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Written by Journal of Indexes Staff
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August 01, 2007 12:00 AM |
NYSE’s ETFs Move To Arca
As ETF trading flows increasingly move off of the NYSE physical trading floor and onto the NYSE’s electronic Arca platform, the Big Board is taking the big step of transferring all ETF listings to its Arca unit. ETFs listed on NYSE Arca will have an assigned lead market maker who is required (and incentivized by the exchange) to maintain a healthy market in each security, which generally means maintaining a continuous, two-sided quote for each security.
For retail investors, the change will not have a large impact, although brokers will feel it more. The Arca exchange has a different trading structure and price-time priority than the mainline NYSE, and trades on Arca-listed securities are “Tape B” trades, which come with slightly different fee structures and revenue-sharing agreements.
There will likely be some fallout for floor brokers, who will see the primary listings on some of the fastest-growing products leap to the Arca platform.
The New Nasdaq ETF Market
As the number of ETFs soars, some funds are finding it hard to attract specialist firms to provide seed capital and support liquidity in the early days of trading. Looking to capitalize on this growing need, and more importantly, looking to compete with the AMEX and NYSE (both of which have similar systems already in place), the Nasdaq unveiled a new ETF market designed to provide a sort of incubator for new ETFs. ETF sponsors will be allowed to choose one or more designated liquidity providers, or DLPs, that the Nasdaq will provide with incentives to maintain certain spread limits and liquidity levels in the initial stage of an ETF’s listing. The DLPs will receive no extra information or abilities, simply economic incentives in exchange for taking on added responsibilities—and passing trades through the Nasdaq platform.
This combination of fast, electronic trading and a compensated pseudo-specialist is emerging as the new “best practice” in the ETF listing business.
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