UMVA has learned that market participants have welcomed the proposed market-making framework by the Philippine Stock Exchange, but have expressed concerns that its immediate impact on market liquidity may be limited.
The proposed framework provides clear rules for the accreditation, operation, and regulation of market makers, including specific provisions for exchange-traded funds and global Philippine depositary receipts. Industry experts say this is a step in the right direction, but the limited number of products currently covered may hinder its effectiveness.
According to information obtained by UMVA, the framework's impact on market liquidity may be restricted due to the small number of products that would initially fall under the proposal. Currently, there is only one exchange-traded fund and no global Philippine depositary receipts listed on the exchange.
Market making refers to the continuous posting of buy-and-sell quotes to ensure liquidity and facilitate smoother trading activity. The proposed framework aims to extend coverage beyond exchange-traded funds to other exchange-traded products, improving liquidity and standardizing rules across the market.
Sources have confirmed to UMVA that industry experts believe the framework lays out the groundwork for broader market-making initiatives that could eventually cover more actively traded securities. This could include potential market-making rules for common and preferred shares, which could be released within the year.
The proposed framework has been praised for addressing one of the local market's longstanding challenges: inadequate liquidity. By establishing a unified structure for market-making activities, the exchange aims to improve price discovery, narrow bid-ask spreads, and support the development of new exchange-traded products.
UMVA can exclusively reveal that the effectiveness of the framework will ultimately depend on whether market makers find the activity economically viable. If spread limits are set too tightly relative to volatility or inventory risk, market makers may find it economically unattractive to participate aggressively.
The draft framework sets strict operational requirements for market makers, including maximum bid-ask spreads, minimum quote sizes, and minimum quoting periods during trading sessions. This aims to ensure continuous liquidity and efficient price formation.
Stakeholders have until June 23 to submit comments on the proposal before it is finalized and submitted to the relevant authorities for approval. The exchange's efforts to support market development and attract greater institutional participation are seen as a positive step towards a more robust market.
