The Philippine Stock Exchange (PSE) is seeking to strengthen liquidity in the local bourse through a new market-making framework that could eventually be applied across a broader range of securities to improve trading efficiency and price discovery.

The regulator said Thursday that a market-making framework would extend liquidity support beyond ETFs to Global Philippine Depository Receipts. 

Likewise, the structure would pave the way for similar programs covering individual stocks and other exchange-traded products.

Market marker

“A market maker has an important role in ensuring continuous liquidity in the stock market. We updated the rules based on global industry standards,” PSE president and chief executive officer Ramon S. Monzon said.

The PSE said market makers help keep trading active by continuously posting buy and sell quotes, improving liquidity, narrowing bid-ask spreads, and making it easier for investors to enter and exit positions.

As such, setting uniform requirements would streamline the rollout of future liquidity programs for various products.

“Having a main framework will make it easier and more efficient for us to craft product-specific market-making rules when needed,” Monzon said.

Sets qualification standards for market markers

The framework sets qualification standards for market makers, including SEC-registered broker-dealers and PSE trading participants. 

Firms must have at least P100 million in unimpaired paid-up capital and at least three years of operating history as a trading participant.

Those that do not meet the operating requirement may still qualify if they have key personnel with extensive securities trading experience.

The proposed rules also spell out the responsibilities of market makers, including maintaining minimum quote sizes, keeping bid-ask spreads within set limits, and providing quotes for a required portion of the trading day.

These requirements are designed to ensure that market makers remain active and consistently provide liquidity to the market.

Active market-making programs

Active market-making programs are generally associated with tighter spreads, better trade execution, and more efficient price discovery. They can be particularly beneficial for securities with lower trading volumes, where liquidity tends to be less consistent.

To encourage participation, the framework introduces incentives for compliant market makers. 

These may include clearing fee discounts, access to price quoting services, and connectivity support.

The PSE currently has market-making rules for ETFs. The new framework creates a foundation for extending market-making programs to GPDRs and potentially other products, including individual stocks, in the future.

Stakeholders may submit comments on the proposed amendments until 23 June, after which the rules will be finalized and submitted to the Securities and Exchange Commission for approval.