Consequently, the incentives programs bring market makers to provide liquidity and improve buy and offer quotes, potentially assuaging institutional and retail investors with liquidity concerns. The program should tighten the bid-ask spreads on trades and provide quotes for large block orders.
“The payment of a fee is intended to help generate more quotes and trading than might otherwise exist absent this payment,” according to iShares.
Moreover, observers also believe that by participating in an incentives program, market makers could provide additional seed capital, which could also support newer funds.
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Max Chen contributed to this article.