Treasury Handbook 5-26-2014

vi
Foreword
The Basic Currencies, Interest Rates, Derivatives and Fixed Income Securities Handbook
is intended to introduce Treasury and Fixed Income products in a simplified manner to our
most valued clients. This Basic Handbook aims to familiarize the reader with some of
the more common terminologies, pricing metrics and market conventions used by foreign
exchange and fixed income dealers and sales officers. Part I focuses on FX, Interest Rates
and Derivative Hedging. A section discussing settlement lines and transactional documents
required by the Bangko Sentral ng Pilipinas (BSP) is also included. Part I concludes with
Frequently Asked Questions (FAQ) encountered by our sales team when inter-phasing with
clients. Part II introduces various fixed income securities available to both institutional and
retail clients. Part II also concludes with an FAQ section.
The Treasury Sales (FX & Rates Hedging) and Fixed Income Securities Distribution team
of Security Bank would like to thank you for all your support and we look forward to
solidifying and building a long lasting relationship!
Welcome to Security Bank.
Basic Handbook | Currencies, Interest Rates, Derivatives & Fixed Income Securities
vii
viii
Awards and Distinctions

Security Bank Corporations record of excellence continues to grow with the series of international acclaim the
Bank consistently receives from prestigious organizations:
Bank of the Year - Philippines

2012 Bank of the Year Awards, The Banker Magazine
Strongest Bank in the Philippines

The Asian Banker 2012
No. 1 in Asia Pacific for 2010 - Highest Return on Assets

Top Three Strongest Bank in the Philippines and 28th in Asia Pacific
The Asian Banker 500 2011
Best Domestic Debt House in the Philippines for two consecutive years
Asiamoney Best Bank Awards 2012
Best Domestic Provider of Foreign Exchange (FX) Products and Services in the Philippines
No. 1 in Four Categories:
- Best Domestic Provider of FX Services as voted by Financial Institutions
- Best Domestic Provider of FX Services as voted by Corporates
- Best for FX Products and Services
- Best for FX Research and Market Coverage in the Philippines
Asiamoney 2012 FX Poll
Best Credit Sales

Asiamoney 2012 FI Poll
Top Bank in the Secondary Market for Government Bonds, Philippines

The Asset Best Bond House 2012
Best Managed Companies of the Philippines

Mid-Cap Category, Finance Asia 2012 Annual Poll
Best Securities House for seven consecutive years

Philippine Dealing System (PDS) Cesar E.A.Virata Award 2011
Top Rank in Four Categories:
- Top Fixed-Income Cash Settlement Bank 2011
- Top Fixed-Income Brokering Participant 2011
- Top 5 Spot Foreign Exchange Dealer 2011 (ranking 3rd)
- Top 5 Fixed-Income Dealing Participant 2011 (ranking 3rd)
Best Performing Government Securities Eligible Dealer for six consecutive years
Bureau of Treasury 2011
Best Banking Group in the Philippines

The World Finance Banking Awards 2011
Corporate Governance Asia Annual Recognition Awards

Among the Best of Asia among publicly listed companies in the region for three consecutive years
Basic Handbook | Currencies, Interest Rates,

Derivatives
Fixed Income
Securities
Note:
Awards and &
Distinctions
as of January
2013
ix
Contents Page
Part I
FX & Rates Hedging 03
Frequently Asked Questions 49
Part II
Fixed Income Securities 53
Frequently Asked Questions 67
Glossary 73
01
02
FX & Rates Hedging
Treasury Sales
FX and Rates Hedging Division
03
04
FX & Rates
Hedging
Sale of Foreign Exchange (FX)

to Residents for Non-Trade
Transactions
1. Non-Trade transactions shall refer to all foreign exchange transactions excluding
export and import transactions. These shall include foreign currency loans and
foreign investments.
2. Resident shall refer to:
An individual citizen of the Philippines residing therein; or
An individual who is not a citizen of the Philippines but is permanently residing
therein (resided in the Philippines for a year or more); or
A corporation or other juridical person organized person organized under the laws
of the Philippines; or
A branch subsidiary, affiliate, extension office or any other unit of corporations or
judicial persons which are organized under the laws of any country and operating in
the Philippines, except Offshore Banking Units
3. Non-resident shall refer to an individual, a corporation or other judicial person not
included in the definition of resident.
4. For sale of FX to residents to cover payments to non-resident beneficiaries for NONTRADE CURRENT ACCOUNT PURPOSE (e.g. educational expenses, medical expenses,
travel expenses and salaries of foreign expatriates), the following documents shall be
required:
4. 1 For sale not exceeding USD120,000.00 or its equivalent in other foreign currency
a. Duly Accomplished Application to Purchase Foreign Exchange form (indicating
specific purpose of the purchase of FX)
b. If the client is not an accountholder of the servicing branch:
Duly accomplished Application to Purchase Foreign Exchange (indicating
specific purpose of the purchase of FX).
For individual client, presentation of the original and submission of clear copy
of at least one (1) valid photo bearing identification document (ID) issued by
an official authority. Branch personnel may require additional IDs to further
establish the clients identity. For Corporation or a business entity, existing
documentary requirements on account opening for business shall apply.
05
4. 2 For sale of exceeding USD120,000.00 or its equivalent in other foreign currency

a. If client is an accountholder of the servicing branch:
Duly accomplished Application to Purchase Foreign Exchange form
(indication the specific purpose of the purchase of FX).
Supporting documents as stated in the Appendix 1 of BSP Circular 645, as
amended by Circular 742 and Circular 794, Item A
BSP
Minimum Documentation Requirements * for
CIRCULAR
the Sale of Foreign Exchange (FX) **
NO. 794
for Non-Trade Purposes by Authorized Agent
Series of 2013
Banks (AABs)/AAB-Forex Corps
Appendix 1
A. Sale of FX for Non-trade Current Account Purposes under Section
2 of the Manual of Regulations on FX Transactions (FX Manual) 1
Purposes:
Documents Required
(All originals except as indicated)
1. Foreign travel funds
Applicants passport and ticket
2. Educational expenses/
student maintenance abroad
Photocopy of proof of enrolment with, or billing statement from, school

abroad
3. Correspondence studies:
Photocopy of proof of enrolment with, or billing statement from, school

abroad
4. Medical expenses:
Photocopy of billing statement (for services rendered/expenses

incurred abroad) or certification issued by doctor/hospital abroad
indicating cost estimate ( for the treatment/service to be administered/
rendered)
5. Emigrants assets (including

inheritance, legacies, and
income from properties)
a. Photocopies of:
Emigrants visa or proof of residence abroad;
Notarized Deed of Sale of assets in the Philippines (e.g., real estate,
vehicles, machineries/ equipment, etc.); and
Proof of income received from properties in the Philippines
b. In the absence of the emigrant, a notarized Special Power of Attorney
(SPA) for emigrants representative/agent. If SPA was executed abroad,
original of SPA authenticated by Philippine consulate abroad.
6. Salary/bonus/dividend/
other benefits of foreign
nationals (including peso
savings)
06
a. Employment contract/Certification of employer showing amount of

compensation paid to the foreign national during the validity of the
contract, stating whether same had been paid in FX or in pesos; if in
FX, proof that the FX was previously sold for pesos to AABs;
b. ACR I-Card and DOLE Alien Employment Permit of the foreign
national;
c. Applicants notarized certification that the FX remitted is net of local
expenses incurred and/or previous transfers abroad; and
d. If amount to be remitted comes from sources other than salaries/
compensation, information regarding the sources supported by
appropriate documents should be submitted.
Purposes:
Documents Required
7. Foreign nationals income

taxes due to
foreign governments
a. ACR-I Card and DOLE Alien Employment Permit; and

b. Photocopy of income tax return covering the income tax payment
sought to be remitted.
8. Sales proceeds of foreign

nationals domestic assets
a. ACR I-Card; and

b. Photocopy of proof of sale of asset/s indicating currency of payment
9. Producers share in movie

revenue/TV film rentals
a. Statement of remittable share rental or rental; and

b. Photocopy of contract/agreement
10. Export commissions due

to foreign agents
a. Billing statement from non-resident agent; and

11. Freight charges on

exports/imports
a. Billing statement; and

12. Charters and leases of

vessels/aircrafts
a. Billing statement from non-resident lessor/owner of vessel/aircraft;

and
B. Photocopy of contract/agreement
13. Leases of equipment and

other capital goods owned
and/or leased by
non-resident entities to
residents
a. Billing statement from non-resident lessor and/or owner of the

equipment and other capital goods;
b. Photocopy of contract/agreement; and
c. Shipping documents
14. Port disbursements

abroad for aircraft and
vessels of Philippine registry
or chartered by domestic
operators and salvage fees

15. Satellite and other

Telecommunication services

16. Other services provided

by non-residents (such as
advertising, underwriting

FX & Rates
Hedging
* a) All purchases of FX must be accompanied by duly accomplished application to purchase FX using the
prescribed format (ANNEX A).
b) It is understood that when a bank certification regarding its clients deposit account is required, the
owner of the account should have executed a notarized waiver of secrecy of its deposit.
** All FX purchases for non-trade transactions shall be directly remitted to the: (a) intended
beneficiarys account (whether offshore or onshore); or (b) resident creditor bank, whose FCDU loans
are eligible to be serviced with FX purchased from the banking system. Exceptions to this rule are:
travel funds, medical expenses abroad not yet incurred, and sales proceeds of emigrants domestic
assets if emigrant is still in the country.
1
This includes FX purchases for down payments and progress billings for non-trade services to be
rendered/rendered by non-residents, where applicable.
07
Purposes:
including brokers fees
for initial public offering
involving Philippine shares,
consultancy, information
technology, etc.)
Documents Required
For underwriting fees/commissions/related expenses:
a. Copy of the international underwriting agreement or similar
agreement/contract which shows the fees/commissions and related
expenses and offer price;
b. Detailed computation of the amount subject for remittance certified
by the authorized officer of the issuer; and
c. Proof of listing of the IPO shares in the PSE
For Foreign Brokers Commission
a. Certified true copy of the covering purchase invoice or sales invoice,
as the case may be, reflecting the commission due the foreign broker/
dealer client; and
b. Detailed computation/allocation of the commission due the foreign
broker/dealer client for each purchase transaction
08
17. Share in Head Office

Expenses (including
reimbursements)
a. BSRD for the assigned capital in the branch;

b. Audited schedule/s of allocation of expenses for the period/s covered;
c. Certification from the Head Office that the share in Head Office
expenses remains unpaid and outstanding; and
d. Audited financial statements of the Philippine branch
18. Insurance/reinsurance
premium due to foreign
insurance companies
Billings/invoices of insurance companies/ brokers abroad
19. Claims against domestic

insurance
companies by brokers abroad
Billings/invoices from foreign insurer/ reinsurer
20. Net Peso revenues of

foreign airlines/shipping
companies
a. Statement of Net Peso Revenues (Peso revenues less expenses)

certified by authorized officer of airline/shipping company; and
21. Royalty / copyright /

franchise / patent/ licensing
Fees
a. Statement/computation of the royalty/ copyright/franchise/patent/

licensing fee; and
b. Photocopy of contract/agreement.
22. Net Peso Revenues of

embassies/consulates of
foreign countries
Statement of net peso revenues (Peso revenues less expenses) certified

by the Embassys/Consulates authorized officer
23. FX obligations of
Philippine credit card
companies to international
credit card companies/nonresident merchants
Summary billings
24. Refund of unused foreign

grant/aid by from nonresidents funded by inward
remittance of FX that was
converted to Pesos through
AABs
a. Copy of the contract/agreement covering the foreign grant/aid;

b. Request from grantor for the refund of the unused amount of grant/
aid; and
c. Bank certification on:
i. Inward remittance of the foreign grant/aid and its conversion
to the Philippine pesos; and
ii. Balance of the PHP account from which the Philippine peso to
be converted shall be debited
25. Refund of unused foreign

loan proceeds that were
funded by inward remittance
of FX that was converted to
Pesos through AABs
a. Copy of the contract/agreement covering the foreign loan;

b. Request from creditor for the refund of the unused foreign loan
proceeds; and
c. Bank certification on inward remittance of the FX loan proceeds and
conversion to Philippine pesos
26. Settlement by
Philippine Deposit
Insurance Corporation
(PDIC) of FCDU deposit
claims2
Crtification by PDIC on the amount of deposit liabilities to be paid to

resident and non-resident depositors
FX & Rates
Hedging
Documents Required
Purposes:
2 For the settlement by PDIC of FCDU deposit claims, supporting documents must be presented regardless
of amount. Both resident and non-resident claims may be serviced.
b. If client is not an accountholder of the servicing branch:

