THE Bangko Sentral ng Pilipinas (BSP) has warned banks against enabling the use of non-deliverable derivative FX derivatives for “speculative position or arbitrage-driven” activities.
The warning is contained in BSP Memorandum M-2026-022, which clarifies the intent of Circular 1212 that the central bank issued last year on non-deliverable FX derivative transactions, particularly non-deliverable forward transactions (NDFs) involving the sale for their own account of FX against the Philippine peso to non-resident financial institutions.
A statement issued by the central bank read that the BSP made it clear that NDFs should have underlying legitimate economic activities supported by proper documentation.
The BSP said the memorandum was issued to promote a “common understanding” as to the policy intent of the circular issued a year ago.
Through Circular 1212 issued on April 11, 2025, the BSP amended FX regulations to broaden access to FX hedging instruments and enhance banks’ ability to service customer requirements and transact in FX derivatives for their own account.
Item 2 of Section 88 of the Manual of Regulations on FX Transactions, which focuses on FX derivatives transactions for the banks’ own account, emphasizes that authorized agent banks (AABs) authorized to transact in non-deliverable FX derivatives are required to ensure that such instruments are “used strictly for legitimate economic purposes.”
In line with this, the central bank said AABs are reminded that non-deliverable FX derivatives transactions for their own account involving the sale of FX against the Philippine peso by AABs to non-resident financial institutions shall have underlying economic purposes, such as hedging of their own investments.
“This type of non-deliverable FX derivatives transactions involving the sale of FX against the PHP that is not supported by specific, identifiable underlying exposures and documentation, particularly those for speculative positioning, directional peso exposure, or arbitrage-driven activities are not allowed,” the BSP pointed out.
Further, the central bank said all new contracts and/or renewals of non-deliverable FX derivatives involving the sale of FX against the Philippine Peso (PHP) shall be in accordance with the foregoing guidance.
“AABs are expected to maintain adequate internal controls, governance processes, and audit trails, including the necessary supporting documents, to ensure compliance,” the central bank said.
