Guidelines on Marking to Market of Financial Instruments

''t Barexo SeNrnnL NGt Prr-rptruas OFFICE OF THE GOVERNOR crRcutAR No.rcel Series of 2018 Subject: Guidelines on Marking to Market of Financial Instruments The Monetary Board, in its Resolution No. 1848 dated 8 November2OLS, approved the guidelines on marking to market of financial instruments to align existing regulations with the provisions of Philippine Financial Reporting Standards 13 on Fair Value Measurement. Section 1. Subsection X191.4 on "Accounting treatment of financial securities" of the Manual of Regulations for Banks (MORB), Section 4391N and Subsection 4388e.5 on "lnvestments in debt and marketable equity securities" of the Manual of Regulations for Non-Bank Financial Institutions (MORNBFI) are hereby amended to read, as follows: 'Section 4391N/Subsec. Xl9l.4l438SQ.S. Marking to market of financial instruments. Financial instruments that are required to be classified and measured at fair value, within the scope of Philippine Financial Reporting Standards (PFRS) 9 under Appendix 33/Q-ZO, shall be marked-to-market in accordance with the provisions of PFRS L3 on Fair Value Measurement and the related rules and . regulations issued by the Securities and Exchange Commission. The marked-to- market guidelines for debt and equity securities are set out in Appendix 33a/Q-20a. BSFIs and the concerned officers found to have violated the provisions of these regulations shall be subject to the enforcement actions under Section 4161N/ Su bsec. XL9L3 / 4L91Q. 3." Section 2. Subsections X410.10 of the MORB and 4410Q.10 of the MORNBFT on "Other Related Guidelines on Valuation of Allowable Investments" are herebv amended to read, as follows: "Subsec. K4LO.LO|M10Q.10 Other Related Guidelines on Valuation of Attowable lnvestments a. In marking to market debt securities, the provisions of Appendix 33a/Appendix Q-20a shall apply." xxx" . Section 3. Appendix 33a and Appendix e-20a on the establishment of the market benchmarks/reference prices and computational methodology used to mark-to-market.debt and marketable equity securities are hereby amended as shown in Annex A. Appendix T-1 A. Mabinist., Malate 1004 Manila, Philippines . (632]7oB-7701 . www.bsp.gov.ph . [email protected]

on the "List of Appendices of MORB/Q Regulations Applicable to Trust Corporations" which referied to Appendix Q-20a is hereby amended to reflect the new title of Appendix Q-20a. Section 4. This Circular shall take effect fifteen (15) calendar days after its publication either in the Official Gazette or in a newspaper of general circulation. FOR THE MONETARY BOARD: I Uh.hldil. lMonc'AnM* tl - MARIA AIIilASARA CYD N. TUANO.AMADOR Officer-ln-Charge l5 ruouember 2018

APP. 33al Q-20a MARKING TO MARKET GUIDELINES FOR INVESTMENTS IN DEBT AND EQUITY SECURITIES . [Appendixto subsection x191.4/ x410.10/4388Q.5/tM10Q.70/SeAion 4391N] Bases/References Bangko Sentral Supervised Financial Institutions (BSFls) shall have adequate governance structures and control processes to ensure that valuations are prudent and reliable for risk management and financial reporting purposes. These processes shall be consistently applied across the institution and integrated within the overall governance framework and risk management systems. In this respect, BSFIs shall mark-to-market (MTM) debt and equity securities in accordance with the provisions of Philippine Financial Reporting Standards 13 (PFRS L3) on Fair Value Measurement and shall observe the following bases/references: Type of Security Market Price Basis A. Equity Securities Listed in the Stock Exchange 1. Traded in the Philippines Same day closing price as quoted at the Philippine Stock Exchange. In case of halt trading/suspension or holidays, use the latest available closing price. 2. Traded Abroad Latest available closing price from the exchange where the securities are traded. B. Foreign Currency-Denominated Debt Latest available price for the day, Manila Securities Quoted in Major Information time. Systems (e.g., Bloomberg, Reuters) c. Foreign Currency Denominated Debt The latest available closing price Securities Traded in a Local Registered provided by the exchange where the said Exchange or Market security is traded and/or enrolled. D. Peso-Denominated Government The market prices provided by either a Securities third party pricing service or calculating agent: Provided, That the pricing service or the calculation agent and its valuation methodology are recognized by the Securities and Exchange Commission (SEC) - licensed benchmark administrator. E. Peso-Denominated Private Debt The basis for MTM of peso-denominated Securities debt securities traded in an organized market shall be the same as those used in Section C above.

Annex A APP. 33al Q-20a Other Valuation Guidelines In the absence of market price described above, the fair value which is the price that would be received in selling the financial instrument in an orderly transaction in the principal (or most advantageous) market under current market condition, shall be used as basis for the MTM. BSFIs shall ensure that such an observed price or the price estimated using another valuation technique, including inputs to valuation technique, are consistent with the provisions of PFRS 13. Page2 of 2