Republic of the Philippines DEPARTMENT OF FINANCE Manila

DEPARTMENT ORDER NO. 93-94 September 2, 1994 RULES AND REGULATIONS FOR THE ISSUANCE, PLACEMENT, SALE, SERVICING AND REDEMPTION OF FIXED RATE TREASURY NOTES UNDER R. A. NO. 245, AS AMENDED Pursuant to the provisions of Section 4 of Republic Act No. 245, as amended, and after consultation with the Monetary Board, the following rules and regulations governing the issuance, placement, sale, servicing and redemption of Fixed Rate Treasury Notes (FXTNs) authorized under the said Act are hereby prescribed. I.

GENERAL PROVISIONS

Section 1. Authority for the Issuance and Sale - By virtue Section 1, RA No. 245, as amended, the Secretary of Finance of with the approval of the President of the Philippines, after consulation with the Monetary Board, is authorized to borrow from time on the credit of the Republic of the Philippines to time or sums as in his judgement may be necessary to meet sum such by law or to provide for the authorized public expenditures or refunding of any obligations, either redemption, purchase, direct or guaranteed, of the Philippine Government, and to issue Treasury Notes as defined in the second Rate Fixed therefor paragraph of Section 1 (c) of RA No. 245, as amended. The Fixed Rate Treasury Notes issued under the authority of this Section shall be payable in Philippine currency. Section 2. Issue, Placement, Sale, Servicing and Redemptionactual issue, placement, sale, servicing and redemption of The FXTNs shall be effected by authority of the Secretary of Finance, the Bangko Sentral ng Pilipinas, as Fiscal Agent of the through Government of the Republic of the Philippines, as provided for in Section 117, 118 and 119 of the new Central Bank Act. II. THE NOTES Section 3(a). Description of the Treasury Notes - The Treasare interest-bearing securities with fixed interest Notes ury rate which may be offered through competitive auction. (b) Face of the Notes - Each Fixed Rate Treasury Note shall face the title, denomination, serial number and bear on its The Notes, to be valid and obligatory, among others. indenture must contain the facsimile signature of the Secretary of Finance dated and authenticated by the Registrar of the be and must Sentral ng Pilipinas, or agent duly authorized for the Bangko purpose by the Monetary Board, the Bangko Sentral ng Pilipinas. (c) Term - The Fixed Rate Notes shall have a term of two (2) years to be reckoned from the date of actual issue, unless sooner called for early redemption by the Secretary of Finance pursuant to a "call" duly issued with all the formalities required by law having been complied with.

'S

-2(d) Denominations - The Notes shall be issued in denominations of P10,000; P100,000; P500,000; P1 million and P10 million. Exchange of these Notes from higher to lower and lower to higher denominations for an equal amount of identical issue may be effected at the Government Securities Department, Bangko Sentral ng Pilipinas. However, Fixed Rate Treasury Notes in interim certificate form may be issued in any face amount, provided they shall be in multiples of P10,000. (e) Form - The Notes may be issued in bearer form with option for registration subject to Book Entry System designed for the issue with the same terms and conditions as the Book Entry System for Treasury Bills.

(f) Tax Feature - Interest income derived from investments in FXTNs shall be subject to prevailing final tax at the time of issue to be withheld on interest payment date. Discounts arising from issuance/ trading in the secondary market shall likewise be subject to tax using the following formula: Tax

= Present value of principal and interest at net minus

present value of principal and interest at gross. FV PV = ------- n (1 + i)

+

k

1

1 n -(1 + i) i

= present value of the notes = face value of the notes = yield rate expressed as a decimal per period = number of interest payment periods = coupon interest in pesos per period

Documentary stamp tax on original issue shall be for the account of the issuer. (g) Other Features and Conditions for Issue - The Secretary of Finance, in consultation with the Monetary Board, shall determine the other features and conditions for the issue of this Note not herein prescribed. III. SALE THROUGH COMPETITIVE AUCTION Section 4. Public Notice of Offering - The Secretary of Finance shall, byu pblic notice, offer Fixed Rate Treasury Notes for sale, and invite tenders therefor, through the Bangko Sentral ng Pilipinas. The Notes so offered, and tenders received, shall be subject to the terms and conditions imposed under these rules and regulations, except as they may be modified by the Secretary of Finance, in consultation with the Monetary Board, which shall be made part of the public notice of offering. Such announcement shall indicate the amount of the Notes offered for sale, the date of issue, the maturity date, the date and closing hour of the receipt of tenders at the Government Securities Department, Bangko Sentral, and the date and hour on which payment for the accepted tenders must be made or completed.

