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Nasdaq launches ETF market

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The Nasdaq Stock Market has launched the Nasdaq ETF market for exchange-traded funds and index-linked notes.

The Nasdaq Stock Market has launched the Nasdaq ETF market for exchange-traded funds and index-linked notes. The electronic market says the initiative further strengthens its position in the US ETF sector, of which it captured 52.1 per cent of total trading volume in August.

‘The Nasdaq ETF market ushers in a new era of trading efficiency for ETFs, particularly during their critical period of incubation,’ says executive vice-president John Jacobs. ‘By providing exceptional levels of liquidity and visibility, the Nasdaq ETF market helps funds develop into established, liquid products.’

Steven Bloom, a senior Nasdaq vice-president for financial products, says: ‘The Nasdaq ETF market is an important development in the evolution of the ETF family of products. It underscores Nasdaq’s commitment to ETFs and those who invest in them, and complements Nasdaq’s strengths as a trading and listing venue and a leading designer of indices.’

The focus of the Nasdaq ETF Market is the designated liquidity provider, a market maker selected to maintain liquidity in qualified funds. Nasdaq requires 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 receive price incentives to support ETFs during their period of initial listing, when they need to develop more active trading.

Designated liquidity providers are selected by Nasdaq, based on factors including experience with making markets in ETFs and index-linked notes, adequacy of capital, willingness to promote Nasdaq as a market place, issuer preference, operational capacity, support personnel, and history of adherence to Nasdaq rules and securities laws.

The Nasdaq ETF market allows the traditional floor-based specialist, which has historically provided initial liquidity to new funds, to play a similar role by placing two-sided quotes in the Nasdaq market centre.

This enables ETF sponsors to continue to have the ability to develop preferred relationships with intermediaries. Issuers may choose a single designated liquidity provider or multiple competing 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 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. PowerShares QQQ seeks to emulate the price and yield performance of the Nasdaq 100 Index, the basis of more than 500 investment products in 36 countries.

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