Duly accomplished Application to Purchase Foreign Exchange form (indicating
the specific purpose of the purchase of FX).
Supporting documents as stated in the BSP Circular No. 645 (Manual of
Regulations on Foreign Exchange), as amended by Circular 698, Circular 742
and Circular 794, Item A of Appendix 1.
09
5. For sale of FX to residents to cover payments for NON-TRADE OBLIGATIONS THAT

ARE FOREIGN CURRENCY LOAN-RELATED or FOREIGN INVESTMENT-RELATED,
the following documents shall be required regardless of amount:
a. If client is an accountholder of the servicing branch:
Duly accomplished Application to Purchase Foreign Exchange form (indicating
and Circular 794, Items B and C of Appendix 1
BSP
CIRCULAR
NO. 794
Series of 2013
Appendix 1
B.) Sale of FX for Servicing Foreign/Foreign Currency Loans including
Prepayments by Private Sector covered by Sections 22 to 31 of the FX manual
Purposes:
Documents Required
(All originals except as indicated)3
Loan Payments
1. Medium/Long-term foreign/
foreign currency loans (with original
maturities of over 1 year)
a. Regular amortization/payment
1.a BSP registration letter and accompanying Schedule RA-2

(Part I: Schedule of Payments on BSP-Registered Foreign/FCDU
Loans and Part II- Details of FX/Hedging Transactions for BSPRegistered Foreign/FCDU Loans); and
1.b Copy of billing statement from creditor.
Amounts that may be purchased shall be limited to
maturing amounts on scheduled due dates indicated
in the registration letter. Purchase and remittance
of FX shall coincide with the due dates of the
obligations to be serviced, unless otherwise explicitly allowed
by the BSP.
or
2.a BSP letter-authority for the borrower to purchase FX
to service specific loan account/s and where applicable, the
Schedule of Foreign Exchange Purchases from the Baking
System; and
2.b Copy of the billing statement from creditor.
Amounts that may be purchased shall be limited to the
unutilized balance of the letter authority. Remittance of FX
purchased shall coincide with the due dates of the obligations
to be serviced, unless otherwise explicitly allowed by the BSP.
10
1.a BSP registration letter and accompanying Schedule

RA-2 (Part I: Schedule of Payments on BSP-Registered Foreign/
FCDU Loans and Part II: Details of FX/Hedging Transactions for
BSP-Registered Foreign/FCDU Loans; and
1.b Original of the BSP letter acknowledging receipt of the
borrowers notice of prepayment
FX & Rates
Hedging
b. Prepayments of foreign/foreign
currency loans of the private Sector
that are not publicly-guaranteed
3 All original documents shall be stamped FX-SOLD indicating the date and amount of FX sold, and whether on
spot or forward basis and signed by the sellers authorized signatory.
2. Short-term foreign/foreign currency

loans (with original maturity of up to
1 year)
a. Loans from offshore creditors
(banks and non-banks)
1.a BSP approval or registration letter showing loan terms and

borrowers receiving copy of its report on short-term loans
as submitted to BSPs International Operations Department
(IOD); and
1.b Copy of billing statement from creditor.
Amounts that may be purchased shall be limited to:
(a) amounts/rates indicated in the BSP approval or registration
letter; or (b) the outstanding balance of the loan indicated in
the report, whichever is lower. Purchase and remittance of
FX shall coincide with the due dates of the obligations to be
serviced, unless otherwise explicitly allowed by the BSP.
b. Loans from FCDUs/OBUs
For loans requiring BSP approval/registration:

1.a BSP approval or registration letter showing loan terms;
1.b Certification from the lending bank on the amount
outstanding; and
1.c Copy of the billing statement from the creditor.Amounts
that may be purchased shall be limited to: (a) amounts/rates
indicated in the BSP approval or registration letter; or (b)
the outstanding balance of the loan indicated in the bank
certification, whichever is lower. Purchase and remittance of
FX shall coincide with the due dates of the obligations to be
serviced, unless otherwise explicitly allowed by the BSP.
For loans not requiring BSP approval/individual registration4
2.a Promissory Note (PN) certified as true copy by the Head
of the lending banks Loans Department:
2.b Certification from the lending bank:
i. On the principal amount still outstanding;
ii. That the loan is eligible for servicing with FX to be purchased
from the AABs/AAB-forex corps in line with existing
regulations;
iii. That the loan was used to finance trade transactions (as well
as pre-export costs in the case of FCDU loans to exporters)
of the borrowers; and
4 Individual registration means a BSP registration document is required
11
iv. On the date when the loan account was reported to the
appropriate BSP department/office under the prescribed
forms. (This may be dispensed with for new loans which may
not have been reported yet to BSP as of date of application to
purchase FX.)
2.c Copy of the billing statement from creditor.
Amounts that may be purchased shall be limited to amounts/
rates indicated in the bank certification or PN, whichever is
lower. Purchase and remittance of FX shall coincide with the
due dates of the obligations to be serviced, unless otherwise
explicitly allowed by the BSP.
Payments related to Guarantees and

similar arrangements (including Risk
Take Over arrangements)
1. Payments by resident guarantor
under the guarantee
2. Payments by the original resident

obligor to the AAB/foreign guarantor
arising from the call on the guarantee
12
a. For guarantees requiring BSP approval under Sections

30.1 and 30.3: (i) BSP approval of the foreign/foreign currency
obligation; and (ii) creditors call on the guarantee
b. For guarantees not requiring BSP approval and registration
under Section 30.2(a): (i) copy of the required report stamped
as received by the BSP; and (ii) creditors all on the guarantee
a. BSP approval of the resulting foreign/foreign currency
obligation; and
b. Billing statement from the AAB/foreign guarantor.
3. For FX liabilities arising from

guarantees and similar arrangements
[including Risk Take Over
Arrangements (RTO)] that do not
involve foreign/FCDU loans
a. BSP approval of the resulting foreign/foreign currency

obligation;
b. Copies of:
i. Agreements/contracts covered by the guarantee/similar
arrangement;
ii. Standby Letter of Credit (SLC) or guarantee contact/
agreement for the guarantee;
c. Proof/notice of original obligors default and creditors call on
the guarantee; and
d. Billing statement from the non-resident or local bank
guarantor
4. Regular fees related to BuildOperate-Transfer (BOT) and similar

financing schemes with transfer
provisions
a. BSP Registration Document

b. Copy of the covering agreements/contracts
c. Billing statement from the private sector project company/
proponent
FX & Rates
Hedging
C.) Sale of FX for Servicing of Foreign Investments, Investments by Residents

and Related Transactions Covered by Sections 32 to 44 of the FX Manual
Documents Required
(All originals except as indicated)5
Purposes:
Foreign Investments
1. Capital Repatriation of:
a. Portfolio Investments in:
i. PSE-listed securities
ii. Peso Government Securities

iii. 90-day time deposits
iv. Other peso-denominated debt
securities issued onshore by
private resident firms
b. Foreign Direct Equity Investments
2. Remittance of Dividends/ Profits/

Earnings/ Interests
BSRD or BSRD Letter-Advice from the registering custodian

bank and any of the following:
a. Photocopy of the original brokers invoice; or
b. Electronically-generated copy of the brokers invoice; or
c. Systems-generated copy of the brokers invoice
Documents under items a to c shall contain the settlement
amount, number of shares, investment identity, and settlement
date for the transactions covered.
bank and photocopy of Confirmation of Purchase for Peso
Government Securities
bank and photocopy of Matured Certificate of Deposits for
90-day time deposits
BSRD and photocopy of matured security, or proof of sale, or
equivalent document covering the debt securites
a. BSRD;
b. Photocopy of Proof of Sale or relevant documents showing
the amount to be repatriated; in case of dissolution/capital
reduction, proof of distribution of funds/assets such as
statement of net assets in liquidation;
c. Photocopy of Clearance from appropriate department of
the BSP-Supervision and Examination Sector (for banks), or
from the Insurance Commission (for insurance companies),
from the Department of Energy or from the National Power
Corporation (for oil/natural gas/geothermal companies);
d. Detailed computation of the amount applied for in
the attached format (Annex N) prepared by the selling
stockholders representative;
e. Photocopy of pertinent audited financial statements; and
f. SEC clearance in case of dissolution, if applicable.
a. BSRD or BSRD Letter-Advice;

b. Photocopy of PSE-cash dividends notice and Phil.
Central Depositoryv (PCD) printout of cash dividend payment
or computation of interest earned issued by MMI issuer or
bank;
c. Photocopy of secretarys sworn statement on the Board
Resolution covering the dividend declaration;
5 All original documents shall be stamped FX-SOLD indicating the date and amount of FX sold, and whether on
spot or forward basis and signed by the sellers authorized signatory.
13
d. Photocopy of latest audited financial statements or interim financial

statements of the investee firm covering the dividend declaration
period (for direct foreign equity investments);
e. For direct foreign equity investments, photocopy of clearance
pertaining to the investee firm from BSP-Supervision and Examination
Sector (for non-PSE listed banks), Insurance Commission (for Insurance
companies), Department of Energy or from the National Power
Corporation (for oil/natural gas/geothermal companies); and
f. Detailed computation of the amount applied for using the prescribed
format (Annex N).
3. Outward remittance in
equivalent FX of: (a) excess
pesos funded with inward
remittance of foreign
exchange computed as
follows: peso proceeds of
foreign exchange inwardly
remitted less the peso
amount actually used for BSPregistered investment/s; plus
(b) interest earned on the
excess pesos, if any
a. Certified true copy of certificate of inward remittance of foreign

exchange and conversion to pesos;
b. Original BSRD showing utilization of not less than 50 percent of total
peso proceeds, net of charges, if any. In case of investments registered
by custodian banks, an original bank certification indicating details of the
registered investment my substitute for the BSRD;
c. Swift message/letter request from non-resident investor for return of
excess funds;
d. For remittance of interest earned from the peso cash account,
certification from the depository/custodian bank on the amount of
interest pertaining to the excess peso funds for outward remittance.
4. Investments by Philippine
residents under Section 44 of
the FX manual
a A certification by the resident investor on the cumulative FX

