The New York Stock Exchange Arca’s recent proposal to allow incentive payments to market makers to boost exchange traded fund liquidity has heavyweight fund providers at odds. BlackRock and Vanguard are on different sides of the rope when it comes to paying market makers directly, according to a recent report.
“It’s hard to say to the firm that is using its own capital to ‘stick your neck out there,’” said Paul Weisbruch, vice president of Street One Financial LLC.
The Nasdaq Stock Market Inc. and NYSE Arca have filed proposals with the Securities and Exchange Commission to allow ETF sponsors to pitch cash incentives to market makers directly, reports Jason Kephart for Investment News.
In an earlier SEC comment letter on the Nasdaq plan, Vanguard said the program could create a “pay-to-play” environment for ETF providers to launch new ETFs or maintain liquidity.
Evidently, BlackRock supports the notion that if market makers have an incentive, they are more likely to maintain tighter bid/ask spreads and provide more liquidity for ETFs that trade less often than more popular ones. [What is an ETF? – Part 13: True Liquidity]