Bats to redirect ETF incentive payments to market makers

Sep 1st, 2016 | By | Category: ETF and Index News

Electronic stock exchange operator Bats Global Markets has implemented changes to its incentive schemes for market makers who provide liquidity for exchange-traded funds (ETFs) on its US trading platform.

Under the previous Issuer Incentive Program, ETF issuers stood to benefit from listing products on Bats by receiving an annual incentive payment based on the consolidated average daily volume (CADV) of trading occurring on their ETFs. Issuers could earn rebates of up to $400,000 for each fund with a CADV over 1 million shares per day.

Following a consultation with industry participants Bats has decided, as of 1 September 2016, to redirect these rebates to the lead market makers for qualifying products.

Commenting on the changes, Laura Morrison, Senior Vice President and Global Head of Exchange Traded Products at Bats, said: “We are committed to helping our issuers grow the assets under management and liquidity of their listed products, and separately, ensure that liquidity provision is sustainable throughout an ETF’s lifecycle. By further incentivizing market makers, through the most competitive ETF incentive scheme available globally, they will be able to provide deeper and more resilient liquidity to all their assigned products.”

Similar to the initial Issuer Incentive Program, the amount of the rebate available to market makers will depend on a schedule of CADV trading brackets and their corresponding incentive levels. For an ETF to qualify for a higher bracket, it needs to maintain that CADV trading level for three consecutive months. The smallest CADV trading bracket runs from 1-3 million shares, offering a $3,000 incentive; the largest CADV trading bracket includes ETFs trading a daily average of over 35 million shares, offering a compelling $400,000 rebate.

Bryan Harkins, Executive Vice President and Head of US Markets at Bats

Bryan Harkins, Executive Vice President and Head of US Markets at Bats

Speaking on the change, Bryan Harkins, Executive Vice President and Head of US Markets at Bats, said: “Our pioneering, nimble nature allows us to experiment and adjust where necessary to best suit the markets and participants we serve. In this instance, the excellent dialogue we have with ETF industry participants, and in particular, our fast-growing and very diverse family of issuers and market-makers, has led us to make this change to our incentive schemes.

“This game-changing incentive program is built on the premise that, in order for market makers to better support trading in ETFs across a varying liquidity spectrum, they should be rewarded with incentives generated from the most liquid of products. That allows them, in turn, to better support newer and less liquid ETFs with higher quality markets as issuers look to garner more assets.”

As of 1 September 2016, the Bats ETF Marketplace hosts a total of 98 ETFs from 15 issuers.

To further drive business development, Bats is also currently waiving listing fees for all ETF issuers, in both the US and Europe.

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