The Nasdaq Stock Market, Inc. announced it will introduce a market segment designed specifically for exchange traded funds and index linked notes, to be known as the Nasdaq ETF Market.
The centerpiece of The Nasdaq ETF Market is the Designated Liquidity Provider, a Market Maker who has been selected to maintain liquidity in qualified ETFs. Nasdaq will require Designated Liquidity Providers to maintain a higher standard of market quality measured by spread, depth, and time quoting at or near the National Best Bid and Offer. They will receive price incentives to support ETFs during their period of initial listing, when ETFs need to develop more active trading. Designated Liquidity Providers will be selected through a consultative process between ETF sponsors, market-making firms and Nasdaq.
“The Nasdaq ETF Market will complement Nasdaq’s existing strengths by assisting ETF sponsors during the incubation phase of new ETFs, providing the liquidity and visibility for these ETFs to grow into mature, accepted products,” said Nasdaq senior vice president William O’Brien. “The market reflects the historical relationships between ETF issuers, brokers and exchanges and raises it to a new level of efficiency. ETF investors will ultimately reap the benefits of this initiative through greater choice and more robust competition.”
“We’re excited that Nasdaq is creating this new trading platform,” stated Greg Friedman, managing director, Head of iShares Product Management and Strategy for Barclays Global Investors. “It’s an important next step in the growth of the ETF market and shows Nasdaq’s commitment to ETFs and the investors who utilize them. We believe investors will benefit from the support of dedicated market makers that actively provide liquidity through the Nasdaq Market Center.”
The Nasdaq ETF Market will allow the traditional floor-based specialist, who has historically provided initial liquidity to new ETFs, to play a similar role by placing two-side quotes in the Nasdaq Market Center. This enables ETF sponsors to continue to have the ability to develop “preferred” relationships with intermediaries. ETF issuers may choose a single Designated Liquidity Provider or multiple, competing liquidity providers. This flexible structure enables ETF issuers and traders to interact based on the needs of the issuer as they vary throughout the life cycle of the ETF.
On June 19, Nasdaq submitted proposed rules to the Securities and Exchange Commission pertaining to Designated Liquidity Providers and Qualified Securities. They were effective immediately upon filing.
The Nasdaq ETF Market will be implemented in the third quarter of 2007.
Nasdaq introduces the Nasdaq ETF Market
New market segment aims to maintain liquidity in ETFs
- By: James Langton
- July 3, 2007 July 3, 2007
- 09:40