SEC firms up framework for market makers
MANILA, Philippines — The Securities and Exchange Commission (SEC) is proposing a new regulatory framework for market makers in a bid to deepen liquidity and improve price discovery in the Philippine capital market.
The corporate regulator has released for public comment its proposed SEC Rules on Market Making until Aug. 28, which will cover equity and fixed-income securities listed, traded or enrolled on an exchange under its jurisdiction.
READ: SEC drafts market-making rules to boost liquidity
Under the draft rules, only SEC-licensed trading participants may act as market makers.
“Market making refers to the continuous provision of liquidity by the market maker through the simultaneous posting of two-way quotes, executed in compliance with the relevant exchange rules and applicable regulatory requirements, taking into account market structure, the type and characteristics of the security, trading mechanisms, prevailing market conditions, among others,” the SEC said.
Applicants must maintain unimpaired paid-up capital of at least P150 million under a risk-based capitalization framework to be adopted by the SEC. The regulator may prescribe a higher amount.
For equities, market makers will be required to maintain firm two-sided quotes for a prescribed portion of the trading session.
Bid-ask spreads, or the difference between the highest bid and the lowest offer, and minimum quote sizes will be set by the exchange based on factors such as liquidity, public float and trading activity.
Market makers must also maintain or have reasonable access to sufficient inventory, liquidity resources or securities borrowing arrangements to support their operations.
READ: PSE drafts new market-making standards
To encourage participation, exchanges may provide incentives such as lower transaction fees, liquidity rebates, simplified onboarding and access to enhanced trading facilities. These programs will require prior SEC approval.
The proposed framework also contains safeguards against market abuse. INQ
