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Friday, April 08, 2005
Ong: Controversial third party
By Ted Aldwin E. Ong
Last of two parts
I AM presenting the remaining points raised by former National Treasurer Norma "Nena" Lasala in relation to two circulars issued by the Bangko Sentral ng Pilipinas (BSP), Circular 392 and Circular 428, creating a third party custodian to "take custody of sold government securities."
The third point why the BSP Circulars are grossly disadvantageous to the government and the Filipinos lies on the implementation of a third party custodian.
It is risky to the government because the connection of the Philippine Depository Exchange (PDEX), a trading platform to the Registry of Scriptless Securities (RoSS), will expose the RoSS to the risk of a security breach.
Since the PDEX trading platform will connect directly to the RoSS portals, the RoSS system and all the information it maintains, including confidential information, can be accessed by Philippine Depository and Trust Company (PDTC).
Moreover, virus and other elements that can adversely affect data stored in the RoSS can be passed on from the PDEX system.
Since debt information will be parceled out to several custodians, the likelihood of unreconciled figures will not be remote. Any difference in figure will impair the integrity of the country's debt data and endanger the government debt management processes.
The adjudication risks will also arise when the issue of which record among the six custodians and that of the Bureau of Treasury (BTr) shall be deemed controlling in the event of discrepancy.
As a third party non-bank custodian, PDTC is capitalized at merely P500 million, and yet it will be entrusted with the handling of government securities amounting to P2 trillion.
The government stands to lose the transparency of its records and will be unable to promptly determine whom it actually owes money to.
Any delay or errors in the gathering of statistics on debts can adversely affect its debt management capability.
It can discourage investors from investing in government securities thereby impairing the government's ability to fund its requirements.
If the award to private entities will be proven disadvantageous to government, it renders the BTr liable and vulnerable to all types of suits and litigations.
Fourth, the third party custodian is unnecessary. Services like providing benchmark, mark to market valuations, price discovery and transparency and others are already being rendered by the BTr-RoSS at no cost to the investor and the government.
In fact, an investor is able to determine rates and prices anywhere he is through the short messaging system (SMS/text messaging system). These enhancements are among those approved under the Medium-Term Investment Program (MTPIP) of the government.
The services to be offered by the third party custodians are already being offered by the Government Securities Eligible Dealers (GSEDs) and the Trust Departments of banks. There are existing BSP circulars regulating these custodial functions.
It will be uneconomic for small investors to enlist the services of a custodian as the P900 transaction fee more than erodes the meager returns on small investors' holdings on top of the other fees that the Third Party Custodians will charge.
The small investors do not incur any cost right now under the BTr-RoSS. These small investors will be left with RoSS. Definitely the holders of Retail Treasury bonds (RTBs) as the alternative systems under circulars 392 and 428 will not be able to accommodate them, negating the claim that the proposed system was meant to safeguard the small investors.
Fifth, moral issues involved. Without any value added to the Philippine Government securities market, government funds will be used to configure the RoSS, and operate and maintain the same, but it will be the private third party custodians, more particularly PDTC that will benefit from it.
Moreover, the connectivity and implementation of the circulars will, in effect, mean an unauthorized awarding of a beneficial use and ownership of a government asset to a private entity without just compensation to the government.
If the government were to decide to privatize the RoSS, it should have been duly bidded out which would, no doubt, fetch the government a substantial amount thereby adding to its resources without the need to raise additional taxes.
The implementation of the circulars is being relentlessly pursued with absolutely lack of disclosure to the proper authorities and to the public as to the detrimental consequences of such a move to government. By the issuance of the BSP of mere bank circulars, existing laws are nullified and or changed to suit the needs of PDTC and another government agency. The BTr is divested of its core function.
An "agency" is created whereby the third party custodian can bind the government to contracts and obligations without the said custodian being made liable to the government. And, confidentiality of bank and government records and transactions will be breached.
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(April 8, 2005 issue)
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