Vanguard is in direct opposition to this proposal, and does not fund it legitimate to allow sponsors of less actively traded exchange-traded funds to subsidize the markets for their products. Vanguard holds the belief that the proposals benefit market makers a lot more than they do long-term investors. [Vanguard Opposes NYSE Plan to Pay ETF Market Makers]
Theoretically, a movement such as this should allow a more even list of ETF offerings, and create more chance for smaller providers to garner assets as the larger, established players. For example, the NYSEArca has proposed that ETF sponsors pay $10,000 to $40,000 a year to market makers in the form of an “optional incentive fee.” [ETF Growth Creates Need for More Education]
Ari Burnstein for the ICI also pointed out that the Lead Market Maker Issuer Incentive Program would create a conflict of interest between the market makers and the ETF providers. [How to Cut ETF Trading Costs]
The incentive program will essentially help out the smaller ETF players and could benefit day traders, as it would narrow the spreads on various trades. Long term buy-and-hold investors would likely not see a difference, reports Kephart.
Tisha Guerrero contributed to this article.