SEC drafts market-making rules to boost liquidity

MANILA, Philippines – The Securities and Exchange Commission (SEC) has drafted rules to establish a formal regulatory framework for market making, part of its broader efforts to deepen the capital market and align local practices with international standards.

The SEC issued the proposed SEC Rules on Market Making for public comment until July 7.

READ: PSE drafts new market-making standards

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The draft rules outline the eligibility requirements for market makers, as well as their disclosure, record-keeping and reporting obligations, while also introducing safeguards for investor protection and market integrity.

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“Market making is a globally adopted mechanism that enhances liquidity, facilitates efficient price discovery and promotes orderly trading, thereby contributing to capital formation and overall capital market development,” the SEC said in a statement.

Under the proposed framework, only trading participants of an exchange that are duly licensed by the SEC may serve as market makers of listed securities.

Eligible firms must maintain at least P100 million in unimpaired paid-up capital, possess adequate trading experience, maintain a sound legal and regulatory track record and have a valid market-making agreement with an issuer, exchange or another authorized party.

READ: BSP eases credit curbs for banks providing bond market liquidity

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Market makers will be required to maintain continuous two-sided quotations during trading hours in accordance with exchange-prescribed parameters.

They must also hold sufficient inventory to support liquidity provision. Quotes must remain firm and executable except during system failures, market-wide disruptions, force majeure events or other exceptional circumstances.

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The draft rules also establish reporting and oversight requirements. Market makers must submit trading and quotation reports, compliance certifications and notifications of material breaches to the exchange.

Exchanges, meanwhile, will be required to regularly report market-maker 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.

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Exchanges will also be required to adopt implementing rules and guidelines, subject to SEC approval, to operationalize the framework. INQ