THE PHILIPPINE Stock Exchange (PSE) has proposed a general market-making framework that might extend coverage beyond exchange-traded funds (ETF) to other exchange-traded products, because it tries to enhance liquidity and standardize rules across the market.
In a circular released on Wednesday, the bourse said the framework would function a unified structure for market-making activities, with product-specific rules to be developed for instruments equivalent to ETFs and Philippine Depositary Receipts.
PSE President and Chief Executive Officer Ramon S. Monzon said the framework would streamline the creation of rules for brand new products while aligning local practices with global standards.
“Having a principal framework will make it easier and more efficient for us to craft product-specific market-making rules when needed,” he said in an announcement.
Market making refers back to the continuous posting of buy-and-sell quotes to make sure liquidity and smoother trading activity.
Under the proposal, applicants should be Securities and Exchange Commission-registered broker-dealers and PSE trading participants.
They need to even have not less than P100 million in unimpaired paid-up capital and not less than three years of continuous operation as a trading participant before applying.
Applicants that don’t meet the three-year requirement should qualify in the event that they employ not less than two key personnel with not less than five years of securities trading experience at a World Federation of Exchanges member exchange.
The draft framework also outlines operational obligations for market makers, including requirements on maximum bid-ask spreads, minimum quote sizes and minimum quoting periods during trading sessions. These requirements are intended to make sure consistent liquidity and tighter price formation.
To encourage participation, the proposal includes incentives for compliant market makers that provide continuous liquidity.
These may include clearing fee discounts, access to price-quoting services and connectivity support, subject to separate industrial arrangements with the exchange.
The PSE said the framework is an element of its efforts to support market development because it expands its range of tradable products and seeks to draw more institutional participation.
Stakeholders may submit comments on the draft until June 23. The exchange said all feedback can be reviewed and regarded in finalizing the amendments before submission to the Securities and Exchange Commission for approval. — Alexandria Grace C. Magno