purchases from AABs and AAB-forex corps within the calendar year for
all investments under Section 44 of the FX Manual;
b. Original BSP letter-approval for the purchase of FX from AABs
and AAB-forex corps for all investments under Section 44 of the FX
Manual, in excess of the USD60 million limit;
c. Photocopy of clearance from the Insurance Commission (IC) for
investments of insurance companies;
d. Photocopy of swift payment order instruction from the
counterparty/broker/trader indicating the name of payee and type/
kind of investment authenticated by the broker/trader (for instruments
purchased offshore); or Proof of purcfhase of the debt securities by
the resident client, namely: copy of the deal ticket, banks confirmation
of sale, clients letter of instructions indicating intent to purchase the
securities and other details of the transaction (for instruments held for
sale/trading by banks); and
e. Photocopy of any of the following as applicable: (i) investment
proposal or agreement/subscription agreement/Deed of Sale or
Assignment of the Investments/bond or stock offering/signed loan
agreement or equivalent signed document, with an original tenor of
at least one (1) year/Contract to Sell covering a sale of real property
abroad; or photocopy of investors order/letter to broker/trader/
bank to purchase instruments (such as investments in debt and equity
securities, as well as depositary receipts, Mutual Funds and UITFs)
a. Outward investments by
residents in:
i. Debt and equity securities
issued offshore by nonresidents, including depositary
receipts
ii. Offshore foreign currencydenominated Mutual Funds
and Unit Investment Trust
Funds (UITFs)
iii. Foreign currencydenominated intercompany
loans to offshore parent
companies/sudsidiaries of
residents with an original
tenor of at least one (1) year
iv. Investments in real
property abroad, including
condominium units
14
FX & Rates
Hedging
b. Other investments by residents:

i. Bonds/notes of the Republic of
the Philippines or other Philippine
resident entities issued offshore,
including peso-denominated bonds/
notes requiring settlement in foreign
currency
ii. Instruments held for sale/trading
by banks operating in the Philippines,
namely: (i) bond/notes under item
(a) hereof; and (ii) debt securities
issued by non-residents and payable
in foreign currency
iii. Equity securities issued by
residents and listed abroad
All FX purchases for non-trade transactions shall be directly remitted to the: (a) intended non-resident beneficiarys
account (whether offshore or onshore); or (b) resident creditor bank, whose FCDU loans are eligible to be serviced
with FX purchased from the banking system. Exceptions to this rule include travel funds, medical expenses abroad
not yet incurred, and sales proceeds of emigrants domestic assets if emigrant is still in the country.
b. If client is not an accountholder of the servicing branch:

Duly accomplished Application to Purchase Foreign Exchange form (indication
and Circular 794, Items B and C of Appendix 1
6. All foreign exchange purchases for non-trade transactions shall be directly remitted
to the (a) intended non-resident beneficiarys account (whether offshore or onshore);
or (b) resident creditor banks, whose Foreign Currency Deposit Unit (FCDU) loans
are eligible to be serviced with foreign exchange purchased from the banking system.
Exceptions to the rule include travel funds, medical expenses abroad not yet incurred
and sale proceeds of emigrants domestic assets if emigrant is still in the country.
7. Sale of FX to residents for payment of foreign exchange obligations to residents other
than authorized agent banks and direct credit or deposit in a foreign currency deposit
unit account are STRICTLY NOT ALLOWED.
15
Documentary Requirements for Short-term

Foreign Currency Loans With Original Maturity
of Up to 1 year with Security Bank:
1. Duly accomplished Application to Purchase Foreign Exchange form
2. Loans from Foreign Currency Deposit Units (FCDUs)/ Offshore Banking Units (OBUs):
a. BSP approval or registration letter showing loan terms or certification from the
lending bank on the amount outstanding; and
b. Copy of billing statement from creditor.
Amounts that may be purchased shall be limited to: (a) amounts/rates indicated in the
BSP approval or registration letter; or (b) the outstanding balance of the loan indicated
in the bank certification, whichever is lower. Purchase and remittance of FX shall
coincide with the due dates of the obligations to be serviced, unless otherwise explicitly
allowed by the BSP.
Or:
a. For loans not requiring BSP approval/ individual registration, Promissory Note (PN)
certified as true copy by the Head of the lending banks Loans Department and
certification from the lending bank:
i. On the principal amount still outstanding;
ii. That the loan is eligible for servicing with FX to be purchased from the Authorized
Agent Banks (AAB)/ Authorized Agent Banks-forex corps in line with existing
regulations;
iii. That the loan was used to finance trade transactions (as well as pre-export costs in
the case of FCDU loans of exporters) of the borrower; and
iv. On the date when the loan account was reported to the appropriate BSP
department/office under the prescribed forms. (This may be dispensed with for new
loans which may not have been reported yet to BSP as of date of application to
purchase FX.)
b. Copy of billing statement from creditor.
Amounts that may be purchased shall be limited to amounts/rates indicated in the bank
certification or PN, whichever is lower. Purchase and remittance of FX shall coincide
with the due dates of the obligations to be serviced, unless otherwise explicitly allowed
by the BSP.
16
FX & Rates
Hedging
Trade Transactions
AABs and AAB-forex corps may sell foreign exchange to service payments for imports
under any of the following arrangements subject to the provisions of Sections 9 to 13
and the guidelines covering the sale of foreign exchange for trade transactions under
Appendix 4 of BSP Circular 645. Definitions of the types of trade transactions are found
on Glossary of Terms of BSP Circular 645.
Letter of Credit (L/C), which gives the seller assurance that he will receive the
payment for the goods, is binding document that a buyer can request from his bank in
order to guarantee that the payment for goods will be transferred to the seller. In order
for the payment to occur, the seller has to present the bank with the necessary shipping
documents confirming the delivery of goods within a given time frame.
Documents Against Payment (D/P) is an arrangement under documentary
collection in which an exporter instructs the presenting bank to hand over shipping and
title documents to the importer only if the importer fully pays the accompanying bill of
exchange or draft.
Documents Against Acceptance (D/A) is an arrangement under documentary
collection in which an exporter instructs the presenting bank to hand over shipping and
title documents to the importer only if the importer accepts and signs the accompanying
bill of exchange or draft.
Open Account (O/A) is an arrangement whereby the shipping documents are sent
and released by the exporter directly to the buyer, without coursing the documents
through the banks, upon the buyers promise to pay at some future date after shipment.
Direct Remittance (DR) is a supplier-buyer arrangement where payment is made

within 29 calendar days from bill of lading/airway bill date.
Advance Payment is an arrangement between the seller and buyer where the buyer
pays, either partial or full, the seller prior to the shipment of the goods.
Documentary requirements for sale of FX on Importations under Letter of Credit (L/C),
Documents against Acceptance (D/A), Open Account (O/A), Documents against Payment
(D/P), Direct Remittance (DR) and Advance Payment:
17
18
Letters of Credit (LC)
Copy of LC
Original
Shipping
documents
Bill of Lading or
Airway Bill
Invoice
Document against
Acceptance (DA)
Accepted
Draft
Original
Shipping
documents
Bill of Lading or
Airway Bill
Invoice
Open Account (OA)
Proof of
Report to BSP
Original
Shipping
documents
Bill of Lading or
Airway Bill
Invoice
Document against
Payment (DP)
Collection
Letter/
Instruction
Original
Shipping
documents
Bill of Lading or
Airway Bill
Invoice
Direct Remittance (DR)
Original
Shipping
documents
Bill of Lading or
Airway Bill
Invoice
Advance Payment
Sales
Contract or
Proforma
Invoice
signed by
both parties
Notarized
Letter of
Undertaking
Purchase
Order
FX & Rates
Hedging
Hedging Foreign Exchange Purchases

of Clients
Tenor and Maturity and Settlement for Trade and Nontrade Transactions
Sale of Foreign Exchange via Derivative Products
The tenor and maturity of such contracts shall not be longer than: (i) the maturity of the
underlying foreign exchange obligation; or (ii) the approximate due date or settlement
of the foreign exchange exposure. The tenor/maturity shall be co-terminus with the
maturity of the underlying obligation or the approximate due date or settlement of the
foreign exchange exposure. This shall not preclude pre-termination of the contract due to
prepayment of the underlying obligation or exposure, provided, that for foreign currency
loans, prior BSP approval has been obtained for the prepayment and a copy of such
approval is presented to the AAB counterparty.
List of Minimum Documentary Requirements for Foreign Exchange Sale

through Derivative Products
Unless otherwise indicated, original documents shall be presented on or before deal date
to banks.
1. Non-trade Transactions
Only non-trade transactions with specific due dates shall be eligible and shall be
subject to the same documentation requirements under Appendix 1 of BSP Circular
645, with the following additional guidelines for foreign currency loans.
Foreign Currency Loans owed to non-residents or AABs
The maturing portion of the outstanding eligible obligation, i.e., those that are
registered with the BSP, including interest and fees thereon as indicated in the
BSP registration letter, may be covered by derivatives subject to the documentary
requirements indicated above. A copy of the creditors billing statement may be
submitted on or before the maturity date of the contract.
Pre-termination of the contract due to prepayment of the underlying obligation or
exposure is allowed provided, that for foreign currency loans, prior BSP approval has
been obtained for the prepayment and a copy of such approval is presented to the
AAB counterparty.
19
2. Trade Transactions
Sale of Foreign Exchange to Cover Obligations via Derivatives
Under Letters of Credit (LC)
Copy of LC opened; and
Accepted Draft or Commercial Invoice / Bill of Lading
Under Documents against Acceptances (DA)/Open Account (OA) Arrangements
Certification of reporting bank on the details of DA/OA under Schedule 10
Copy of Commercial Invoice
In addition to the above requirements, the bank shall require the customer to submit a Letter of
Undertaking that:
i. Before or at maturity date of the derivatives contract, it (the importer) shall comply with
the documentation requirements on sale of foreign exchange for trade transactions under
Appendix 4 of the BSP Circular 645; and
ii. No double hedging has been obtained by the customer for the covered transactions.
Direct Remittance
Original shipping documents indicated in Item II.a of Appendix 4 of the BSP Circular
645
Sale of Foreign Exchange to Cover Exposures via Derivatives

Under Letters of Credit (LC)
Copy of LC opened; and
Proforma Invoice, or Sales Contract / Purchase Order
Under Documents against Acceptances (DA)/Open Account (OA) Arrangements
Any of the following where delivery or shipment shall be made not later than one (1)
year from deal date:
Sales Contract
Confirmed Purchase Order
Accepted Proforma Invoice
Shipment/Import Advice of the Supplier
20
FX & Rates
Hedging
Trust Receipts
Trust receipts can only be dealt through the spot market.
Below is the regulation of Trust Receipts Transactions under Presidential Decree No. 115:
Section 6. Currency in which a trust receipt may be denominated. A trust receipt

may be denominated in the Philippine currency or any foreign currency acceptable
and eligible as part of international reserves of the Philippines, the provisions of
existing law, executive orders, rules and regulations to the contrary notwithstanding:
Provided, however,That in the case of trust receipts denominated in foreign currency,
payment shall be made in its equivalent in Philippine currency computed at the
prevailing exchange rate on the date the proceeds of sale of the
goods, documents or instruments held in trust by the entrustee
are turned over to the entruster or on such other date as may
be stipulated in the trust receipt or other agreements executed
between the entruster and the entrustee.
Bank Processing
Philippine Dollar Domestic Transfer System (PDDTS)
Cut Off with Branch: 12:00pm cut off for funding
Standard Charges*:
Cable fee of USD20.00
Commission of 1/8 of 1% of the Principal USD Amount
Real Time Gross Settlement (RTGS)

Cut Off with Branch: 12:00pm cut off for funding
Standard Charges*:
Commission of PhP100.00
Cable of PhP300.00
Accounts Payable RTGS
:

