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Nasdaq announces plans to launch ETF market

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The Nasdaq Stock Market has announced plans to launch the Nasdaq ETF Market, a segment designed specifically for exchange-traded funds and index-linked notes that is designed to strengthen

The Nasdaq Stock Market has announced plans to launch the Nasdaq ETF Market, a segment designed specifically for exchange-traded funds and index-linked notes that is designed to strengthen the position of the electronic market in the US ETF sector. In May, Nasdaq accounted for 54.1 per cent of the US ETF market.

The Nasdaq ETF Market will feature designated liquidity providers, market-makers 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.

The liquidity providers will receive price incentives to support ETFs during their period of initial listing, when they 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 their incubation phase, providing the liquidity and visibility for them to grow into mature, accepted products,’ says 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.’

Greg Friedman, managing director, head of iShares product management and strategy for Barclays Global Investors, says: ‘This new trading platform is an important next step in the growth of the ETF market and shows Nasdaq’s commitment to ETFs and the investors who use 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, a flexible structure that enables ETF issuers and traders to interact based on the needs of the issuer as they vary throughout the life cycle of the fund.

Nasdaq is a leading index calculator, designer and creator of some of the world’s most popular ETFs, including PowerShares QQQ, the most heavily-traded listed equity security in the US and the most active ETF in the world. The fund aims to correspond to the price and yield performance of the Nasdaq 100 Index, which serves as the basis of more than 500 investment products in more than 36 countries.

Last month Nasdaq submitted proposed rules to the Securities and Exchange Commission regarding designated liquidity providers and qualified securities that became effective immediately upon filing. The Nasdaq ETF Market will be launched in the third quarter of this year. The Nasdaq Stock Market is the largest US electronic stock market with approximately 3,200 companies.

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