SEC draft lets exchanges reward market makers

THE Securities and Exchange Commission (SEC) has released draft rules that would allow exchanges to offer incentives to market makers, including reduced transaction fees, liquidity rebates, and access to enhanced trading facilities, as part of a proposed framework for listed securities.

The draft circular, released on June 17, is open for public comment until July 7. It outlines eligibility requirements for market makers, as well as disclosure, recordkeeping, reporting, investor protection, and market integrity provisions.

Market makers are firms that continuously post buy and sell quotations for securities, providing liquidity and helping facilitate trading in the market.

“The SEC, in coordination with the Exchanges, is establishing a regulatory framework for Market Making in listed securities as part of its ongoing efforts to revitalize capital market activity and align local market practices with international standards,” the regulator said in a statement on Monday.

Under the proposed rules, only exchange trading participants licensed by the SEC may act as market makers. Eligible firms must have at least P100 million in unimpaired paid-up capital, a track record of trading experience, and a valid market-making agreement with an issuer, an exchange, or another authorized party.

Market makers would be required to maintain continuous buy and sell quotations during trading hours based on parameters set by the exchange. They would also need to maintain sufficient inventory to support liquidity in the securities they cover.

The draft rules provide that quotations must be firm and executable, except during system failures, market-wide disruptions, force majeure events, or other exceptional circumstances.

The proposal also outlines reporting and compliance requirements. Market makers would be required to submit trading and quotation reports, compliance certifications, and notifications of material breaches to the exchange.

Exchanges, meanwhile, would be required to regularly submit market-maker performance and compliance reports to the SEC.

The draft rules would also require exchanges to adopt implementing rules and guidelines governing market-making activities, subject to SEC approval. — Alexandria Grace C. Magno