amando m tetangco, jr : efforts to provide an integrated national payments and settlements system remarks by mr amando m tetangco, jr, governor of the central bank of the philippines ( bangko sentral ng pilipinas ), at the signing of the moa on the interconnection of pds settlement highway ( psh ) and bsp philpass, bangko sentral ng pilipinas, manila, 29 august 2007. * * * monetary board members ; mr. vicente castillo, ceo, philippine dealing system holdings corp ; mr. ramon sy, president, bankers association of the philippines ; guests from our partners in the banking sector ; bsp officials ; our friends from the media ; ladies and gentlemen, good afternoon! today ’ s moa signing is another landmark in our joint efforts to provide an integrated national payments and settlements system. as partners in the financial reform agenda, we have all vigorously worked together to have the various pieces of the payments puzzle be put together. in the process, we continue to work towards the establishment of the infrastructure that would allow the secure and timely completion of transactions to reduce systemic risk in the financial markets and thereby enhance the integrity of financial transactions. in the course of the last five years, the bsp ’ s philpass has been interconnected with the check and peso clearing results of the pchc, the delivery vs. payment of government securities transactions of the bureau of the treasury, the atm transactions of the megalink member banks, and the payment vs. payment ( foreign exchange ) transactions of the philippine dealing exchange. to date, all the commercial banks and 50 % of the thrift and savings banks and some non - banks performing quasi - banking operations settle these various transactions in the philpass. with the signing of the memorandum of agreement for the interconnection of the philippine dealing system holdings corporation ’ s settlement highway with philpass, all the payment instructions for transactions that would be done through the pds group could now be transmitted directly to the bsp - philpass and effected in the ddas of the counterparties who are philpass member banks or through the ddas of the philpass member bank in their capacity as settlement banks for non - philpass members. these transactions include foreign currency transactions, interbank and interdealer repo transactions, and interbank fund transfers. it is also worthy to note that this interconnectivity comes at very minimal cost. this is because the infrastructure

offshore market, which is driven by speculative interest, lacks the onshore market ’ s diverse spectrum of market participants and information. this was notably mentioned by the federal reserve bank of new york paper in may 2005, that an estimated 60 to 80 percent of ndf volume is generated by speculative interest. because of this, ndf tends to promote herd behavior which compounds the lack of two - way market liquidity. prices may move rapidly in one direction or another driven purely by fickle sentiment, as well as leveraged positions taken on by the speculators, making them inherently unsuitable to represent an efficient and objective price discovery process for the ringgit. compounding this further, the offshore ndf markets are highly opaque and information on these markets can only be gleaned through the bis ’ triennial survey and other sources such as through mandatory reporting of derivatives and swap data repositories on us financial institutions. actions by bnm / the market with increasing concern over the offshore market negative spill - over impacts, bnm has taken a broad spectrum of actions to reduce the speculative and damaging influence of ndf activities. because of the estimated volume and its opaqueness, the ndf market clearly has the potential to undermine the integrity and financial stability of the onshore market. bnm has the responsibility to ensure orderly functioning of the foreign exchange market and to maintain public confidence in the financial system. we have, over the years, taken proactive actions to slowly root out the speculative elements in the onshore market. from end 2014, we have significantly reduced the availability of short - term central bank papers that were used for short - term investments that support the ndf market and speculation on the ringgit. such actions were taken despite our cognisance that such papers provide an efficient liquidity management instrument to our own market players. but increasingly, over the years, it had become an instrument of choice in facilitating the speculative flows. holding of these papers had been dominated by the nrfi. at one time, as much as 96 percent of our bnm short term papers were held by nrfi. the yields on these papers have consistently trended below the policy rate showing the extent of speculative elements, which would not happen under normal circumstances. consequently, we no longer issue these papers on a regular basis. in 2015, to ensure a more reflective pricing mechanism of the domestic market, a more direct attempt to cut off the pricing linkage between onshore and the offshore market was made. banks were