Below PHP10,000,500.00
-
PHP10,000,500.00 X .00001 -
Above PHP40,000,000.00
-
Amount x .00001, minimum of

PhP100, maximum of PhP400.00
Minimum of P100.00
rounded off to the nearest peso.
maximum of PHP400.00
21
Documentary Stamp Charges for Peso funded deals

for International Transactions
PHP0.30 for every 200 or fraction thereof of Peso Notional. Peso Notional
will be roundest off to nearest amount divisible by 200.*
Outward Telegraphic
Standard Charges*:
Cable fee of USD20.00
Commission of 1/8 of 1% of the Principal USD Amount
If the correspondent bank charge is OUR wherein the client is the remitter
and all charges will be debited from his/her account, the charges are the
following:
a. For USD and other
Third Currency**
USD15.00 or its Peso equivalent at Selling Rate
b. For JPY Currency**
EUR40.00 or its USD/PHP equivalent at Selling Rate
c. For EUR Currency**
EUR40.00 or its USD/PHP equivalent at Selling Rate
d. For HKD Currency**
HKD300.00 or its USD/PHP equivalent at Selling Rate
e. For AUD Currency**
AUD20.00 or its USD/PHP equivalent at Selling Rate
f. For SGD Currency**
SGD20.00 or its USD/PHP equivalent at Selling Rate
g. For NZD Currency**
NZD60.00 or its USD/PHP equivalent at Selling Rate
h. For GBP Currency**
GBP20.00 or its USD/PHP equivalent at Selling Rate
i. For CNY Currency**
USD15.00 or its Peso equivalent at Selling Rate
**Subject to change, and billing received from the Beneficiary Bank

Additional documentary stamp charges of PHP0.30 for every 200 or fraction thereof of
Peso Notional apply if Peso account is debited.
Inward Remittance
Standard Charges*:
Commission of USD5.50
Additional documentary stamp charges of PHP0.30 for every 200 or fraction
thereof of Peso Notional apply if Peso account is credited.
*Rates are subject to change
22
FX & Rates
Hedging
Understanding Foreign Exchange

Spot Transactions
Commodity and Terms Currency
USD/PHP = 41.50
Commodity Currency :
The currency that is being bought or sold
The currency that is being priced
Normally, it is the left side of the currency
pair
Normally, it is the USD
Examples:
USD/PHP, USD/JPY, USD/SGD
USD/CAD, USD/CHF ...
Terms Currency :
The price for one unit of the commodity
The amount of currency that paid for 1 unit
of the commodity currency
Normally, it is the right side of the currency
pair
Normally, it is the not the USD
Examples:
USD/PHP, USD/JPY, USD/SGD
USD/CAD, USD/CHF ...
Bid and Offer Rate
USD/PHP = 41.50/41.52
Bid Rate :
This is the BUYING rate of the bank
This is the price at which the BANK will
BUY the commodity currency
In the example above, the bank will buy USD
1 and pay PHP 41.50
Consequently, this is where the CLIENT can
SELL the commodity currency
In the example above, the client can sell USD
1 and receive PHP 41.50
Offer Rate :
This is the SELLING rate of the bank
This is the price at which the BANK will
SELL the commodity currency
In the example above, the bank will sell
USD 1 and receive PHP 41.52
Consequently, this is where the CLIENT
can BUY the commodity currency
In the example above, the client can sell
USD 1 and receive PHP 41.52
23
FX Risks
FX risk is the risk that is brought about by adverse foreign exchange movements.
For a Philippine exporter an adverse FX movement would be if the Peso appreciates,
then they will receive less Pesos for every USD they sell.
For a Philippine importer, an adverse FX movement would be if the Peso depreciates,
then they will need more Pesos for every USD they buy.
For international investors, Peso appreciation or depreciation can cause the value of
their USD investments to either decrease or increase.
Interest Rate Risks

Interest rate risk is the risk that is brought about by adverse movements in interest rate
levels.
Investors who invested in fixed interest bearing assets (e.g. T-bills, T-notes, Bonds) will
experience a capital loss (opportunity loss) if market interest rates start to increase
over the life of the investment (i.e. they will get the Yield to Maturity at the time of
investment vs. a now higher market yield).
Borrowers with fixed interest rate liabilities (e.g. loans) will have to pay a higher rate
relative the market rates if loan rates begin to fall over the life of the loan.
Borrowers with floating interest rate liabilities (e.g. loans) will have to pay a higher
rate if market interest rates begin to rise over the life of the loan.
What is a Derivative
Asecurity whose value, and hence price, is dependent on or derived fromone or
more underlying assets.The derivative itself is merely a contract or agreement between
two or more parties. The value of the derivative is determinedby fluctuationsin the
underlying asset.The most common underlying assets includecommodities,currencies,
stocks, bonds, interest rates and market indices.
Derivatives are generally used as an instrument to hedge risk in the underlying asset.
24
FX & Rates
Hedging
What is a Hedge
Getting into a derivative transaction to reduce or eliminate the risk of unfavorable price
movements in an asset.
Normally, a hedge consists of taking an offsetting (opposite) position in a related
security, such as a forward contract
Example of a hedge would be if an exporter were to receive US dollars in the future,
say 30 days from now, the exporter can enter into a Forward Contract to
sell your dollars 30 days from now to hedge his FX exposure. By entering into a
Forward Contract to sell USD vs. PHP, the exporter is able to lock in a price today for
settlement in the future (i.e. 30 days from now).
Risk-On/Risk-Off
Risk Appetite/Risk Aversion
An investment sentiment in which price behavior responds to, and is driven by, changes
in investor risk tolerance.
Risk-on / Risk-off refers to changes in investment activity in response to global
economic patterns.
During periods when risk is perceived as low, investors tend to engage in higher-risk
investments.
When risk is perceived as high, investors have the tendency to be inclined toward
lower-risk investments.
Against the US dollar, the Philippine Peso is as a riskier currency.
In a risk-on environment, where investors look for riskier assets (e.g. Philippine
Government Securities) the Peso usually appreciates against the USD Dollar.
In a risk-off environment, where investors look for safer assets (e.g. US treasuries)
the Peso usually depreciates and weakens against the US Dollar.
25
Risk Aversion
A description of an investor who, when faced with two investments with a similar
expected return but different perceived risks, will prefer the one with the lower risk.
A risk-averse investor dislikes risk, and therefore will stay away from adding high-risk
stocks or investments to their portfolio. Investors looking for safer investments
will generally stick to index funds and government bonds, which generally have lower
returns.
FX Forwards (Deliverable)
A FX forward contract is a contract that locks in the price today at which an entity can
buy or sell a currency for settlement on a future date.
Also known as deliverable forward or a plain vanilla forward.
All the terms of the contract (i.e. whether the client is buying or selling USD, the FX
Forward Rate, the Amount, settlement date, etc.) are agreed upon on transaction date.
In FX forward contracts, the contract holders are obligated to buy or sell the currency
at a specified price, at a specified quantity and on a specified future date. These contracts
cannot be transferred.
FX Forwards (Deliverable) - What is the forward rate?

The forward rate is not the same as the spot price
The forward rate is not a projection
The forward rate is the Future Value of the Spot rate given current interest rates
It follows the concept of Time Value of Money
Forward Rate formula:
Forward Rate
Swap Points
IRD
=
=
=
Spot Rate + Swap Points

Spot Rate * IRD * T/360
PHP interest rate USD interest rate
Similar to Future Value formula:

Future Value
Interest
26
=
=
Present Value + Interest

Principal (PV) * Rate * T/360
Example to compute for a 3-month forward rate:

Spot rate
PHP interest rate (PHIREF)
USD interest rate (SIBOR)
Tenor
=
=
=
=
41.50
1.4029%
0.4600%
92 days
(1) IRD

= PHP interest rate USD interest rate

= 1.4029% - 0.4600%
= 0.9429%
(2) Swap Points

=

Spot rate * IRD * T/360

= 41.50 * 0.9429% * 92/360
= .10
(3) Forward Rate

= Spot rate + Swap points

= 41.50 + .10
= 41.60
Time Value of Money

The idea that money available at the present time is worth more than the same
amount in the future due to its potential earning capacity.
This core principle of finance holds that, provided money can earn interest, any
amount of money is worth more the sooner it is received.
PHP 1,000 today is greater than

PHP 1,000 in the future.
For example, assuming a 5% interest rate, PHP1,000 invested today
will be worth PHP1,050 in one year (PHP1,000 + (PHP1,000 x 5%) =
PHP1,050; or PHP1,000 x 1.05 = PHP1,050).
Conversely, PHP1,000 received one year from now is only worth
PHP952.40 today (PHP1,000 / 1.05), assuming a 5% interest rate.
27
FX Forwards (Deliverable) - Example

An exporter will receive USD proceeds 3 months from now from their export sales
The client wishes to hedge their USD export proceeds to protect their FX exposure
from FX risk due to the volatility of the USD/PHP
The client enters into a 3-month forward contract with a forward price of 41.60
Benefit:
Downside:
Whether USDPHP goes above or

below 41.60, client is able to sell at
41.60, By eliminating foreign exchange
risk, FX appreciation or depreciation
will not affect the clients expected
profit/loss.
The forward contract does not allow

the client to gain when FX moves in
the favor of their exposure.
FX Forwards (Deliverable) - Forward Sell

Benefit to the USD Seller:
When you enter into an FX forward contract to sell USD, you are locking in the forward
price, and will sell your USD holdings at the pre-computed forward price on settlement
date.You are protected 100% if rates move against you (when the PHP appreciates), but
you may not benefit when rates move in your favor (when the PHP depreciates).
Payoff profile:
The horizontal line (the x-axis) represents the spot price at expiration. The vertical axis (the y-axis)
illustrates the profit/loss as the spot price moves along the x-axis.
Long Underlying Asset

Forward Sell Hedge
Hedge Outcome
28
FX & Rates
Hedging
FX Forwards (Deliverable) - Forward Buy

Benefit to the USD Buyer:
When you enter into an FX forward contract to buy USD, you are locking in that
forward price and will buy your USD requirements at the pre-computed forward price
on settlement date.You are protected 100% if rates move against you (when the PHP
depreciates), but you may not benefit when rates move in your favor (when the PHP
appreciates).
Payoff profile:
The horizontal line (the x-axis) represents the spot price at expiration. The vertical axis (the y-axis)
illustrates the profit/loss as the spot price moves along the x-axis.
Long Underlying Asset

Forward Sell Hedge
Hedge Outcome
Non-Deliverable Forwards (NDFs)

A non-deliverable forward contract is a contract that locks in the price today at which
an entity can buy or sell a currency on a future date (similar to a plain vanilla forward
contract).
Unlike a deliverable forward, there are no exchanges of principal amounts on
settlement date. There is a net-settlement of amounts where the profit or loss
computed on settlement date is exchanged. The net settlement amount is calculated
by taking the difference between the pre-computed NDF exchange rate (i.e. forward
rate) and the prevailing exchange rate (11:30 am weighted average for USD/PHP
NDFs) at the time of settlement multiplied by the notional amount of funds.
29
All NDFs have a fixing date and a settlement date.

