The rules were approved by the commission in banc headed by SEC Chairperson Fe Barin

Under the timeline for the implementation of the rules, stock brokers and dealers are required to form a self-regulatory organization one year from the effectivity of the rules.

SEC Market Regulation director Jose Aquino said the rules will regulate the operation and use of an OTC market by brokers, dealers, and salesmen who trade securities in the secondary market.

He said a person who wishes to trade over the counter should first register with the SEC as a broker, dealer or salesman for the OTC market.

Aquino added that brokers and dealers whose current registration allows them to trade only in an exchange or alternative trading system must amend their registration to specifically reflect their intention to trade securities in an OTC market.

The amendment must be made within 45 days from the effectivity of the OTC rules.

Among securities eligible to be traded in an OTC market are registered securities, exempt securities, securities of public companies and those securities declared by the SEC qualified for trading in an OTC.

Aquino said banks, investment houses, insurance companies, pension funds, investment companies or mutual funds may be qualified to buy or sell securities in an OTC market.

He said retail investors can also participate in the OTC market by getting the service of a broker, investment house or bank.

However, dealers will be allowed to deal with nonqualified investors directly for the first year. After the first year, dealers can only deal with non-qualified investors only through stock brokers.

The trading in an OTC market will be done through the quotation system which may be electronic, automated or manual and is made available and accessible to any prospective counterparty.

The mode of disseminating the quotes could be through fax machine, telephone, e-mail or via posting in a webpage.

Aquino said brokers and dealers are also required to report done transactions to a central trade reporting system within 15 minutes from execution of the trade. To be reported are the price, volume, date and time of execution of the transaction.

"This is expected to provide transparency in the secondary trading of corporate bonds and government securities an afford ordinary investors the ability to compare the price quoted by their dealers against prices of recently done transactions," Aquino said.

Aquino said the system will also serve as additional safeguard against price manipulation and will enhance market surveillance capability.

The rules authorizes the SEC to designate an exchangr to act as central trade reporting system if no such system is in place after six months from the effectivity of the OTC rules.(JAL)