“Based on Global Industry Standards”
The Philippine Stock Exchange has been explicit about the provenance of its market-making framework. PSE President and CEO Ramon S. Monzon stated that the rules were updated “based on global industry standards,” and the SEC’s parallel circular similarly describes market making as a “globally adopted mechanism” that enhances liquidity, facilitates price discovery, and promotes orderly trading.
The benchmarking is deliberate. The PSE is a member of the World Federation of Exchanges, and the framework’s personnel-experience provision explicitly recognizes trading experience on WFE-member exchanges as a qualification pathway. The message to international investors is that the Philippine market is adopting a microstructure vocabulary they recognize: accredited designated market makers, continuous two-sided quotations, maximum spreads, minimum quote sizes, and time-presence requirements.
Where Global Templates Meet Local Constraints
The difficulty is that market-making standards are not plug-and-play modules. The same obligations that improve liquidity in a deep, diversified market can produce fragile participation in a concentrated one. The Philippine market’s ownership structure—where free float is often limited and turnover is concentrated in a small set of large-capitalization names—changes the inventory-risk calculus for any market maker quoting second-tier securities.
The PSE’s framework acknowledges this implicitly by phasing in coverage: ETFs first, then Global Philippine Depository Receipts, with individual stocks and other exchange-traded products deferred to future product-specific rules. That phased approach is a recognition that the operational parameters—spread limits, quote sizes, presence times—must be calibrated to the liquidity characteristics of each instrument class rather than imported wholesale.
The Price-Discovery Channel
The SEC’s circular frames the expected benefit in terms of reduced frictions in secondary-market trading, more efficient price discovery, and a more competitive trading environment for domestic and international investors. Those outcomes depend on a specific transmission mechanism: continuous two-way quotes compress the spread and give buyers and sellers a reliable reference price, which in turn encourages participation from investors who would otherwise avoid illiquid names.
For the mechanism to work, the quoted prices must be firm and executable. The SEC circular requires exactly that for equities, with limited exceptions for system failures and market-wide disruptions. But firm quotes in a concentrated market expose the market maker to the risk of trading against better-informed counterparties, particularly around corporate events. The global playbook typically addresses this through inventory management tools, hedging instruments, and a diversified base of quoted securities. The Philippine market’s depth in those supporting instruments is itself still developing.
What “Global Standards” Actually Tests
The Philippine experiment is not simply a test of whether the PSE can write rules that resemble those of developed exchanges. It is a test of whether a market with structural depth constraints can absorb those rules without the liquidity-provision function becoming an unsustainable cost center for a small number of accredited brokers.
The framework’s incentive structure—fee concessions, liquidity rebates, connectivity support—is the mechanism for managing that tension. Whether the incentives are large enough to offset the inventory risk of quoting in a market where hedging is limited will determine whether the global playbook produces local liquidity or simply local compliance. The answer will emerge not from the rule text but from the quotation screens.
