THE Securities and Exchange Commission (SEC) has released draft rules that will establish a regulatory framework for market making in a bid to boost trading activity.
In a June 17 notice, the regulator said the proposed rules were part of broader efforts to revitalize capital market activity and align Philippine market practices with international standards.
Market making is a mechanism where designated participants continuously provide buy and sell quotations for securities, helping facilitate trading and improve price discovery.
Under the draft rules, only exchange trading participants licensed by the SEC can act as market makers.
Eligible firms must have at least P100 million in unimpaired paid-up capital, sufficient trading experience and a valid market-making agreement with an issuer, exchange or another authorized party.
The proposed framework will require market makers to maintain continuous two-sided quotations during trading hours and hold sufficient inventory to support liquidity provision.
The quotations must be firm and executable except under extraordinary circumstances such as system outages, market-wide disruptions or force majeure events.
Market making is widely used in global markets to enhance liquidity, support orderly trading and facilitate capital formation, the SEC said.
The draft rules also provide for reporting and compliance requirements, including the submission of trading and quotation reports, compliance certifications and disclosure of material breaches.
Exchanges will likewise be required to monitor market makers and regularly report their performance and compliance to the SEC.
To encourage participation, exchanges may offer incentives such as reduced transaction fees, liquidity rebates and access to enhanced trading facilities.
The regulator said exchanges would be required to issue implementing rules and guidelines, subject to SEC approval, once the framework is adopted.
Public comments on the proposed rules will be accepted by the SEC until July 7.
