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(NAR) VOL. 13 NOS. 1-4 / OCTOBER-DECEMBER 2002

[ BSP CIRCULAR LETTER, SEPTEMBER 24, 2002, September 24, 2002 ]

REVERSE REPURCHASE AGREEMENTS (REPO) WITH THE BANGKO SENTRAL NG PILIPINAS SOLD TO CLIENTS



To properly monitor transactions involving reverse repurchase agreements with the Bangko Sentral ng Pilipinas (BSP), all investment houses and financing companies with quasi-banking functions (IH/FC with QB) shall record properly its Reverse Repurchase Agreements (REPO) with the Bangko Sentral ng Pilipinas sold to clients.

When an IH/FC sells an outstanding reverse REPO agreement with the BSP to a client, the securities under REPO support two loan transactions — the IH/FC's claim on the BSP under the original REPO and the client's claim on the IH/FC under the new REPO.  The IH/FC's claim on the BSP arising from the reverse REPO should not be offset against its loan payable to clients in the subsequent sale of the REPO because the counter-parties to the two transactions are different.  Thus, the IH/FC's reverse REPO transaction with the BSP shall remain to be recorded as "Government Securities Purchased under Reverse Repurchase Agreements with BSP" under "Trading Account Securities — Loans".  The IH/FC's payable to clients arising from the subsequent sale of the reverse REPO shall be recorded as "Reverse Repurchase Agreements with BSP Sold to Clients" under "Bills Payable Others".  The subsequent sale of the reverse REPO agreements is not subject to reserve requirements.  The pro-forma accounting entries are in Annex "A"[1]

Accordingly, the Manual of Accounts for Investment Houses and Financing Companies with quasi-banking functions is hereby amended as shown in Annex "B"[2]  Annex "C"[3] is the revised Schedule 5 ("Schedule of Bills Payable and Bonds Payable") of the Statement of Condition (BSP 7-26-02).

This Circular Letter shall take effect immediately.

(SGD.) NESTOR A. ESPENILLA, JR.
Sector-in-Charge



[1] Text Available at Office of the National Administrative Register, U.P. Law Complex, Diliman, Quezon City.

[2] Text Available at Office of the National Administrative Register, U.P. Law Complex, Diliman, Quezon City.

[3] Text Available at Office of the National Administrative Register, U.P. Law Complex, Diliman, Quezon City.

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