than 5 days are subject to 20% final withholding tax |
| Type of income | : | Subject to tax feature |
| Interest computation | : | Simple interest/Add-on |
| Manner of purchase | : | Through the BSP |
| RRP as its definition connotes in substance a borrowing transaction collateralized by a security. The securities that serve as collateral are usually in the form of Treasury Bills Special Series or Fixed Rate treasury notes. RRP transactions would require the BSP to earmark securities with an equivalent face value to the amount borrowed, regardless of the tenor of the instrument collateralized. | ||
III. Treasury Bills
| Product Definition | |
| Treasury Bills (Tbills) are direct and unconditional obligations of the national government. They are issued by the Bureau of Treasury (BTr). They carry a maturity of one year or less and can be traded in the secondary market before maturity.Treasury Bills are considered one of the primest investment instruments in the market. They are safe, liquid and offer attractive returns to investors. | |
| Features: | |
| Issuer | : National government |
| Term | : 91, 182, 364 days |
| Tax feature | : Interest income subject to 20% final withholding tax |
| Type of income | : Tax paid income |
| Interest computation | : True discount formula |
| Manner of purchase | : Auction or through secondary market |
| Treasury Bills do not bear interest. They are issued and sold at a discount from face value and are redeemed at maturity for the full face value of the instrument. | |
IV. Fixed Rate Treasury Notes
| Product Definition | ||
| Fixed Rate Treasury Notes (FXTNs) are direct and unconditional obligations of the national government. They are issued by the Bureau of Treasury (BTr). They are interest bearing and carry a term of more than one year and can be traded in the secondary market before maturity.Fixed Rate Treasury Notes are considered one of the primest investment instruments in the market. They are safe, liquid and offer attractive returns to investors. | ||
| Features: | ||
| Issuer | : | National government |
| Term | : | 2, 5, 7, 10, 15, 25 years |
| Tax feature | : | Interest income subject to 20% final withholding tax |
| Type of income | : | Tax paid income |
| Rate | : | Fixed for the life of the FXTN; based on lowest accepted yield to maturity on auction date |
| Coupon payment period | : | Payable semi-annually in arrears |
| Interest computation | : | Simple interest/add-on |
| Manner of purchase | : | Auction or through secondary market |
| Fixed Rate Treasury notes are issued and sold at a price equal to be face value and are redeemed at maturity for the full face value of the instrument plus interest/coupon of the last period. | ||
V. Fixed Rate Treasury Notes
| Product Definition | ||
| Retail Treasury Bonds (RTBs) are direct and unconditional obligations of the national government which primarily caters to the retail market or the end-users. They are issued by the Bureau of Treasury (BTr). They are interest bearing and carry a term of more than one year and can be traded in the secondary market before maturity.
Retail Treasury Bonds are safe, liquid and offer attractive returns to investors. |
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| Features: | ||
| Issuer | : | National government |
| Term | : | 3 and 5 years |
| Tax feature | : | Interest income subject to 20% final withholding tax |
| Type of income | : | Tax paid income |
| Rate | : | Fixed for the life of the RTBs |
| Coupon payment period | : | Payable quarterly in arrears |
| Interest computation | : | Simple interest/add-on |
| Manner of purchase | : | Auction or through secondary market |
| Retail Treasury Bonds are issued and sold at a price equal to be face value and are redeemed at maturity for the full face value of the instrument plus interest/coupon of the last period. | ||
VI. Dollar Linked Peso Notes
| Product Definition | ||
| Dollar Linked Peso Notes (DLPNs) are direct and unconditional obligations of the national government and are issued by the Bureau of Treasury (BTr). They are interest bearing and carry a term of more than one year and can be traded in the secondary market before maturity. The notes track the movement of the Philippine Peso and US Dollar exchange rate. Payments of interest and principal are linked to the movement of the exchange rate and computed based on the foreign exchange factor. | ||
| Features: | ||
| Issuer | : | National government |
| Term | : | 2 and 3 years |
| Tax feature | : | Interest income subject to 20% final withholding tax |
| Type of income | : | Tax paid income |
| Rate | : | Fixed for the life of the FXTN; based on lowest accepted yield to maturity on auction date |
| Coupon rate and computation | : | Base Rate * Foreign Exchange Factor * 180 / 360 |
| Base rate is the coupon designated by the Issuer divided by 0.80 plus a spread of 50 basis points | ||
| Foreign exchange factor = Php B Val/Php A Val | ||
| Php B Val = spot Php/USD exchange rate one business date prior to coupon date Php A Val = spot Php/USD exchange rate one business date prior to issue date |
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| Coupon payment period | : | Payable semi-annually in arrears |
| Redemption computation | : | [Face Value / PHP_A_Val] * PHP_C_Val |
| Php A Val = spot Php/USD exchange rate one business day prior to issue date Php C Val = sport Php/USD exchange rate one business date prior to maturity date |
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| Manner of purchase | : | Auction or through secondary market |