THE Bangko Sentral ng Pilipinas (BSP) has reminded banks to ensure that non-deliverable foreign exchange (FX) derivatives transactions are used solely for legitimate economic purposes, reinforcing restrictions against speculative positions that could increase peso volatility.
In Memorandum 2026-022, the central bank directed all authorized agent banks (AABs) to strictly comply with regulations governing non-deliverable FX derivatives transactions conducted for their own account.
The BSP said the reminder was issued following reforms introduced under Circular 1212 in April 2025, which broadened access to foreign exchange hedging instruments and enhanced banks' ability to service customer requirements and undertake FX derivatives transactions.
Under the rules, banks authorized to engage in non-deliverable FX derivatives are required to ensure that such instruments are used only for legitimate economic activities.
“The BSP made it clear that NDFs (non-deliverable forward transactions) should have underlying legitimate economic activities supported by proper documentation,” BSP Governor Eli Remolona Jr. said in the memorandum.
Transactions involving the sale of foreign currency against the local currency by banks to nonresident financial institutions must have underlying economic purposes, such as hedging their own investments.
The central bank specifically warned against transactions not supported by identifiable exposures and adequate documentation.
Non-deliverable FX derivatives involving the sale of foreign currency against the peso that are undertaken for speculative positioning, directional peso exposure or arbitrage-driven activities are not allowed, it added.
The guidance covers both new contracts and renewals of existing non-deliverable FX derivatives involving the sale of foreign currency against the peso.
Market participants generally use non-deliverable forwards and other non-deliverable derivatives to manage foreign exchange risks in currencies that are subject to regulatory restrictions or where physical delivery may be difficult.
Unlike traditional foreign exchange contracts, non-deliverable derivatives are settled in cash based on the difference between the agreed exchange rate and the prevailing market rate at maturity, without requiring the actual exchange of currencies.
“AABs are expected to maintain adequate internal controls, governance processes, and audit trails, including the necessary supporting documents, to ensure compliance,” Remolona said. NIÑA MYKA PAULINE ARCEO
