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DERIVATIVES IN THE PHILIPPINES a.

The instrument is measured at Once approved it would take 90


What are derivatives? fair value. to 180 days to set up.
1. Financial instruments that derive its b. The item is also measured at "That elevates the country
value from the movement in commodity fair value. comparable to other emerging markets -
price, foreign exchange rate and c. The changes in fair value are that after entering the Philippines, you
interest rate of an underlying asset or recognized in profit or loss. don't have to exit via the spot side,"
financial instrument PDS Group president Vicente Castillo
2. “an executor contract”; meaning, it is not Derivatives and Securitization told reporters.
a transaction but an exchange of "You can also exit through the
promises about future actions What is Securitization ? hedge side. We're giving them more
A specialized OTC derivatives product opportunities to come in and out of the
Characteristics of derivatives in the  Securitization is a technique to market," he said.
Philippines: standardize financial instruments for risk He said the two groups were
1. The value of the derivative changes in transfer from underlying assets; it is studying whether to get the participation
response to the change in an OTC derivative product structure of partner Singapore Exchange Ltd in
“underlying “ variable through SPV the project.
Underlying > a specified interest rate,  Derivative is a simple financial Singapore Exchange holds a 20 percent
commodity price, foreign exchange rate, instrument for risk transfer from a single stake in PDS.
price index and other variable underlying asset (OTC/ETD) The Philippines' previous
2. It requires either no initial net  MBS = package of assets linked to derivatives exchange - the Manila
investment or an initial investment that mortgages International Futures Exchange - was
is smaller than what would be required  CLO = collateralized package of loan shut down by securities regulators in the
for other types of contracts that have a obligations 1990s due to poor governance.
similar response to changes in market The move to open a derivatives
factors. exchange comes after the central bank
3. It is readily settled at a future date by a relaxed its derivatives trading rules in
net cash payment December to allow banks to use more
financial products without a license and
Measurement of Derivatives to help exporters hurt by a steadily
1. The derivative is not designated as a rising peso PHP=.
hedging instrument.
Philippines to Set Up Derivatives
2. The derivative is designated as a cash Exchange PDS> The Philippine Dealing System Holdings
flow hedge. Corporation ("PDS Holdings") is the holding
a. The instrument is measured at The Philippine Stock Exchange has company of the Philippine Dealing and
fair value. (PSE) signed a deal with the operator of Exchange Corporation, Philippine Depositary
b. The change in fair value is the country's electronic currency and and Trust Corporation, and the Philippine
recognized as component of debt trading system to develop a local Securities Settlement Corporation, referred to as
other comprehensive income. derivatives exchange, officials said on the fixed income exchange ("FIE"). The FIE
c. The ineffective portion is Wednesday. infrastructure is an electronic platform for
recognized in profit or loss. The PSE and the Philippine trading, clearing and settlement, depositary and
d. The item is not adjusted to Dealing System Holdings Corp (PDS) custodianship of fixed income securities and its
conform with fair value. will draft the structure for a derivatives derivatives.
exchange for hedging currency, stocks,
3. The derivative is designated as a fair credit and interest rate exposure within PSE holds a 14.29 % stake in the
value hedge. three months. capital stock of PDS Holdings.

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