In an attempt to boost liquidity and pricing efficiency, the Nasdaq Stock Market proposes that exchange traded fund sponsors can pay market makers to generate greater volumes in funds with low trading activity.
The Nasdaq wants fund providers to pay market makers – broker-dealer firms that holds and facilitates the sale of shares for a particular security – $200 per day to actively quote and issue transactions on ETFs that trade with less than 2 million shares daily, reports Nina Mehta for Bloomberg. [Nasdaq Floats Plan to Boost Trading in Illiquid ETFs]
There are around 1,098 U.S.-listed ETFs, with fewer than 10% trading more than $40 million per day.
“It’s a tough problem they’re trying to solve,” Michael Bleich, chief executive officer of Scout Trading LLC, said in the article. “Investors looking at a new product may want to invest but someone must provide a liquid market. In the ecosystem of trading activity, it may not be profitable for market makers, including ourselves.”
Currently, the proposed practice is illegal, but the exchange wants to begin a one-year trial to study the merits of the program.