The Philippine stock market has long suffered from a structural problem that frustrates both retail investors and institutional money managers: thin liquidity. Unlike the Thailand, Malaysia, or Singapore exchanges, the PSE has never had a robust ecosystem of market makers — firms that stand ready to buy and sell shares at quoted prices, ensuring that orders get filled quickly and spreads stay tight. This absence has contributed to a cycle where low participation discourages listings, and a lack of listings further discourages participation. The SEC's push to formalize market making is an attempt to break that cycle.
For business owners, the relevance is straightforward. A more liquid stock market means lower cost of capital. When investors know they can exit a position without moving the price dramatically, they are willing to pay more for equity. That translates into better valuations for companies that go public or issue secondary offerings. For the PSE i, the junior board that has struggled to retain listings since its launch, market making could be the difference between a functioning venue and a ghost town.
The challenge is execution. Market making requires firms willing to commit capital and absorb inventory risk on smaller, less liquid names. In developed markets, exchanges offer rebates and fee waivers to incentivize this. Without a clear commercial case, even well-intentioned regulatory frameworks produce little activity on the ground. The SEC will need to work closely with the PSE and the Philippine Dealing & Exchange Corp. to design incentives that actually move the needle, not just tick boxes on a reform checklist.
There is also a question of timing. With the Bangko Sentral ng Pilipinas signaling a more accommodative rate environment, equities become relatively more attractive. A market that can absorb new inflows efficiently will capture more of that tailwind. Conversely, if spreads remain wide and order books stay thin, domestic capital will continue flowing into fixed income or foreign markets instead.
What to watch: which firms step forward as designated market makers, whether the incentive structure changes the economics of quoting small-cap stocks, and whether trading volumes on the PSE i show measurable improvement within the first year of implementation.