About Government Securities
Government
Securities
Government
Securities
are unconditional obligations of the sovereign
state. It is backed by the full taxing power of
the sovereignty. Therefore, government securities
are practically free from default.
The
Philippine Government issues two kinds of government
securities (GS): Treasury Bills and Treasury Bonds,
so-called because it is the Bureau of the Treasury
which originates their sale to the investing public
through a network of licensed dealers. Government
agencies, Local Governments and government-owned
or controlled corporations may float securities
but these are not labeled as Treasuries. Government
securities are no longer certificated, they are
known as "scripless", just like in USA,
Canada, China and Korea. GS discount or coupons
are subject to twenty percent final income tax
which is withheld upon floatation of Treasury
Bills or upon payment of the coupon for Treasury
Bonds. No other tax is imposed on the secondary
market buyer.
Treasury
Bills
Treasury
Bills
are government securities which mature in less
than a year. There are three tenors of Treasury
Bills: (1) 91 day (2) 182-day (3) 364-day Bills.
The number of days are based on the universal
practice around the world of ensuring that the
bills mature on a business day. Treasury Bills
are quoted either by their yield rate, which is
the discount, or by their price based on 100 points
per unit. Treasury Bills which mature in less
than 91-days are called Cash Management Bills
(e.g. 35-day, 42-day).
Treasury
Bonds
Treasury
Bonds
are government securities which mature beyond
one year. At present there are five maturities
of bonds (1) 2- year (2) 5 - year (3) 7 - year
4) 10 - year and (5) 20-year. These are sold at
its face value on origination. The yield is represented
by the coupons, expressed as a percentage of the
face value on per annum basis, payable semi-annually.
Securities
Dealer
Securities
Dealer
is a financial institution organized usually as
a corporation or a partnership, whose principal
business is to buy and sell securities, whether
registered or exempt from registration, for the
dealer’s own account or for the account
of client/s. A securities dealer before dealing
in securities is required to obtain a license
from SEC pursuant to the Revised Securities Act.
Government
Securities Eligible Dealer (GSED)
Government
Securities Eligible Dealer (GSED)
is a SEC-licensed securities dealer belonging
to a service industry supervised/regulated by
Government (SEC, Bangko Sentral ng Pilipinas or
Insurance Commission) which has met the (a) P100
M unimpaired capital and surplus account; (b)
the statutory ratios prescribed for the industry,
and (c) has the infrastructure for an electronic
interface with the Automated Debt Auction Processing
System (ADAPS) and the official Registry of Scripless
Securities (RoSS) both of the Bureau of the Treasury
(BTr) using Bridge Information Systems (BIS),
and acknowledged by the BTr as eligible to participate
in the primary auction of government securities.
A List of GSEDs are included in this Primer for
ease of investors who wish to buy government securities.
view list of GSED
Automated
Debt Auction Processing System (ADAPS)
Automated
Debt Auction Processing System (ADAPS)
is an electronic mode by which the National Government
sells government securities to a network of GSEDs
which are linked to the BTr through BIS every
Monday for Treasury Bills and every second and
fourth Tuesday for Treasury Bonds, whereby GSEDs
tender their bids (both competitive and non-competitive)
by keying-in the amount (minimum of P10.0 M) and
yield of their choice (for a maximum of seven
(7) competitive bids and one (1) non-competitive
bid per tenor for any amount above P10.0 M) using
a BIS terminal in the GSED office. Within seconds
the bids are arrayed by the System in the terminals
of the BTr. After the cut-off time of 1:00 P.M.
the array is viewed by the Auction Committee which
then decides on the award. The award is keyed-back
to the respective terminal of GSEDs.
Two
days after the auction, the government securities
are credited to the Securities Principal Account
of the GSED in the Registry of Scripless Securities
(RoSS) and the Demand Deposit Account of the GSED
at Bangko Sentral ng Pilipinas is debited in favor
of the Treasurer of the Philippines for the cost
of the government securities awarded to the GSED
concerned. This completes the trade in the primary
market (from the issuer the National Government
to the licensed dealers or GSEDs). This is also
known as origination of GS.
Over-the-Counter
(OTC)
Over-the-Counter
(OTC)
) is another mode of originating GS for specific
investors, namely, the Government Owned or Controlled
Corporations (GOCC), the Local Government Units
(LGU) and the Tax Exempt Institutions (TEI), e.g.,
pension funds, GSIS, SSS, etc.. It is non-competitive.