- 3 Section 5. Firms Eligible to Participate in the Auction Any investment house licensed by the Securities and Exchange Commission (SEC) and the Bangko Sentral ng Pilipinas under the Investment House Law; any universal bank under the General Banking Act, as amended; any securities dealer/broker licensed by SEC under the Securities Act; any foreign bank authorized in their country of incorporation may participate in the competitive auction for FXTNs. Section 6. Tenders - Submission through the Bangko Sentral ng Pilipinas - Tenders in response to any such public notice shall be received only at the Government Securities Department (GSD), Bangko Sentral ng Pilipinas (BSP), and will be considered only if received on or before the time fixed for closing. Each tender shall be for an amount not less than P10 million and for multiples of P1.0 million thereafter. YTMs shall be expressed in per cent and in multiples of 1/8 of 1%, i.e., 1/8%, 1/4%, 3/8%, 1/2%, etc. Tenders shall be submitted on the printed form prescribed and forwarded duly sealed in a special envelope which shall be supplied upon application to the GSD, BSP. If a special envelope is not available, the inscription "Tenders for Fixed Rate Treasury Note" may be placed on the envelope used. Section 7. Tenders: Deposit Requirement - Tenders made by investment houses, other than those Bangko Sentral-accredited securities dealers and universal banks, must be accompanied by payment of five percent (5%) of the face amount of Fixed Rate Treasury Notes applied for, in cash, bank manager's/cashier's or certified checks, unless the tenders are accompanied by an express guaranty of payment by an incorporated bank having a demand deposit account with the Bangko Sentral ng Pilipinas. Section 8(a) Tenders: Receipt and Processing - Tenders in the form prescribed under Section 6 above shall be submitted to the Office of the Director, Government Securities Department, Bangko Sentral ng Pilipinas, prior to the deadline fixed under Section 4 above for the receipt of tenders. Immediately upon receipt, the tender shall be stamped and time-dated. All tenders received after the closing hour shall be disregarded. All tenders received shall be opened immediately after the deadline set by the Auction Committee which shall be composed of the same members constituting the Auction Committee for Treasury Bills. The tenders shall then be tabulated in array form according to the yield-to-maturity (YTM) bids for the whole block of FXTNs offered, beginning with the lowest down to the highest tender and the proposed award shall be recommended and submitted to the Secretary of Finance for his approval. The Committee shall present the proposed award by means of a Bidding Report with a covering memorandum to the Secretary of Finance with such pertinent information and recommendation as the Committee may deem appropriate. (b) Tenders: Acceptance bv the Secretary of Finance - The Secretary of Finance, in consultation with the Bangko Sentral ng Pilipinas, will determine the acceptability of the Committee recommendation, and will make public announcement of the awards. The winning bidders shall be advised by the Government Securities Department, Bangko Sentral ng Pilipinas on the acceptance of the winning bids, and payment on the accepted

- 4 tenders must be made or completed on the date specified in the public notice at the said Department of the Bangko Sentral. Those whose bids were rejected shall likewise be advised by the said office. Section 9. Tenders: Determination of Winning Bids and Reservation of the Right to Reiect - The lowest YTM bids received during the auction will be accepted in full down to the next lowest YTM bids as may be necessary to cover in full or in part the amount offered as may be decided upon by the Committee during the auction. If the same cut-off YTM appears in two or more tenders, and it is necessary to accept only a part of the amount offered at such a price, the amount accepted at such price shall be pro-rated in accordance with the respective amounts applied for. The Secretary of Finance hereby expressly reserves the right to reject any or all tenders and any action he may take in one such respect shall be final. Section 10. Tenders: Payment of Accepted Tenders - Settlement of accepted tenders must be made or completed at the Government Securities Department, Bangko Sentral ng Pilipinas, in cash, bank manager's/cashier's checks, or charged to the institution's demand deposit account with the Bangko Sentral. IV.

SALE OVER THE COUNTER

Section 11. Authority to Sell Over the Counter - With the approval of the President of the Philippines, the Secretary of Finance may, after consultation with the Monetary Board, authorize the over-the-counter sale of Treasury Notes at fixed interest rate subject to the terms and conditions prescribed by the Secretary of Finance, including the determination of an applicable interest rate at the time of issuance. V. MISCELLANEOUS Section 12. Regular Demand Deposit Acc.ount of the Treasurer of the Philippines - All proceeds from sale of the Notes shall be credited to the Regular Demand Deposit Account of the Treasurer of the Philippines and all expenses incurred in the issuance,. placement, subject servicing and redemption shall be to review/approval by the Treasurer of the Philippines before the same can be charged against said account. Section 13. Loss, Theft, Destruction, Mutilation or Defacement of FXTNs - In case of loss, theft, destruction, mutilation or defacement of the registered Fixed Rate Treasury Notes, the formalities and requirements prescribed under Republic Act No. 1533, as amended and as implemented under CB Circular 28 shall be observed. In the case of loss or complete destruction of the note in bearer form, the grant of the relief shall be governed by CB Circular No. 472, series of 1975. Applications for relief shall be filed with the Government Securities Department of the Bangko Sentral ng Pilipinas.

as to Terms of these Rules and Reservation Section 14:. Regulations The Secretary of Finance reserves the right to of the any supplement, revise or withdraw all or amend, of these rules and regulations at any time, or from provisions time to time. Section 15. Central Bank Circular No. 26 - The provisions of Central Bank Circular No. 28, as revised and amended, not inconsistent with this Department Order shall have suppletory application to matters not specifically covered by these rules.

Section 16. Effectivity of this Regulation - These rules and regulations shall take effect 15 days after publication in the Official Gazzette or in two newspapers f/nat,4 onal circulation.

ROBERTO F. DE OCdMPO Secretary of Fin nce

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