The fixing date, which is one business day before the settlement day for USD/PHP
NDFs, is the date at which the difference between the prevailing market exchange rate
(fixing rate) and the agreed upon exchange rate (forward rate) is calculated.
The settlement date is the date by which the payment of the difference is due to the
party receiving payment. Settlement of the difference is in PHP.
Non-Deliverable Forwards (NDFs) - Example

An exporter will receive USD proceeds 3 months from now from their export sales
The client wishes to hedge their USD export proceeds to protect their USD revenues.
The client enters into a 3-month (92 days) non-delivarable forward contract with a
forward price of 41.60
Scenario 1 - Assume the PHP Appreciates

On the 91st day, assume USD/PHP AM WT AVE. exchange rate is 40.60
(11:30am fixing rate)
Net settlement amount:

41.60 40.60 = +1.0 (i.e. client receives)
Client can sell USD holdings at current market price of 40.60

Net effect to client:

40.60 + 1.0 = 41.60 hedge cost
Scenario 2 - Assume the PHP Depreciates

On the 91st day, assume USD/PHP AM WT AVE. exchange rate is 42.60
(11:30am fixing rate)
Net settlement amount:

41.60 42.60 = -1.0 (i.e. client pays)
Client can sell USD holdings at current market price of 42.60

Net effect to client:

30
42.60 1.0 = 41.60 hedge cost
FX & Rates
Hedging
FX Swaps
An FX swap is an agreement between two parties to exchange 2 cash flows over a
specified period. The 1st exchange is called the Near Leg. the 2nd exchange which
happens in the future is called the Far Leg.
The cash flows that the counterparties exchange are tied to the value of foreign
currencies (i.e. Spot rate for the near leg and the Forward rate for the far leg.)
An FX swap is a contract that simultaneously agrees to buy (or sell) an amount of
currency at an agreed rate and to resell (or repurchase) the same amount of currency
for a later value date to (from) the same counterparty, also at a pre-computed rate
(i.e. the forward rate).
There are TWO (2) simultaneous transactions in an FX SWAP Transaction:

A SPOT DEAL and an off-setting FORWARD DEAL.
Buy Spot and Sell Forward : Buy/Sell Swap

In this FX Swap transaction, you buy USD today and pay PHP;
and in the future, you sell the USD that you bought
and receive PHP
Sell Spot and Buy Forward : Sell/Buy Swap

In this FX Swap transaction, you sell USD today and receive PHP;
and in the future, you buy back the USD that you sold
and pay PHP
31
An Illustration:
Pricing mechanics is same as Forwards
Use Spot rate for SPOT DEAL
Use Forward Rate for the FORWARD Deal
Assume the following rates:
Spot Rate
: 41.50
Forward Rate : 41.60

Example 3 month SELL/BUY FX Swap Transaction:
Company has USD but:
Needs PHP now for operational expenses
Needs USD after three months for importation
On Spot Date
On Maturity Date
DAY 1:
Company sells USD at spot rate of 41.50
while simultaneously entering into a forward
buy at forward rate of 41.60
DAY 91:
Company buys USD at forward rate of
41.60
The company sells its USD holdings and

receives PHP for operational expenses
32
The company buys back its USD to pay for

importations and pays PHP
FX & Rates
Hedging
FX Options
A foreign-exchange option (FX option or currency option) is a financial derivative
instrument that gives:
The FX Option Buyer the right, but not the obligation, to perform what is
stipulated in the FX option contract at a pre-agreed strike price on a specified
expiration date.
The FX Option Seller, the obligation to perform what is stipulated in the FX
Option contract should the FX Option Buyer choose to exercise his/her rights.
Option Buyers and Option Sellers

Option Buyers
Option Sellers
If you BUY an Option, you have

the RIGHT but not the
OBLIGATION to exercise the
contract
If you SELL an Option, you have the

OBLIGATION to perform what is
stipulated in the contract
You have a choice

You pay a Premium for that
RIGHT/CHOICE
You DONT have a choice

You receive the Premium for the
OBLIGATION
Kinds of FX Options
CALL Options
PUT Options
If you BUY a Call Option, you

have the right to buy USD
If you BUY a Put Option, you

have the right to sell USD
If you SELL a Call Option, you

have the obligation to sell USD
if the buyer chooses to exercise the
option
If you SELL a Put Option, you

have the obligation to buy USD
if the buyer chooses to exercise the
option
33
Which FX Option is for your company?

USD BUYERS:
USD SELLERS:
BUY A CALL OPTION

You have the right to buy USD
BUY A PUT OPTION

You have the right to sell USD
SELL A PUT OPTION

You have an OBLIGATION to buy
USD (if Put Option buyer decides to
exercise the right to sell)
SELL A CALL OPTION

You have an OBLIGATION to sell
USD (if Call Option buyer decides to
exercise the right to buy)
Terminologies
STRIKE PRICE - the pre-agreed exchange rate; the agreed upon price at which the
option buyer would exercise the contract

EXPIRATION DATE - the specified date; the date at which the option may be
exercised (to exercise the right to perform what is stipulated in the FX option contract)
MONEYNESS
34
At The Money
(ATM)
In The Money
(ITM)
Out of The Money

(OTM)
Call Option
Option that gives holder
the right to buy
STRIKE = FWD
STRIKE < FWD
STRIKE > FWD
Put Option
Option that gives the
holder the right to sell
STRIKE = FWD
STRIKE > FWD
STRIKE < FWD
FX & Rates
Hedging
Factors Affecting Option Prices

Notional Amount
The larger the notional amount, the more expensive the option
Interest Rates
Affects the future value of the underlying asset

Moneyness
In The Money (ITM) > At The Money (ATM) > Out of The Money (OTM)
Tenor
The longer the tenor, the more expensive the option

Volatility of underlying asset
The higher the volatility, the more expensive the option

Option Type
American Style Exercise - An FX Option that can be exercised one time, anytime until
the expiration date. American exercise type options are more expensive than European
exercise type options.
European Style Exercise - An FX Option that can only be exercised at the expirations date.
Example: Buying a Put Option

Notional
: USD100,000.00
Strike
: 41.20
3 month FWD price
: 41.60
Tenor
: 3 months
Premium
: PHP 32,000.00 (.32 cents)
Strike < Fwd price (i.e. Put Option is Out of The Money (OTM))
If on expiration date exchange rate is: USDPHP 40.80
Client will exercise the Put Option (the right to sell at the strike price)
Client will sell USD100,000.00 at the Strike price of 41.20
Average Price is 41.20 - .32 (premium) = 40.88
Better Average Price than Market Price of 40.80
35
Payoff Profile - Buying a Put Option (1/3)

This Hockey Stick
illustrates the payoff profile
at expiration for buying a
Put Option. The horizontal
line (the x-axis) represents
the spot price at expiration.
The vertical axis (the y-axis)
illustrates the profit/loss as
the spot price moves along
the x-axis.
If spot falls to the right of the strike price (where the option buyer has the right
to sell USD) of 41.20, the put option is worthless as the put option buyer will not
exercise the put option and will just sell at the prevailing market price.
If spot falls to the left of the strike price, the option will gain value because the put
option buyer will exercise the put option.
The graph shows that the USDPHP has to be trading below 40.88 to break even
(strike price of 41.20 minus premium of PHP0.32 per USD).

In this diagram, the diagonal
broken line represents the
payoff profile of someone
who is long USDPHP (holding
USD). The intersection of the
broken line and horizontal
line (price of USDPHP) is
the break even point, or the
cost of the USD to the USD
holder.
If spot falls to the right of the break even point (i.e. when the PHP depreciates), the
USD holder experiences a gain as the USD holder can sell his/her USD holdings
above the break even level.
If spot falls to the left of the break even point (i.e. when the PHP appreciates), the
USD holder experiences a loss as the USD holder may sell his/her USD holdings
below the break even level.
36
FX & Rates
Hedging
This diagram shows the combined

payoff profile for someone who
has a long USD exposure and
hedged that exposure by buying
a put option. The combined/
resulting hockey stick in solid
line shows that all downside risk
has been eliminated (i.e. flat to
the left of the strike price) while
all upside benefits remain (i.e.
increasing P/L as FX rates move
to the right of strike price of
41.20).
Buying a Put Option to hedge your USD proceeds shows that the company is 100%
protected at exchange rates below the strike price of 41.20 (to the left of the strike
price), as the company can sell at the strike price.
If the spot price on expiration date falls above the strike price of 41.20, the hedge
begins to show gains as the client can now sell at the prevailing market price.
Example: Buying a Call Option

Notional
: USD100,000.00
Strike
: 41.80
3 month FWD price
: 41.60
Tenor
: 3 months
Premium
: PHP 32,000.00 (.32 cents)
Strike > Fwd price (i.e. Call Option is Out of The Money (OTM))
If on expiration date exchange rate is: USDPHP 42.30
Client will exercise the Call Option (the right to buy at the strike price)
Client will buy USD100,000.00 at the Strike price of 41.80
Average Price is 41.80 + .32 (premium) = 42.12
Better Average Price than Market Price of 42.30
37
Payoff Profile - Buying a Call Option (1/3)

This Hockey Stick illustrates
the payoff profile at expiration
for buying a Call Option. The
horizontal line (the x-axis)
represents the spot price at
expiration. The vertical axis
(the y-axis) illustrates the
profit/loss as the spot price
moves along the x-axis.
If spot falls to the left of the strike price (where the option buyer has the right to buy
USD) of 41.80, the call option is worthless as the call option buyer will not exercise
the call option and will just buy at the prevailing market price.
If spot falls to the right of the strike price, the option will gain value.
The graph shows that the USDPHP has to be trading above 42.12 to break even
(strike price of 41.80 plus premium of PHP0.32 per USD).

In the diagram below,
the diagonal broken line
represents the payoff profile
of someone who has a short
USDPHP position (or a
requirement to buy USD). The
intersection of the broken line
and horizontal line (price of
USDPHP) is the break even
point.
If spot falls to the left of the break even point (i.e. when the PHP appreciates), the
short USD position experiences a gain as he/she can buy their USD requirement
above the break even level.
If spot falls to the right of the break even point (i.e. when the PHP depreciates), the
short USD position experiences a loss as he/she can only buy the USD requirement
below the break even level.
38
FX & Rates
Hedging
This diagram shows the combined

payoff profile for someone who
has a short USD exposure and
hedged that exposure by buying
a call option. The combined/
resulting hockey stick in solid
line shows that all upside risk has
been eliminated (i.e. flat to the
right of the strike price) while
all downside benefits remain (i.e.
increasing P/L as FX rates move
to the left past the strike price
of 41.80).
Buying a Call Option to hedge your USD requirement shows that the company is
100% protected at exchange rates above the strike price of 41.80 (to the right of the
strike price), as the company can buy at the strike price.
If the spot price on expiration date falls below the strike price of 41.80, the hedge
begins to show gains as the client can now buy at the prevailing market price.
Interest Rate Swap (IRS)

An interest rate swap is a bilateral contract committing each party to make payments
to the other at regular intervals over an agreed period.
The amount to be paid for each leg is calculated on a different basis (i.e. fixed rate,
floating rate, or based on a specified formula agreed by both parties) and is based on
equal notional amounts.
Typically, there is no exchange of principal amounts and the interest payments are
netted against each other. Settlement is usually within a T+2 basis, T+1 basis for a PHP
IRS.
39
Pay Fixed, Receive Float:

What you Have :
Your View
Floating Rate Loan
: Interest rates will increase during the next two years.
What You Want :

To manage interest rate risk and lock-in your interest

payments while rates are relatively low.
Example
Notional Amount
: $1,000,000
Tenor
: 2 years
Payment Frequency
: Quarterly
Reset Frequency
: Quarterly
Leg 1
: Pay 2.00% fixed p.a.
Leg 2
: Receive 3M LIBOR
There will be no cash

exchange at start date.
Every quarter, client will

pay interest differential
of 2% and 3M LIBOR.
Floating interest rate (3M
LIBOR) will reset every
quarter.

