[Market Rider] SEC’s market maker push and how it can boost PH stock trading

• Gus Levy's approach to market making transformed Goldman Sachs into a primary market maker, emphasizing the importance of liquidity and quick transactions in stock trading.
• The Philippine SEC is implementing a new market making framework aimed at improving liquidity and price discovery, with a minimum capital requirement of P150 million for participants.
• While the plan is generally welcomed, industry experts express concerns about profitability, regulatory complexities, and the adequacy of the proposed capital requirements for market makers.

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A quote from the legendary Gus Levy of Goldman Sachs perfectly captures what could be the operational and psychological framework of a market maker.

During his time as senior partner, Levy revolutionized Wall Street trading by turning Goldman Sachs into a primary market maker, for in the ’60s and earlier when an institutional investor wanted to sell a massive block of stock when normal daily volume was comparatively too small, the stock price would tank. Levy turned Goldman Sachs into a primary market maker that would use its own cash to buy those massive blocks instantly, taking the risk into its own balance sheet.

As the story goes, a junior trader at Goldman Sachs bought a massive block of stock from a client. Feeling sure he’ll make a profit, he decided to hold on to the position. Gus Levy noticed the giant unhedged position sitting on the books. He looked down at the young trader and said a line that would become the absolute mantra for market makers in the industry: “Young man, you misunderstand our job. We are in the moving business, not the storage business!”

Among those very happy to welcome this daring undertaking into the realm of market making in the Philippine capital market, spearheaded by no less than the chairman of the Securities and Exchange Commission (SEC) Francis Ed. Lim, are three of the country’s highly respected financial and stock market personalities. They are: Presidential Legislative Liaison Office (PLLO) Secretary Jose Ma. Clemente “Joey” Salceda, Edward “Edward” K. Lee, and Paulino “Paul” S. Soo.

Salceda has an extensive background in the Philippine financial and stock markets as a top-tier equity analyst and research director prior to entering politics. Lee is the founder and chairman of the country’s largest online stock brokerage firm, COL Financial, while Soo is the chairman and CEO of First Abacus Financial Holdings Corp. and also serves as chairman and president of Abacus Securities Corporation along with its online trading platform, MyTrade PH. 

“We have many  fundamentally sound Philippine companies trading at attractive valuations. What we lack is liquidity. Now is the time to unlock their value,” Salceda said.

Likewise, Lee is confident that our capital market is vibrant enough for the plan of the SEC to succeed considering developments in the country’s structural architecture on ease of doing business and liberal regulation that is now generally attractive for risk takers.  

Truly a longtime proponent for the development of the stock market, he gave these passionate words: “It’s been 30 years. Francis is our only hope.”

A bit more cautious but certainly in about the plan, Soo suggested a careful consideration. He said, “I would be interested to see how the pros and cons are.” He also wondered if there are enough people knowledgeable on how the plan will work.  

A seasoned participant of the market, Soo admitted that he has only basic knowledge, not to mention the fact that that has been ages ago, with this deeply truthful message, “I spent one month in New York in the T-Bills market; too long ago.”

Core rules and regulations

The official source for the rules on market making is SEC Memorandum Circular No. 28, Series of 2026, issued on October 15, 2026.  

Its stated main purpose is “to establish a formal regulatory framework for market making to improve secondary market liquidity, enhance price discovery, and support capital formation.”

For trading participants applying to act as market makers, capital requirement is set to as low as P150 million minimum unimpaired paid-up capital.

Applicants must also show adequate operational capacity, a satisfactory track record, and designate at least one specialist with a minimum of three years of relevant experience in securities trading or market making. 

Financial instruments covered in the rule applies only to equity and fixed-income securities either listed, traded, or enrolled on an exchange under the jurisdiction of the SEC. It does not cover government securities governed by the Bureau of the Treasury’s Primary Dealer framework unless extended.

