The Nasdaq OMX Group has announced that its Market Quality Program (MQP) will launch in the second quarter of 2013. MQP is an optional listing scheme that allows providers of exchange-traded funds (ETFs) to contribute funds to the exchange that may be used to pay market makers that improve the liquidity and quality of the markets in MQP products.
Nasdaq’s Market Quality Program aims to improve ETF liquidity.
The scheme has been approved by the US Securities & Exchange Commission on a pilot basis, and will initially run for one year.
The scheme has been designed to broaden the pool of ETF liquidity providers, encourage competitive trading and enhance the quality of the markets in ETFs by tightening quote spreads, increasing depth of liquidity and reducing execution costs for investors.
Issuers that list new or existing ETFs in the MQP will benefit from a broader pool of liquidity providers, which offers investors decreased trading costs and certainty of execution. Market makers will benefit from the scheme’s quarterly rebate payments in exchange for a demonstrated commitment to enhance the quality of the markets in registered ETFs.
Eric Noll, Executive Vice President of Transaction Services US and UK at Nasdaq OMX, said: “This market quality incentive program, which is similar to non-US paid for market making programs around the globe, is an important step in the evolution of our US capital markets system. The MQP will enhance liquidity and exposure for exchange-traded products (ETPs), attract investors in the capital markets to stimulate growth in these products, generate interest from a broader range of market participants and benefit investors by reducing execution costs and narrowing bid/ask spreads.”
Through the MQP, an ETF issuer will pay a basic annual fee into Nasdaq OMX’s general fund which will be rebated quarterly to qualified market makers. Market maker performance will be measured by time and size quoted at the National Best Bid and Offer and depth of displayed liquidity.
Dave LaValle, Head of ETP Listings at Nasdaq OMX, said: “We’re thrilled to demonstrate our commitment to the listings community as the first US exchange to launch a competitive payment for market making program for ETPs, and we’re proud to have transformed what was a market structure concept for many years into a reality with the help of the SEC.”
He added: “Our market is primed for additional ETP listings and stronger issuer partnerships in 2013 as we look to leverage our relationships in the market making community to increase ETP liquidity and broaden the pool of ETP liquidity providers. The MQP will accelerate our momentum within the ETP community.”
NYSE Arca, the electronic exchange and listing venue for more than 780 ETFs, has also proposed a market maker incentive scheme with the SEC.