exchange at maturity.
40
FX & Rates
Hedging
Receive Fixed, Pay Float:

What you Have :
Your View
Fixed Rate Loan
: Interest rates will decrease during the next two years.
What You Want :
To take advantage of decreasing interest costs.
Example
Notional Amount
: $1,000,000
Tenor
: 2 years
Payment Frequency
: Quarterly
Reset Frequency
: Quarterly
Leg 1
: Receive 2.00% fixed p.a.
Leg 2
: Pay 3M LIBOR

exchange at start date.
Every quarter, client
will receive interest
differential of 2% and 3M
LIBOR. Floating interest
rate (3M LIBOR) will
reset every quarter.

exchange at maturity.
41
Cross Currency Swap (CCS)

A cross currency swap is a bilateral contract to exchange a series of future interest
payments denominated in two different currencies at an agreed interest rate and
exchange rate.
The amount to be paid for each leg is calculated based on a fixed rate, a floating rate,
or a specified formula agreed by both parties and is based on equal notional amounts.
Principal amounts may or may not be exchanged at the start and at maturity.
A CCS can be structured as either a fixed-for-fixed, fixed-for-float, or float-for-float
agreement and is usually settled within a T+2 basis, T+1 basis for a USD/PHP CCS
Pay Fixed (Currency A), Receive Fixed (Currency B)

What you Have :
You have excess funds in Currency B (ex. Peso)
Your View
: Interest rates in Currency B will decrease during
the next two years or you can borrow Currency B at low
fixed rates.
What You Want :

Funds in Currency A (ex. Dollar) with fixed interest

payments.
Example
42
Notional Amount
: $1,000,000
Exchange Rate
: 41.25
Tenor
: 2 years
Payment Frequency
: Quarterly
Leg 1
: Pay fixed rate of 2.25% p.a. on $1,000,000
Leg 2
: Receive fixed rate of 4.00% p.a. on P41,250,000
FX & Rates
Hedging
Pay Fixed (Currency A), Receive Fixed (Currency B)

On start date, client will
give SBC P41,250,000
(Currency B) and receive
$1,000,000 (Currency A).

pay interest of $5,625 to
SBC and receive interest
of P412,500.
At maturity, client will

pay back $1,000,000
plus $5,625 interest and
receive P41,250,000 plus
P412,500 interest.
Pay Fixed (Currency A), Receive Float (Currency B)

What you Have :
Your View
: Interest rates in Currency B will increase during
the next two years or you can borrow Currency B at low
floating rates.
What You Want :

Funds in Currency A (ex. Dollar) with fixed interest

payments.
Example
Notional Amount
: $1,000,000
Exchange Rate
: 41.25
Tenor
: 2 years
Payment Frequency
: Quarterly
Leg 1
: Pay fixed rate of 2.25% p.a. on $1,000,000
Leg 2
: Receive 3M PHIREF + 50 bps on P41,250,000
43
Pay Fixed (Currency A), Receive Float (Currency B)

$1,000,000 (Currency A).

pay interest of $5,625 to
SBC and receive interest
of 3M PHIREF + 50 bps.
Floating rate will reset
every quarter.
At maturity, client will
pay back $1,000,000
plus $5,625 interest and
receive P41,250,000 plus
the last interest payment.
Pay Float (Currency A), Receive Float (Currency B)

What you Have :
Your View :

Interest rates in Currency B will increase during

the next two years or you can borrow Currency B at
low floating rates.
What You Want :

Funds in Currency A (ex. Dollar) with floating interest

payments.
Example
44
Notional Amount
: $1,000,000
Exchange Rate
: 41.25
Tenor
: 2 years
Payment Frequency
: Quarterly
Leg 1
: Pay floating rate of 3M LIBOR + 100 bps on $1,000,000
Leg 2
: Receive 3M PHIREF + 50 bps on P41,250,000
FX & Rates
Hedging
Pay Float (Currency A), Receive Float (Currency B)

$1,000,000 (Currency A).

pay interest of 3M LIBOR
+ 100 bps to SBC and
receive interest of 3M
PHIREF + 50 bps. Both
rates will reset every
quarter.
At maturity, client will pay
back $1,000,000 plus the
last interest and receive
P41,250,000 plus the last
interest.
Settlement Lines:
Pre-Settlement Risk line
Pre-settlement risk (also known as default exposure) refers to the amount of money
that may be owed by the defaulted party on a defaulted transaction.This is equivalent to
the credit exposure of a transaction over its term prior to either default or a settlement
date. The Bank recognizes the need to quantify this exposure in order to monitor and
properly set counterparty credit risk limits.
Settlement Risk line
Settlement risk is the risk that a counterparty does not deliver a security or its value in
cash as per agreement when the security was traded after the other counterparty or
counterparties have already delivered security or cash value as per the trade agreement.
The Bank recognizes the need to quantify this exposure in order to monitor and
properly set counterparty credit risk limits.
45
Documentary Requirements
Prior to Dealing:
Client Suitability Questionnaire
The Client Suitability Questionnaire (CSQ) assesses the clients level
of understanding on FX derivative products and determines his/her
risk appetite. The risk levels range from Type 1-5. A Type 1 rating
is given for extremely risk averse investors/companies and allows
them to do regular outright FX forwards and Swaps. Generally, a
higher risk level would allow the investors/companies access to more
complex derivative products such as Non-deliverable Forwards
(NDFs),FX Options and Exotics. Should the client insist on dealing in
a product that is above his classified risk level, he will be required to
sign a waiver affirming that they are fully aware of the risks involved
when dealing with such financial derivatives.
2002 ISDA Master Agreement

& Schedule to the ISDA Master
Agreement
The 2002 ISDA master agreement is a standard document that
covers the general terms and conditions of derivatives transactions.
This document, once signed, will form part of your permanent file.
The schedule to the ISDA Master Agreement lists the additional
conditions required by SBC related to derivatives.
Board Resolution
The Board Resolution is a document that authorizes the company to
deal derivatives with SBC.
46
Security Bank will conduct suitability review of client using the Client
Suitability Questionnaire
For corporate clients, the CSQ shall be completed and signed by a duly
authorized senior level officer
FX & Rates
Hedging
CSQ Process
Completed CSQs will then be submitted to the Risk Management Division

of the bank to be scored.
For each level of sophistication, Security Bank will be offering the
appropriate range of financial products that would help the client meet
their investment or hedging objectives.
Non-market counter party clients are then categorized into 5 types,
ranging from the most risk-averse and the least sophisticated (Type 1)
up to the most risk seeking and most financially sophisticated (Type 5)
client. Type 3 represents the middle quantile of investors
The raw CSQ score (0 to 100) is translated to the investor type (1 to 5)
through a simple linear table
Clients shall be informed of their CSQ score through a Client Suitability

Letter. The score of the CSQ shall be contained in a Client Suitability
Letter to be signed by both Security Bank authorized sales representative
and supervisor, and by a duly authorized senior level officer
Transactional Documentary Requirements :

Underlying Asset Confirmation
The underlying asset confirmation is a document needed for every deal. This basically
shows the details of the transaction as well as certifies that the company is hedging FX
risk and has not engaged in any double hedging.
Term Sheet
For NDFs, FX Options, IRS and CCS. The term sheet which states the agreed details
of the deal, is a front office document and should also be signed by authorized sales
representative.
47
48
FAQs (FXRH)
Frequently Asked
Questions
Treasury Sales
FX and Rates Hedging Division
49
50
1. What is the maximum amount I can buy OTC?

USD 60,000.00; For sale of exceeding USD120,000.00, supporting documents as
stated in the Appendix 1 of BSP Circular 645, as amended by Circular 794
FAQs (FXRH)
Frequently Asked Questions
2. Can anybody get into a Hedge?

You can hedge if you have foreign exchange or interest rate exposures. Examples
of such clients are exporters, importers, borrowers or lenders.
3. Is there a minimum tenor for hedging?

There is no minimum tenor you can hedge provided that the tenor of the
derivative contract shall not be longer than the maturity of the underlying.
Please see BSP Circular 645 as amended.
4. What is the minimum amount for hedging?

You can hedge any amount. But the amount you will hedge has to be equal or
less than the amount of the underlying asset/liability/exposure you are hedging.
You cannot hedge more than the amount of your underlying asset/liability
because it will be considered double hedging. Please see BSP Circular 645
5. What is Double Hedging?

Getting into a derivative contract with an underlying FX obligation/exposure
that has already been hedged.
51
52
Fixed Income
Securities
Fixed Income
Securities
Fixed Income Securities
Distribution
53
54
Treasury Bills (T-bills)

Fixed Rate Treasury Notes (FXTNs)
Fixed Income
Securities
Types of Fixed
Income Securities
Retail Treasury Bonds (RTBs)

Global Peso Notes (GPNs)
ROPs
Onshore Dollar Bonds
Foreign Sovereign Bonds
GOCC-issued Bonds
Zero-Coupon Bonds
Philippine Corporate Bonds
Foreign Corporate Bonds
Other Products
SecureFlex TD
Secure Premium Dollar Earner
55
Government Securities (GS)

Debt instruments issued by a sovereign government
(Republic of the Philippines)
Direct and unconditional obligations of the sovereign government
(Republic of the Philippines)
Issued via BTr (Bureau of Treasury)
Practically free from default
No longer certificated - scripless in form
Treasury Bills (T-bills)

Direct and unconditional obligations of the national government
Issued by BTr (Bureau of Treasury)
Liquid - can be traded in the secondary market before maturity
Carry a maturity of one year or less
Do not bear interest
Issued at a discount from face value and are redeemed at maturity for the full face
amount of the instrument
Treasury Bills (T-bills) Features:
Term: 91, 182, 364 days
Tax Feature: Interest income subject to 20% withholding tax unless investor
is a tax-exempt institution
Type of Income: Tax-paid
Interest Computation: True discount formula
Manner of Purchase: Auction or through secondary market
Fixed Rate Treasury Notes (FXTNs)

Carry a maturity of more than one year
56
Interest-bearing
Issued at a price equal to the face value and are redeemed at maturity for the full face
amount of the instrument plus interest/coupon for the final period
Fixed Rate Treasury Notes (FXTNs) Features:
Coupon/interest rate: Fixed for the life of the FXTN
Coupon payment period: Payable semi-annually in arrears
Fixed Income
Securities
Term: 3, 4, 5, 7, 10, 20, 25 years
Interest Computation: Calculated on a 30/360 day basis

Retail Treasury Bonds (RTBs)

Issued by BTr (Bureau of Treasury) primarily to cater to the retail market or end-users
Interest-bearing
Retail Treasury Bonds (RTBs) Features:
Term: 3, 5, 7, 10, 15, 20, 25 years
Coupon/interest rate: Fixed for the life of the RTB
Coupon payment period: Payable quarterly in arrears
57
Global Peso Notes (GPNs)

Philippine-peso denominated
Coupon payment and bond settlement in US dollar, based on USD/PHP exchange rate
Interest-bearing
Redeemed at maturity for the full face amount of the instrument plus interest/coupon
for the final period
Global Peso Notes (GPNs) Features:
Term: 10, 25 years
Type of Income: Taxable
Coupon/interest rate: Fixed for the life of the GPN
ROPs
Foreign currency-denominated (mostly in US Dollars)
Interest-bearing
ROPs Features:
Term: 5, 7, 10, 15, 20, 25 years
Tax Feature: Taxable
Coupon/interest rate: Fixed for the life of the ROP
58

