MORNBFI Vol. 1 - Planters Development Bank

§§ 4601Q.3 - 4611Q09.12.31§ 4601Q.3 (2008 - 4601Q.1) Settlementprocedures. Purchase and sale ofgovernment securities under repoagreements (GS/repo agreements) betweenand among banks and QBs and BSP inconnection with the latter’s open marketoperations shall be settled in accordancewith the provisions of the agreement for thePhilPaSS executed on 12 December 2002between the BSP and IHAP and anysubsequent amendments thereto.(As superseded by the agreement between the BSP and IHAPdated 12 December 2002)§§ 4601Q.4 - 4601Q.5 (Reserved)§ 4601Q.6 Bangko Sentral tradingwindows and services during public sectorholidays. The guidelines on BSP’s tradingwindows and services during public sectorholidays are shown in Appendix Q-50.(M-2008-025 dated 13 August 2008)Secs. 4602Q - 4610Q (Reserved)B. FINANCIAL INSTRUMENTSSec. 4611Q (2008 - 4603Q) Derivatives. AQB may engage in authorized derivativesactivities: Provided, That a QB:a. Understands, measures, monitorsand controls the risks assumed from itsderivatives activities;b. Adopts effective risks managementpractices whose sophistication arecommensurate to the risks being monitoredand controlled; andc. Maintains capital commensuratewith the risk exposures assumed.Further, a QB may engage in financialderivatives activities in accordance withthese guidelines. The transacting QB shallhave the responsibility to comply with theguidelines set out in this Section, includingthe relevant appendices, and otherapplicable laws, rules and regulationsgoverning derivatives transactions. In caseof derivatives instruments involving foreigncurrencies and/or other foreign currencydenominatedassets, the transacting QB shallobserve the pertinent foreign exchange(“FX”) rules and regulations. For purposesof these guidelines, a QB that transacts(i.e., transacting bank), whether as end-user,broker or dealer, in derivatives instrumentsis considered to be engaging in a derivativesactivity.Derivative is broadly defined as afinancial instrument that primarily derivesits value from the performance of anunderlying variable. For purposes of theseguidelines, a financial derivative is anyfinancial instrument or contract with all ofthe following characteristics:a. Its value changes in response to achange in a specified interest rate,financial instrument price, commodityprice, FX rate, index of prices or rates,credit spread, credit rating or credit indexor other variables not prohibited underexisting laws, rules and regulations (“theunderlying”);b. It requires either no initial netinvestment or an initial net investment thatis smaller than would be required for othertypes of contracts that would be expectedto have a similar response to changes inmarket factors; andc. It is settled at a future date.Financial derivatives activities shallalso include transactions in cashinstruments with embedded derivativesthat reshape the risk-return profile of thehost instrument, such as credit-linkednotes (“CLNs”) and their structuredproducts (“SPs”).A market participant may take any ofthe following roles in a derivativestransaction:a. An end-user is defined as a financialmarket participant that enters, for its ownaccount, in a derivatives transaction forlegitimate economic purposes. Thesepurposes may include, but are not limitedManual of Regulations for Non-Bank Financial Institutions Q RegulationsPart VI - Page 3