Thursday, April 04, 2013 8:53:24 AM

Nasdaq to launch ETF liquidity incentives

Exchange operator Nasdaq OMX will launch an incentive programme this quarter for exchange-traded funds (ETFs) listed on its US market that will rebate market makers for providing liquidity.

The Market Quality Program (MQP) will be an optional listing programme that lets an ETF issuer pay a basic annual fee to Nasdaq OMX that is rebated quarterly to market makers based on time and size quoted at the national best bid and offer (NBBO), and depth of displayed liquidity.

No precise date has been set, but Nasdaq OMX said the programme will launch in Q2 and markets regulator the Securities and Exchange Commission has already approved the initiative on a trial basis.

Eric Noll, executive vice president of transaction services US and UK, Nasdaq OMX, said the programme would encourage ETF trading through tighter spreads and greater market depth.

"This market quality incentive programme, which is similar to non-US paid for market making programmes around the globe is an important step in the evolution of our US capital market system," Noll said.

"The MQP will enhance liquidity and exposure for exchange traded products, attract investors in the capital markets to simulate growth in these products, generate interest from a broader range of market participants and benefit investors by reducing execution cost and narrowing spreads," he said.

Last year, rival exchange operator BATS Global Markets launched its competitive liquidity provider (CLP) programme, which pits market makers against each other to compete for a daily reward for posting competitive quotes in an ETF or stock. The BATS programme rewards market makers for continuous daily quoted size at the NBBO in the securities for which they register under the programme.