Onshore Dollar Bonds

US Dollar-denominated
Fixed Income
Securities

Interest-bearing
Traded onshore/locally, listed in PDEx (Philippine Dealing Exchange)
Onshore Dollar Bonds Features:
Term: 10.5 years
Tax Feature: Final Withholding Tax on the Bonds for all tax classes of all
holders shall be assumed by the Republic
Type of Income: Tax assumed
Coupon/interest rate: Fixed for the life of the ODB
Foreign Sovereign Bonds

Direct and unconditional obligations of other national governments (aside from the
Republic of the Philippines)
Denominated in US dollars
Interest-bearing
59
Foreign Sovereign Bonds Features:

Term: Varies (depending on the issuer)
Coupon/interest rate: Fixed for the life of the sovereign bond
Coupon payment period: Varies (depending on the issuer)
GOCC-issued Bonds
Direct and unconditional obligations of a Government Owned and Controlled
Corporation
Less liquid than GS but can be traded in the secondary market before maturity
Depending on the issuer, can either be interest-bearing - issued at a price equal to the
face value and are redeemed at maturity for the full face amount of the instrument
plus interest/coupon for the final period; or non-interest bearing - issued at a
discount from face value and are redeemed at maturity for the full face amount of the
instrument
GOCC-issued Bonds Features:
Term: 3, 5, 7, 10, 15 years
Tax Feature: Interest income subject to 20% withholding tax
or tax-exempt
Type of Income: Tax-paid or tax-exempt
Coupon payment period: Payable semi-annually or quarterly in arrears; or none if issued
at a discount
Zero-Coupon Bonds
Direct and unconditional obligations of the issuer (national government, GOCC,
Philippine corporations, etc.)
Do not bear interest
Issued at a discount from face value and are redeemed at maturity for the full face
amount of the instrument
60
Zero-Coupon Bonds Features:

Term: 3, 5, 7, 10 years
Tax Feature: Interest income subject to 20% withholding tax
or tax-exempt
Type of Income: Tax-paid or tax-exempt
Philippine Corporate Bonds

Direct and unconditional obligations of a Philippine corporation registered with the
Securities and Exchange Commission (SEC) and rated by an independent ratings
agency (e.g. Philippine Rating Services Corporation or PhilRatings)
Fixed Income
Securities
Less liquid than GS but can be traded in the secondary market before maturity
Interest-bearing
Yield provided by corporate bonds is normally higher compared to GS due to higher
credit risk and liquidity risk
Philippine Corporate Bonds Features:
Term: 3, 5, 7, 10, 15 years
Coupon/interest rate: Fixed for the life of the Philippine Corporate Bond
Coupon payment period: Payable semi-annually or quarterly in arrears
Foreign Corporate Bonds

Direct and unconditional obligations of foreign corporations
Denominated in US dollars
Can be traded in the secondary market before maturity
Interest-bearing
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Foreign Corporate Bonds Features:

Term: Varies (depending on the issuer)
Coupon/interest rate: Fixed for the life of the Foreign Corporate Bond
Coupon payment period: Varies (depending on the issuer)
Other Products
SecureFlex TD
Five year plus one day floating-rate term deposit, with quarterly pricing resets and
interest payments
Tax-free assuming investor does not terminate placement
SecureFlex TD Features:
Minimum Volume: Php500,000.00 per certificate
Tenor: Five years and one day
Interest: If held to maturity, investor receives a withholding tax-exempt
yield. A graduating withholding tax rate will apply on interests
of placements withdrawn prior to final maturity. Interest shall
be computed based on actual number of days/360.
Investor receives a floating interest rate every 3 months. If
the investor chooses to continue the placement or fails to
terminate it, principal is automatically extended for the next
three months at a new rate.
Payment of interest is made by the issuance of a Managers
check (MC) payable to the client or by way of a credit to the
clients CASA account with the bank.
Only individuals benefit from the withholding tax exempt
feature if clients hold on to the investment until final maturity.
For corporations and institutional investors, interest is subject
to 20% final withholding tax.
62
Taxation: Not subject to final withholding tax of 20% on the interest

income if principal is not preterminated before final maturity
date, otherwise, investment will be subject to a graduated
withholding tax structure prescribed by the law.
Pretermination Policy: Partial pretermination is not allowed, only full pretermination

will be entertained. Pretermination is allowed subject to any of
the following conditions:
Other
Products
Documentary Stamp Tax (DST) shall be initially shouldered by

the bank. However, if placement is preterminated not on an
interest payment date (also called ELECTION DAY), DST shall
be charged to the client. Amount of DST is computed as follow:
principal invested and a fraction thereof /Php200.00*PHP1.00.
Preterminated on election day - withholding tax on the

entire income earned by the client shall be imposed and shall
be deducted by the bank from the proceeds of the deposit
(original principal + quarterly coupon interest)
Preterminated on a non-election day - client will earn 0.00%
interest for the period; DST shall be shouldered by the client;
and withholding tax on the entire income earned by the client
shall be imposed and shall be deducted by the bank from the
proceeds of the deposit (original principal) as follows:
Term (based on the holding period)
Applicable Tax
Less than one year
20%
One year but less than two years
20%
Two years but less than three years
20%
Three Years but less than four years
12%
Four years but less than five years
5%
Risk Disclosure: Credit/Default Risk - Refers to the risk that the bank
(borrower) with which the time deposit has been placed is
unable to pay its obligation to the investor (creditor) due to
bank insolvency or bankruptcy
Principal Risk - Refers to the risk that the investor will not get
back his/her original principal invested. For this product, the
risk is only attributable to the DST which the investor has to
pay only if he preterminated the TD prior to election day.
63
Risk Disclosure: Interest Rate Risk - Refers to the risk that market rates may
decline and the client will be able to invest at a lower rate.
Client will still enjoy a higher rate compared to the investments
of the same repricing tenor because he/she will get to enjoy
tax-exempt interest rate (provided funds are held until
maturity)
Others: PDIC-insured - As a deposit product, this is likewise covered
by the Philippine Deposit Insurance Corporation, subject to
applicable rules and regulations, among others, on maximum
insurance coverage.
Secure Premium Dollar Earner

Fixed term dollar time deposit
Secure Premium Dollar Earner Features:
Minimum Volume: USD50,000.00
Tenor: 3, 6, 12 months
Frequency of interest Monthly
payments:
Taxation: Subject to 7.5% withholding tax
Pretermination Policy: Pretermination penalties shall apply as follows: 0% interest
if pre-term occurs during the first half of the tenor; 50% of
interest if pre-term occurs during the second half of the tenor
or whatever pretermination rate is approved to be applicable.
No DST is charged to FCDU deposits.
Proceeds paid out to client shall be computed as follows:
Proceeds to be paid out to client on pretermination date:
Principal invested plus dollar interest that client should earn
minus dollar interest already paid out to client
Interest previously paid shall be recomputed based on
pretermination policy. The difference between the amount
computed and the interest previously paid shall be deducted
from the principal amount.
64
Risk Disclosure: Interest Rate Risk - Refers to the risk that interest rates in the
market may appreciate
Principal Risk - Refers to the risk that the investor will not
get back his/her original principal invested. This will only take
place upon pretermination when interest paid out to the client
is beyond what the client should earn. Interest previously
paid shall be recomputed based on pretermination policy. The
difference between the amount computed and the interest
previously paid shall be deducted from the principal amount.
Reduction in the principal though is not attributale to any
market risk.
Other
Products
Reinvestment Risk - Refers to the risk resulting from the

possibility that the interest earned from the investment may
not be reinvested at the same rate of return as the original
investment
Credit/ Default Risk - Refers to the risk that the bank

(borrower) with which the time deposit has been placed is
unable to pay its obligation to the investor (creditor) due to
bank insolvency or bankruptcy.
Others: PDIC-insured - As a deposit product, this is likewise covered
by the Philippine Deposit Insurance Corporation, subject to
applicable rules and regulations, among others, on maximum
insurance coverage.
*The bank has the discretion to lengthen the tenor of Secure Premium Dollar Earner
65
66
Frequently Asked
Questions
Distribution
67
68
1. What is the minimum investible amount?

Investment Savings Account: Php 100,000.00
Dollar Time Deposit: USD 10,000.00
Government Securities: Php 100,000.00, in increments of Php 1.00
PHP-denominated Corporate bonds: Php 100,000.00, in increments of Php 1.00
2. What is the difference between coupon rate

and yield-to-maturity?
FAQs (FISD)
ROPs / USD-denominated Corporate USD 100,000.00, in increments of USD 1,000.00

bonds / other Sovereign bonds: or minimum trade lot size and increment of the
issue, whichever is higher
Coupon rate is expressed as the percentage (per annum basis) of the face value
of the bond. It is the amount that the bondholders will receive for holding the bond.
Coupon payments are usually made semi-annually or quarterly.
Yield-to-maturity (YTM), as the name states, is the rate of return that the
investor/bondholder will receive assuming the bond is held until maturity.YTM
accounts for various factors like coupon rate, bond prices, time remaining until
maturity and difference between the face value and price.
Coupon rate is fixed at the issue date whereas the YTM fluctuates due to market
movement and the aforementioned factors.
3. Is there liquidity should I want to unload my

securities?
Yes, provided there is a buyer in the market. Since government and top-tier corporateissued securities can be traded in the secondary market, those who want to unload
his/her holdings can do so before its maturity date at the market bid rate. Generally,
Security Bank may provide liquidity for investors willing to sell their securities.
69
4. What do I do if I wish to terminate/sell my fixed

income investments prior to its maturity?
Termination is subject to prevailing market rates. Such investment might be sold at
a discount, par or premium. Termination will have to be coursed through a Broker
Banks salesman. Client will have to comply and submit all documentary requirements
before sale of securities can be executed.
5. Why is the settlement amount different from

the face value?
Face amount, also known as par value, is the amount that the bondholder will
receive at maturity date assuming the issuer of the bond does not default. On the
other hand, the settlement amount is the amount that the bondholder pays or
receives for the face value; it accounts for the accrued interest, taxes and applicable
fees.
When a security is traded at a discount (YTM > Coupon rate), the settlement amount
may be less than the face amount. On the other hand, when a security is traded at
a premium, (YTM < Coupon rate), the settlement amount is greater than the face
amount.
6. Can Fixed Income Securities be used as

collateral for loans?
Fixed income securities, both USD- and Php-denominated, may be used as loan
collateral at a certain percentage (%) of the face value depending on the type of
security and the banks credit guidelines.
70
70
7. What are the documents to be submitted if

I want to purchase and/or sell fixed income
securities?
Before any transaction, Security Bank requires submission of the following:
Account Opening documents (should be coursed through a Security Bank branch)
Investors Undertaking
Letter of Instruction for Settlement
Authorization Letter for 3rd Party Custodian
Confirmation of Purchase / Sale
FAQs (FISD)
Client Suitability Questionnaire
Special Power of Attorney
8. What is the cut-off time to execute trade

transactions?
Buy and sell transactions can be coursed through all Security Bank branches on or
before 12 noon for transactions that are value-dated same day. Transactions done after
cut-off time are for settlement the next banking day.
9. What do you mean by on-the-run

and off-the-run issues?
On-the-run securities are the most recent issues of a particular maturity. On
the other hand, off-the-run securities are the opposite. On-the-run securities
are generally more liquid than off-the-run securities.
71
10. Why are Government Securities considered

credit risk-free?
Government Securities are backed by the full taxing power of the national
government and its ability to print money hence they are practically
default-free.
11. Given the same tenor, is it better for me to

invest in corporate bonds than Government
Securities?
It depends on the clients risk appetite. Corporate-issued bonds are riskier because
corporations have greater chances of default (credit risk) than the government; hence,
corporate bonds offer higher rates than GS as compensation for bondholders.
12. What is the difference between a Custodian

and a Registry?
A custodian and a registry are either BSP-accredited bank or non-bank financial
institutions. A custodian holds the securities on behalf of the client while a registry
records the initial and succeeding transfer of ownership of securities.
13. How will the securities be transferred upon

purchase?
During settlement date, the securities will be delivered by the seller to the buyer
or to its BSP-accredited custodian once all documentary requirements have been
submitted.
72
72
Glossary