Incentives are to be extended to participating firms which includes “reduced transaction fees, liquidity rebates, and access to enhanced trading facilities.” 

Market makers are to provide continuous quoting services for buy and sell prices of select securities, the submission of quarterly performance reports, and compliance with the provisions for incentive and/or rebate. 

Existing market makers have six months to comply and the Philippine Stock Exchange (PSE) must submit implementation guidelines within 30 days. 

Feedback and evaluations 

Also glad about the new development but has some questions about the plan is the president and chief trader of Eagle Equities Inc., Joseph “Joey” Roxas. His main concern is how the market maker will exactly make a profit considering the various costs involved.  

Roxas is referring to the prescribed rules in the market maker’s quoting obligations, spread thresholds, minimum quote sizes, and other related matters in the trading of the related securities.

Supposedly, the entire business model of market making is to keep assets moving like buying at the “bid side,” and immediately selling at the “ask side,” and capturing the tiny difference — the spread — as many times a day as possible. To Roxas, this is not always possible all the time. 

For this, “incentives will be a big factor,” Roxas said. In this regard, he would like to know “if it is the stock exchange that would be partially subsidizing liquidity, through what is mentioned as “liquidity rebates.”  

As far as he could see, the rebate that may come from the stock exchange could be “the PSE fees based on turnover, which he said is only equivalent to just 0.00001 of the cost of total transaction.

“I hope the implementation guidelines are not so complicated as to turn off prospective market makers, just like what happened in the Securities Borrowing and Lending (SBL) policy of the short selling program of the PSE,” Roxas added.

Another market veteran is H.E. Bennett Securities Inc.’s market strategist and chief trader, Joel de la Peña. He finds the P150 million capital requirement may be too small for a market maker. In the market heydays of the past, he said “I know about a group of traders has a budget on hand of P1 billion to day trade.”  

De la Peña also suggested that the SEC and PSE control the “manipulative” acts of listed companies that may derail and imperil the financial health of market makers. As to how, De la Peña says, “For one, just look back at the delisting stories in the market.” 

Not a silver bullet

On the overall, the plan is without a doubt welcome. This is captured by the enthusiastic proffered comment of Andro Leo “Andoy” I. Beltran, vice president of First Metro Securities Brokerage Corporation (FirstMetroSec): “This is a welcome development for the Philippine stock market and one that we at FirstMetroSec can relate to from firsthand experience. This is a positive step toward developing a deeper, more liquid, and more efficient capital market, especially as the PSE introduces new products.” 

“Market making has been allowed in the Philippine stock market since 2013, when the ETF (Exchange-Traded Fund) framework was introduced. Since the launch of the then First Metro Philippine Equity Exchange-Traded Fund (FMETF), now ATR FAMI ETF (AETF), FirstMetroSec has served as its market maker. What is new now is the expansion of market making beyond ETFs to other eligible securities and products, including Global Philippine Depositary Receipts (GPDRs).

“Some securities may not naturally attract enough buyers and sellers, especially when they are newly introduced or their markets are still developing. Market makers can help bridge this gap, and effectively give investors greater assurance that they can enter or exit positions freely.

“Of course, market making is not a silver bullet. But this is one that may help build a Philippine stock market where investors can transact more efficiently, companies can access capital more effectively, and more Filipinos can participate in long-term wealth creation.”

Edward Lee offered the wisdom of the following quote as to calm the fears on the adverse effects the plan may present: “If you try to protect your investors too much from bad companies, from failing investments, and from horrible mistakes, it may not lead you to a vibrant market. You have to allow for mistakes. You have to allow people to deal with the consequences. Do not rush in to bail them out from their overreach.”  

In short, “it’s education, not protection” should be our attitude toward the proposed plan, Lee added. – Rappler.com

A veteran stock market analyst, Den Somera has long years of professional experience in investment banking and stockbroking and founder-convenor of The Monday Circle. You may reach the writer at kapitaltek@gmail.com

This article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise.