Almost a Third of All ETFs Trade Less Than 5,000 Shares per Day

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August 10, 2016 2:19pm NASDAQ:NDAQ

nasdaq-ndaq-logoNasdaq Inc (NASDAQ:NDAQ) will soon implement changes it hopes will address liquidity problems with a large swath of exchange traded funds. Their solution? Pay the market makers to move shares around.

As Reuters notes:

Some 264 ETPs have launched over the last year in the United States, up from 241 in the prior year period, according to Morningstar Inc MORN.O. But the number of such funds trading fewer than 5,000 shares a day, on average, has grown nearly 10 percentage points to 31 percent in two years, according to XTF, a London Stock Exchange Group LSE.L unit that excluded exotic “leveraged” ETFs from its analysis.

That’s not good, because super low volume ETFs have trouble gathering assets and wind up with large bid/ask spreads. That’s where the market makers come in.

Nasdaq will provide higher rebates to market makers that support lower-volume funds and lower rebates in higher-volume ones:

Under Nasdaq’s changes, which take effect on Sept. 1, market makers will earn rebates of 36 cents to 47 cents per 100 shares traded, depending on the volume of the ETP. Current rebates of 40 cents to 46 cents are not tied to trading volume.

Firms may also receive rebates of up to 70 cents per 100 shares on new ETPs.

With so many new issues continuing to hit the markets, creative solutions like these will be necessary to help keep many new or struggling funds afloat. While not the most elegant mechanism of doing so, it’s a sign of the times where NASDAQ competes with NYSE and BATS for listings from issuers. Perks like these may help NDAQ land several new issues over time, as issuers seek an exchange that can offer advantages that others can’t.

Nasdaq shares were mostly flat at $70.21 in Wednesday afternoon trading. The stock has gained over 20% this year, nearly tripling the return of the S&P 500 in the same period.


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