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NYSE Implements Market-Maker Incentive Program to Augment ETF Liquidity


The Securities and Exchange Commission gave the green light on the New York Stock Exchange market-maker incentive program to provide greater liquidity and efficiency for trading certain exchange traded funds.

Under this one-year pilot program, fund issuers can opt to pay between $10,000 and $40,000 per exchange traded product annually so that lead market makers, or LMMs, can receive fixed quarterly fixed payments, instead of variable enhanced transaction rates, for hitting monthly LMM quoting obligations, reports Cinthia Murphy for IndexUniverse.

Essentially, the new program replaces the Financial Industry Regulatory Authority’s current Rule 5250 that prohibits fund providers from paying market makers to improve liquidity for ETFs on its behalf. Proponents of the program believe that rewarding market makers will improve market efficiencies.

Currently, Authorized Participants, or market makers, have little incentive to ensure tight bid/ask spreads on smaller U.S.-listed ETFs during times of market volatility.

The program will begin in the second half and applies to ETPs traded on the NYSE. The NYSE can continue, discontinue, modify or permanently install the program as it sees fit.

The Nasdaq is also working on a similar program, which is in the comment phase with the SEC. The Nasdaq plan would allow issuers to put up $50,000 to $100,000 per ETP per yer to LMMs who execute trades on their behalf.

For more information on the ETF industry, visit our current affairs category.

Max Chen contributed to this article.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.