BSP relaxes UITF stock exposure limits
The Bangko Sentral ng Pilipinas (BSP) is easing its exposure rules for Unit Investment Trust Fund (UITF) invested in stocks, in a move aimed at giving fund managers greater flexibility in tracking market benchmarks and managing portfolios.
UITFs are investment products where clients’ pool funds into a single investment vehicle that is then managed by a financial institution like a bank or insurance company. It is similar to a mutual fund, which is run by a nonbank firm.
Under Circular No. 1234 dated May 20, UITFs invested partially or substantially in publicly listed companies may now allocate up to 20 percent of their portfolio to a single issuer.
In the case of equity index-tracking UITFs, the limit may exceed 20 percent if the benchmark index assigns a higher weighting to a particular company. For example, if a company makes up 25 percent of the benchmark index, the UITF can also increase its exposure to 25 percent in that company.
The revised rules ease the previous cap, which generally barred UITFs from investing more than 15 percent of their assets in a single company.
Still, the central bank imposed safeguards to contain risks.
Risk exposure
Under the new rules, trust entities must monitor a UITF’s total exposure to a company and its related parties, while ensuring they have “adequate tools and controls” to effectively manage overall risk exposure.
Any breach of the exposure limits must be reported immediately to the BSP. The report, signed by the trust officer or an equivalent-ranking official, must state the date and reason for the breach as well as the corrective measures being taken.
Breaches caused solely by mark-to-market movements or extraordinary events—such as unusually large investor redemptions beyond the control of the trust entity—must be corrected within 30 days from the breach, or within 30 days from receipt of the fund’s net asset value report in the case of investor funds.
Once full compliance is achieved, the trust entity must submit a notice to the central bank stating that the breach has been corrected.
