• The SEC proposal formalizes market making at the regulatory level, building on an earlier Philippine Stock Exchange initiative to improve market liquidity.
• Qualified market makers must have at least P100 million in unimpaired paid-up capital and maintain continuous buy and sell quotations during trading hours.
• Exchanges may offer incentives such as lower fees and liquidity rebates to encourage firms to support trading activity.
The Securities and Exchange Commission is moving to tackle one of the Philippine stock market’s biggest weaknesses: thin trading that leaves many shares difficult to buy or sell without moving prices.
The regulator has released draft rules establishing a formal framework for market makers, firms that would continuously post buy and sell quotations to support liquidity and improve price discovery, a statement on Monday showed.
The move follows a June proposal by the Philippine Stock Exchange to broaden market-making activities, part of a wider effort to address thin trading in the local stock market.
Exchanges will be required to adopt implementing rules subject to SEC approval. The draft rules were released for public comment on June 17 before the framework is finalized.
Tackling thin trading
Under the draft rules, only SEC-licensed exchange trading participants may serve as market makers. Eligible firms must maintain at least P100 million in unimpaired paid-up capital, demonstrate sufficient trading experience and maintain a valid market-making agreement.
Many Philippine-listed stocks trade infrequently, widening bid-ask spreads and limiting investor participation. The SEC said market making can help improve liquidity, support orderly trading and strengthen capital formation.
Rules and incentives
Market makers would be required to maintain continuous two-sided quotations during trading hours and hold sufficient inventory to support trading activity.
The framework also imposes reporting and compliance requirements, while allowing exchanges to offer incentives such as lower transaction fees and liquidity rebates to encourage participation.
—Edited by Miguel R. Camus
