Authorized Participants or market makers typically help facilitate efficient ETF pricing by buying and distributing ETF shares into the secondary markets. These market makers also capitalize on arbitrage opportunities to help keep an ETF’s price in line with its underlying net asset value. Firms that support new funds are required to offer to buy or sell shares at competitive prices in return for a trading rebate.
Market makers will earn rebates of 36 cents to 47 cents per 100 shares traded, depending on the volume – current rebates stand at 40 cents to 46 cents and are not linked to trading volume. Additionally, firms may receive rebates of up to 70 cents per 100 shares on new ETPs. The new incentives should help market makers step in to help produce tighter trades in the secondary market for ETF investors.
SEE MORE: Is the NYSE Losing Its Luster for ETFs?
Nasdaq is one of three exchanges that lists ETFs, along with Intercontinental Exchange Inc (NYSE: ICE) and Bats Global Markets (BATS: BATS).
For more information on the ETF industry, visit our current affairs category.