New exchange traded funds (ETFs) are constantly being thought up, but the more niche ETFs are giving some market makers headaches.

Proliferation of niche ETFs, low trading volume and increase in electronic trading are reducing the appeal of lead market making for some of the more unproven funds, writes Jackie Noblett for Ignites. Without lead market makers, providers are taking on more financial risk of their products, which could eventually translate to fewer ETF products in the future.

Only 27 of more than 1,100 ETFs that trade on the NYSE Arca have launched without a lead market maker.

Lead market makers facilitate the trade of shares on the secondary market by offering both a buy and sell position to help provide the liquidity found in most ETF trades. Additionally, they need to keep minimum averages size and bid-ask spread requirements and ensure prices are within the National Best Bid offer price range. Market makers stay in the game because they are allowed to reap a profit from moving shares. [How to Trade Large Blocks of ETFs Efficiently.]

Now, market makers are becoming pickier on what type of products they want to endorse.

For more information ETFs, visit our ETF 101 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.