When an IH/FC sells an outstanding reverse REPO agreement with the BSP to a client, the securities under REPO support two loan transactions - the IH/FC's claim on the BSP under the original REPO and the client's claim on the IH/FC under the new REPO.  The IH/FC's claim on the BSP arising from the reverse REPO should not be offset against its loan payable to clients in the subsequent sale of the REPO because the counter-parties to the two transactions are different.  Thus, the IH/FC's reverse REPO transaction with the BSP shall remain to be recorded as "Government Securities Purchased under Reverse Repurchase Agreements with BSP" under "Trading Account Securities - Loans".  The IH/FC's payable to clients arising from the subsequent sale of the reverse REPO shall be recorded as "Reverse Repurchase Agreements with BSP Sold to Clients" under "Bills Payable - Others".  The subsequent sale of the reverse REPO agreements is not subject to reserve requirements.  The pro-forma accounting entries are in Annex "A"^[1]

Accordingly, the Manual of Accounts for Investment Houses and Financing Companies with quasi-banking functions is hereby amended as shown in Annex "B"^[2]   Annex "C"^[3] is the revised Schedule 5 ("Schedule of Bills Payable and Bonds Payable") of the Statement of Condition (BSP 7-26-02).

This Circular Letter shall take effect immediately.

(SGD.) NESTOR A. ESPENILLA, JR.
Sector-in-Charge