BSP amends rules on FX derivatives

The Bangko Sentral ng Pilipinas (BSP) has amended its regulations on foreign exchange (FX) transactions covering different types of derivatives, including swaps, forwards, and options.

BSP Circular 1212 series of 2025 amends several provisions in the Manual of Regulations on Foreign Exchange Transactions (MORFXT), specifically for FX derivatives transactions involving the Philippine peso.

The circular mainly expands its definitions of specific FX derivatives or the “buying and selling of foreign currency against the Philippine peso.”

These include forward FX contracts; non-deliverable forwards; FX, non-deliverable, cross currency, and non-deliverable cross currency swaps; and FX options.

“Customers may hedge their FX exposures through FX derivatives with AABs (authorized agent banks); provided that sale of FX through FX derivatives may only be made when the underlying transaction is eligible for servicing using FX resources of AABs/AAB forex corps.”

“Customers may, likewise, cover their funding requirements through FX swaps,” the BSP added.

AABs may only engage in FX derivative transactions with customers if the latter is hedging FX exposure or covering funding requirements, it said.

“The total notional amount of the FX derivatives transactions shall not exceed the amount of the underlying FX exposure at any given point in time,” the BSP said. “Customers shall no longer be allowed to purchase FX from AABs/AAB forex corps for FX exposures that are fully covered by deliverable FX derivatives.”

Hedging of permanently assigned capital of Philippine branches of foreign banks or firms is also prohibited, it added.

“If a customer preterminates or cancels a non-deliverable FX derivatives contract, the customer may only enter into another non-deliverable FX derivatives contract for the same underlying transaction if there is a change in the original financial terms of the underlying transaction.”

For transactions of AABs for their own account, these shall be governed by rules under the Manual of Regulations for Banks and the FX Manual, as applicable.

“AABs authorized by the BSP to transact in non-deliverable FX derivatives shall ensure that these products are used for legitimate economic purposes. Non-deliverable forwards may be used in engaging in a non-deliverable sell-side FX derivative with a non-resident counterparty,” it said. “When an AAB is transacting for its own account, the AAB shall ensure that the counterparty is a duly regulated financial institution authorized to deal in FX deriva-tives.”

For the sale of FX to customers through FX derivatives, whether deliverable or non-deliverable, the tenor/maturity of such contracts shall not be longer than the maturity or approximate due date or settlement of the underlying FX exposure, which refers to an underlying transaction which is eligible for servicing using FX resources of AABs or AAB forex corporations that may be hedged using FX derivatives.

“Only FX swaps shall have no restriction on tenor,” the BSP said.

It added that non-deliverable FX derivatives contracts with residents shall be settled in pesos.

Meanwhile, the remittance of foreign exchange proceeds of deliverable FX derivatives contracts shall either be delivered by the AAB counterparty directly to the beneficiaries or credited to the foreign currency deposit account of the customer.

The circular also amends the section on cancellations, roll-overs, and non-delivery of FX derivatives to include preterminations of these contracts. Preterminations do not apply for non-deliverable foreign exchange forward con-tracts.

“All cancellations, preterminations, roll-overs, or non-delivery (in the case of deliverable contracts) of all FX derivatives contracts of customers shall be subject to the following tests and corresponding guidelines to determine the validity thereof,” the BSP said.

These include eligibility, reasonability and frequency, counterparty and mark-to-market tests.

The circular also details rules on reporting requirements for FX derivative transactions and adds guidelines for the registration, repatriation or remittance, and reporting of inward investments. — Luisa Maria Jacinta C. Jocson