Investors and listed companies could benefit from improved liquidity and more efficient price discovery under a proposed regulatory framework for market making, as the Securities and Exchange Commission (SEC) seeks to strengthen capital market activity and align local practices with international standards.
The SEC said Monday it released its draft Rules on Market Making for public comment, which set out eligibility requirements for market makers, as well as their disclosure, recordkeeping, and reporting obligations.
“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.
The SEC said exchanges will need to adopt implementing rules and guidelines to operationalize the framework, subject to regulatory approval. Comments on the draft rules may be submitted to the SEC until 7 July.
Under the proposed rules, only exchange trading participants licensed by the SEC may serve as market makers. Eligible firms must have a minimum unimpaired paid-up capital of P100 million, demonstrate adequate trading experience and a sound regulatory track record, and maintain a valid market-making agreement with an issuer, exchange, or another authorized party.
Market makers will be required to maintain continuous two-sided quotations during trading hours and 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.
The draft rules also establish reporting and oversight requirements, including the submission of trading and quotation reports, compliance certifications, and immediate disclosure of material breaches. Exchanges 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.