The Over-the-Counter is open every day. The applicable
yield rates for Treasury Bills issued to GOCCs/LGUs/TEIs
shall be based on the rate of the immediately
preceding Treasury Bill auction. For GOCCs, the
rate shall be the lowest accepted yield rate,
for LGUs, the weighted average yield rate and
for TEIs, the yield shall be 90% of the weighted
average yield rate. Treasury Bonds issued to GOCCs/LGUs/TEIs
shall be priced based on the current market yield.
The coupon rate for GOCCs and LGUs shall be based
on the rate corresponding to the auctioned Treasury
Bonds. The applicable coupon rate for TEIs shall
be based on thew 90% of the coupon rate.
Registry
of Scripless Securities (RoSS)
Registry
of Scripless Securities (RoSS)
is the official Registry of absolute ownership, legal or beneficial titles or interest in GS (Treasury Bills and Treasury Bonds). Upon award of GS to a GSEDs at the auction, the securities award are electronically downloaded to the RoSS system. On issue date the Principal Securities Account of GSED are credited of the winning bids.
The GS trades are entered by both parties in their respective trading terminals using their confidential identification and password and to activate the system and authorize every transfer instruction between 9:30 a.m. to 1:30 p.m. The RoSS system checks the securities in the seller’s securities account and earmark these for transfer. The system then sends an electronic settlement file to BSP containing the amount to be debited and credited to the Regular Demand Deposit Account (RDDA) of the buyer and seller. Once settlement were processed, the BSP Philippine Payment and Settlement System (PhilPASS) will send back a file message that settlement were done and the RoSS system will now transfer the earmark securities from the seller securities account to the buyer securities account. A Posted message will then send back by RoSS to the system provided.
Securities and cash settlement of gs transaction to the secondary market is done via DvP on a Real Time Gross trade for trade basis. Cut-off time for peso funding in the Philippine Payment and Settlement System (PhilPASS) is until 2:00 p.m. All transaction which have been unsettled after the 2:00 p.m. cut-off time will be declared failed transaction and the earmarking on the company securities at RoSS will be lifted.
.
Yield
Yield
is the increment or interest on an investment
in GS. It is the discount earned on Treasury Bills
or the coupon paid to the holder of Treasury Bonds.
Both the discount and the coupon are expressed
as a percentage of the value of the GS on a per
annum basis. Conventionally, the yield on longer
dated GS are higher than the yields of shorter-dated
GS.
Competitive
Bid
Competitive
Bid is
a tender to buy an amount of GS at a yield rate
per annum that a GSED believes will wrest an award
for the GSED by out-bidding other GSEDs in the
primary market auction of GS.
Non-Competitive
Bid
Non-Competitive
Bid
is a tender to buy a specified amount of GS, by
a GSED in the primary auction of GS, without indicating
any yield rate, on the understanding that the
award shall be at the weighted average yield rate
of the competitive bids awarded at the same auction.
Price
Discrimination or English Auction
Price
Discrimination or English Auction
is a method in which successful competitive bidders
pay the price they have bid, and all the winning
bidders may pay different prices.
Uniform
Price or Dutch Auction
Uniform
Price or Dutch Auction
is a method of pegging a uniform coupon rate of
a Treasury Bond at the stop-out level of arrayed
amounts of bid with the corresponding yield rate
tendered. Conventionally, the rate must be divisible
by one-eighth of 1%.
Settlement
of Trades
Settlement
of Trades is
the payment process both in the primary and secondary
markets for government securities traded. Settlement
of trades is undertaken by the BSP being authorized
by GSEDs to debit their respective demand deposit
accounts with the BSP in favor of the demand deposit
account of the Treasurer of the Philippines or
their counterparty GSED also with the BSP or vice
versa.
Price
of a GS is the value based on 100 points per unit.
Treasury Bills are conventionally quoted in terms
of the discount rate, while Treasury Bonds are
quoted in terms of the coupon rate or the price.
If a Treasury Bond is quoted in terms of its price,
the price is either at a discount, at par, or
at a premium and the coupon is a rate in relation
to the maturity date of the bond.
Formula
To determine the discount of
a Treasury Bill, the formula
is as follows:
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