Bats Global Markets, the third-largest U.S. exchange, has received SEC approval to initiate a new program that could create more efficient trades on exchange traded funds and promote future ETF product launches on its own exchange.

The exchange is seeking to entice market makers with its “competitive liquidity program,” which fosters greater competition among market makers to generate tighter spreads and greater liquidity in ETFs for rebates, reports Jackie Noblet for Ignites. Additionally, the program also creates seed capital for an ETF’s launch.

“As we grow our listings business, we’re creating new and unique ways to make the markets better for today’s issuer and enhance competition in the exchange listings business,” Joe Ratterman, chairman and CEO of Bats, said in the article. “Our competitive liquidity provider program is designed to help improve market quality for issuers and we are excited to bring this innovative program to market.”

The new program should benefit small and new ETFs, which mostly included niche offerings, by providing enough volume to get the funds off the ground.

“A program to better incentivize market makers to create tighter markets, that’s attractive for us,” Noah Hamman, CEO of AdvisorShares, said in the article. “When you’re evaluating the total cost of buying and selling ETFs, you have commissions and you also have bid-ask spreads. Particularly for actively managed ETFs, where we don’t have the trading volume the big index-based ETFs have, something that gets a better price for your shareholders is better for us.”

Last month, iShares launched a handful of international equity ETFs listed on the BATS exchange. [iShares Expands International Equity ETF Line]

For more information on ETF indexing, visit our indexing 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.