Distribution
73
74
Terms and Definition

Bangko Sentral ng Pilipinas (BSP)
Bureau of Treasury (BTr)
Department of Finance (DoF)
Securities and Exchange
Commission (SEC)
Done used to agree to a trade

transaction. A done transaction is
irrevocable and should be honored by both
parties.
Firm rate or price at which a party is
committed to deal.
Given / Sold the bid side has been dealt.
Government Owned or Controlled
Corporation (GOCC) a corporation
created by special law under the
Corporation Code wherein the national
government has majority ownership or
voting control
Basis Point (Bps) a unit that is

equivalent to 1/100th of 1% and used to
describe change in the interest rate; 1 bp =
0.01%.
Government Securities Eligible

Dealer (GSED) an SEC-licensed
securities dealer institution.
Bid / Buy / Pay interest rate or price

a party (i.e. bank or client) is willing to buy a
specific security.
Indication / Subject the price quoted

is not firm and used only to indicate current
market level.
Choice buying and selling rates or prices

of a party are the same.
Liquidity Risk the uncertainty that

a security will be converted to cash
immediately. This can be also referred as
marketability.
Competitive Bid type of bid tendered

during an auction, wherein the dealer aims to
outbid other bids submitted.
Coupon the amount an investor
receives for the year for holding the bond
or the amount that security issuer pays the
bondholders; expressed as the percentage of
the face value of the bond.
Credit Risk the uncertainty that
the issuer of a security will default to its
obligation.
Deal Date / Transaction Date date
when a transaction is concluded.
Discount coupon rate of a specific
security is lower than its current yield. It is
when price is below 100.00.
Glossary
Automated Debt Auction

Processing System (ADAPS) an
electronic system used by the government
for debt auctions, where GSEDs key in their
bids and BTr announces the results of bids
tendered to the respective dealer terminal.
Mine / I Take a party buys at the rate

or price a specific security is being offered at.
My Risk when calling party is unable to
immediately respond to the price given to
him; rate or price should be refreshed prior
to dealing.
Non-Competitive Bid type of bid
tendered during an auction, wherein the
dealer aims to be awarded at the weighted
average rate of the accepted competitive
bids during the same auction
Nothing Done / Nothing Dealt
states that no transaction has been
concluded.
75
Off quoted rate or price cannot be dealt

anymore.
Taken / Lifted / Paid the offer side

has been dealt.
Offer / Sell / Ask interest rate or price

a party (i.e. bank or client) is willing to sell a
specific security.
Tenor refers to number of days for today

up to the securitys maturity date.
Par coupon rate and yield of a specific

security are the same, neither at a discount
nor at a premium. It is when price is at
100.00.
Philippine Domestic Dollar Transfer
System (PDDTS) real-time gross funds
transfer system that facilitates clearing of
Dollar transactions between banks. Once
processed, payments are final and irrevocable.
Premium coupon rate of a specific
security is higher than its current yield. It is
when price is above 100.00.
Principal / Face refers to the notional
amount of security.
Real Time Gross Settlement (RTGS)
real-time gross funds transfer system
that facilitates clearing of Peso transactions
between banks. Once processed, payments
are final and irrevocable.
Refresh the term used when the calling
party wants to check if the previously
quoted rate or price is still valid.
Registry of Scripless Securities
(RoSS) electronic registry of government
securities.
Settlement Date / Value Date
when done transactions are settled via
transfer of securities against payment/
receipt of funds. Settlement date should
be determined and agreed by both parties
before dealing. Market convention for various
products is:
Time deposit:
T+0
Peso (Primary): T + 2
Peso (Secondary): T + 1
Dollar (Primary): T + 5
Dollar (Secondary): T + 3
76
Value Today (Jargon: VAL TOD)

when settlement date is the same as deal
date.
Value Tomorrow (Jargon: VAL
TOM) when settlement date takes one
business day from deal date.
Yield interest earned on an investment
(fixed income security).
Yield Curve the graphical expression of
interest rates according to tenor at a given
point in time. It is usually upward sloping
because longer tenors tend to have higher
interest rates to compensate for credit
and liquidity risks.Yield curve can also be
downward sloping or flat, depending on the
views of market participants.
Yield-to-Maturity (YTM) the
bondholders rate of return assuming the
bond is held until maturity. It accounts for
the coupon rate, bond prices, time remaining
until maturity.
Your Risk when quoting party wants to
warn the calling party that the quoted rate
or price may not be valid after a while.
Yours / I Give a party sells at the rate
or price a specific security is being bid at.
77
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Disclaimer
This handbook is intended for qualified investors or buyers and contains guidelines,
information and explanation of Foreign Exchange and Spot Transactions Trading in the
Philippines. The materials herein are confidential and intended for qualified buyers under
Section 10 (l) of the Securities Regulation Code and not for the financially unsophisticated
investors.
While every effort has been made to make these materials in the handbook as accurate as
possible, note that as a handbook, these materials are necessarily simplistic and incomplete
and the subject matter discussed herein is complex and difficult. This handbook is not
intended to be comprehensive and nor does not purport to contain all the information that
a prospective investor may require. The investor should not rely solely thereon without
making any independent analysis or research on any topic therein. This handbook is not
intended as a substitute for sound investment or risk management advice.
This handbook is subject to change without notice. Reproduction of this material, whether
in whole or in part, is strictly prohibited without the prior consent of Security Bank
Corporation.
No representation or warranty as to its accuracy, reasonableness or completeness, express
or implied is hereby made. This information packet is not to be taken as an offer to engage
in Foreign Exchange and Spot Transactions trading. Security Bank Corporation denies any
liability that may arise out of any loss or may result in actual, direct or consequential damage
from the use or reliance on any material hereof.
You acknowledge that you read and understood this Disclaimer and agree to be bound by
the conditions therein.
187
Contact Information
188
Raul Martin Pedro

Treasurer
Tel. No. (02) 888-7019
RPedro@securitybank.com
Mylene C. Subido
Fixed Income Securities Distribution Head
Tel. No. (02) 888-7046
MSubido@securitybank.com
Raul Victor M. De Guzman

FXRH Division Head
Tel. No. (02) 888-7011
RDeGuzman@securitybank.com
Carlyn Therese X. Dulay

FISD Institutional Sales Head
Tel. No. (02) 888-7029
CDulay@securitybank.com
Aileen Chua
FXRH Corporate Desk Head
Tel. No. (02) 888-7018
AChua@securitybank.com
Angeline T. Sia
FISD Institutional Sales Officer
Tel. No. (02) 888-7002
ASia@securitybank.com
Francisco Javier Galang

FXRH Sr. Corporate Sales Officer
Tel. No. (02) 888-7010
FGalang@securitybank.com
Hazel Beatrize G. De Vera

Tel. No. (02) 888-7001
BDeVera@securitybank.com
Francis Buenaventura
FXRH Corporate Sales Officer
Tel. No. (02) 888-7014
FBuenaventura@securitybank.com
Diandra Denise M. Dimaunahan

Tel. No. (02) 888-7170
DDimaunahan@securitybank.com
Carmela Sto. Domingo

FXRG Corporate Sales Officer
Tel. No. (02) 888-7016
CStoDomingo@securitybank.com
Johanna S. Hernandez
FISD Retail Sales Head
Tel. No. (02) 888-7003
JSongco@securitybank.com
Sheilagh Rivera
FXRH Commercial Desk Head
Tel. No. (02) 888-7015
SRivera@securitybank.com
Ma. Melissa C. Serrano

FISD Retail Sales Officer
Tel. No. (02) 888-7007
MSerrano@securitybank.com
Jose Manuel Marquez

FXRH Commercial Sr. Sales Officer
Tel. No. (02) 888-7012
JMarquez@securitybank.com
Jomelle F. Salazar
Tel. No. (02) 888-7008
JFSalazar@securitybank.com
Chiqui Carlos
FXRH Commercial Sales Officer
Tel. No. (02) 888-7013
CCarlos@securitybank.com
Abigail Marie G. Capacio

Tel. No. (02) 888-7006
ACapacio@securitybank.com
189

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vi

Awards and Distinctions

Bank of the Year - Philippines

Strongest Bank in the Philippines

No. 1 in Asia Pacific for 2010 - Highest Return on Assets

Best Credit Sales

Top Bank in the Secondary Market for Government Bonds, Philippines

Best Managed Companies of the Philippines

Best Securities House for seven consecutive years

Best Banking Group in the Philippines

Corporate Governance Asia Annual Recognition Awards

Basic Handbook | Currencies, Interest Rates,

FX & Rates Hedging

Sale of Foreign Exchange (FX)

4. 2 For sale of exceeding USD120,000.00 or its equivalent in other foreign currency

1. Foreign travel funds

Applicants passport and ticket

Photocopy of proof of enrolment with, or billing statement from, school

Photocopy of proof of enrolment with, or billing statement from, school

Photocopy of billing statement (for services rendered/expenses

5. Emigrants assets (including

a. Employment contract/Certification of employer showing amount of

7. Foreign nationals income

a. ACR-I Card and DOLE Alien Employment Permit; and

8. Sales proceeds of foreign

a. ACR I-Card; and

9. Producers share in movie

a. Statement of remittable share rental or rental; and

10. Export commissions due

a. Billing statement from non-resident agent; and

11. Freight charges on

a. Billing statement; and

12. Charters and leases of

a. Billing statement from non-resident lessor/owner of vessel/aircraft;

13. Leases of equipment and

a. Billing statement from non-resident lessor and/or owner of the

14. Port disbursements

a. Billing statement; and

15. Satellite and other

a. Billing statement; and

16. Other services provided

a. Billing statement; and

17. Share in Head Office

a. BSRD for the assigned capital in the branch;

Billings/invoices of insurance companies/ brokers abroad

19. Claims against domestic

Billings/invoices from foreign insurer/ reinsurer

20. Net Peso revenues of

a. Statement of Net Peso Revenues (Peso revenues less expenses)

21. Royalty / copyright /

a. Statement/computation of the royalty/ copyright/franchise/patent/

22. Net Peso Revenues of

Statement of net peso revenues (Peso revenues less expenses) certified

24. Refund of unused foreign

a. Copy of the contract/agreement covering the foreign grant/aid;

25. Refund of unused foreign

a. Copy of the contract/agreement covering the foreign loan;

Crtification by PDIC on the amount of deposit liabilities to be paid to

b. If client is not an accountholder of the servicing branch:

5. For sale of FX to residents to cover payments for NON-TRADE OBLIGATIONS THAT

1.a BSP registration letter and accompanying Schedule RA-2

1.a BSP registration letter and accompanying Schedule

2. Short-term foreign/foreign currency

1.a BSP approval or registration letter showing loan terms and