The SEC has approved a Nasdaq proposal that would let exchange traded fund managers pay for increased liquidity, paving the way for direct payments to ETF market makers, according to a report from Ignites.com.
“Nasdaq’s Market Quality Program will allow sponsors of ETFs that trade fewer than 1,000,000 shares a day to pay between $50,000 and $100,000 a year to market makers, who must show they are improving the spreads and depth of liquidity in the ETFs,” Ignites reports. “The pilot program will last for one year unless the SEC chooses to extend it.”
Nasdaq and the NYSE Arca have both floated plans designed to boost ETF liquidity with payments to market makers. However, index fund and ETF giant Vanguard Group has voiced opposition such arrangements. [Vanguard Opposes NYSE Plan to Pay ETF Market Makers]
Reports of Nasdaq’s ETF liquidity proposal first surfaced in 2012. [Nasdaq Wants ETF Providers to Pay for Additional Liquidity]
Earlier this year there were reports that NYSE Arca withdrew a program to help ETF sponsors to pay market makers. [NYSE Pulls ETF Liquidity Plan]
Yet last week Barron’s reported NYSE Arca re-filed the plan with regulators.
“While the mechanics of each exchange’s program differs, the common goal is to promote higher-quality markets for smaller and newer ETFs that do not generate the trading volume for market makers to recoup the cost of hedging those trades and holding inventory in the ETF,” Ignites reported Tuesday, adding that Nasdaq’s amended version of its proposal was submitted in January.
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