The London Stock Exchange (LSE) has cut execution fees by 50% and lowered the thresholds for volume discounts for registered market makers in exchange-traded funds (ETFs) and other exchange-traded products (ETPs) in a bid to grow trade volumes and enhance liquidity.

The London Stock Exchange has slashed fees for ETF market makers in a bid to boost trade volumes and liquidity.

ETF market makers play an important role in ensuring there is sufficient liquidity on the secondary market by providing continuous bid and offer prices, acting as both the purchaser or seller of the ETF units, and, when necessary, applying for additional ETF units to meet investor demand.

Issuers generally appoint a number of market makers for their ETFs to ensure investors can enter and exit their investment at a fair price throughout the trading day.

There are 26 such registered market makers active in the London ETP market, including firms such as Flow Traders, Knight, Getco, SIG Susquehanna, UniCredit and Peel Hunt.

Gillian Walmsley, Head of fixed income products at the LSE, said: “As our market has grown to become the largest in Europe, and more specialist ETF market participants have joined, we have made the strategic decision to separate fees for ETFs from our equity markets, reflecting the fact that our ETF market has now developed into a market in its own right.”

She added: “By lowering the volume thresholds for discounts and reducing the fees for registered market makers, our aim is to further grow trading volumes and support liquidity on our market, and to continue to attract issuers and investors from around the world to London.”

Kris Walesby, Head of Capital Markets at ETF Securities, a leading provider of commodity ETPs, welcomed the move, suggesting that end investors would ultimately be the key beneficiaries.

He said: “The initiative by the LSE to cut fees for ETP market makers is an excellent one. The hurdle rate, in terms of costs that the ETP market making community need to make to make their business viable, is high and this is exacerbated at the moment by the low volume environment. The LSE has recognised this and the vital importance that this segment of the market is to the continuing success of this product type, and has moved to support their business models by lowering their fees. Ultimately, the LSE understands that the end investors will be the beneficiaries of such a move in the form of more competitive pricing for the products.”

The LSE’s share of on-exchange ETF trading in Europe was 27.5% in March 2013, the largest in Europe, according to Deutsche Bank. Total on-exchange value traded for ETFs/ETPs during the month was £13.9 billion, up by 15% compared to March last year. Total turnover for the first quarter of 2013 was £43.6 billion, up 24% compared to the same period in 2012.