Investing
Nasdaq Wants to Add More ETF Market Makers, Offers Liquidity Rebating
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The NASDAQ OMX Group Inc. (NASDAQ: NDAQ) must be having some serious ETF Envy, or maybe the electronic financial exchange just wants to get whatever additional crumbs and pieces of the pie that it can grab. We received a report from the exchange showing that the Market Quality Program will launch at some point this quarter. Today’s effort has been approved by the Securities and Exchange Commission on a pilot basis and it looks like this could actually be good for Joe Public.
The “MQP” is an optional listing program which allows ETFs to contribute funds to the exchange that may be used to pay market makers who improve the liquidity and quality of the markets in MQP products. It is said to be a groundbreaking liquidity and market quality incentive program available only on the Nasdaq Stock Market. Nasdaq said that ETF issuers will pay an annual fee into Nasdaq’s general fund and those funds will then be rebated quarterly to qualified market makers.
Today’s effort is aimed to broaden the pool of ETF liquidity providers and also to encourage competitive trading and to enhance the quality of the ETF markets. Issuers that list new or existing ETFs in the MQP are said to have a broader pool of liquidity providers with an aim to decreased trading costs and the certainty of execution for investors. Market makers are said to get to participate in a quarterly rebate payment.
The real aim by our take is to tighten up the spreads in many of the ETF and ETP products, which is needed in many cases. Should an ETF trade with $0.04 or more between the bid and the ask because trading volume in that issue is thin? No, but the trick is getting someone to stand up as a market makers to narrow that spread without getting stuck in illiquid positions.
This is one of those efforts which may not add significantly to Nasdaq’s earnings. That being said, if it is successful then this could allow for much more liquidity on some of the thinly traded ETFs and ETPs that are in existence.
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