Nasdaq Adds ETP-Friendly Features To PSX

April 30, 2013

Nasdaq lays new groundwork to capture growing ETF-trade volumes.

Nasdaq OMX, the second-largest U.S. stock exchange, plans to add features next month to one of its venues that would smooth the trading of exchange-traded products, especially those that don’t trade in high volumes—the latest sign that ETFs are becoming a bigger part of modern securities markets.

The addition of the new features on May 1, which the exchange described as a relaunch of the “Nasdaq OMX PSX”—one of three exchanges it operates—includes offering “Registered Market Maker” and PSX Supplemental Liquidity Provider (XLP) designations to participants that agree to certain quoting obligations.

“These market making programs will ensure committed liquidity is available by offering superior economics to participants that meet quoting requirements on a per-security basis,” Nasdaq said in the press release. The company said the new programs would foster tighter bid/ask spreads, stable quotes and deeper liquidity in exchange-traded products.

Crucially, the program that is being implemented on the Nasdaq applies to ETPs that don’t necessarily have their primary listings on Nasdaq. As an example, the New York Stock Exchange is home to about 90 percent of primary ETP listings, but only about one-fifth of ETF shares traded on any given day do so on Arca. Nasdaq’s share comes in around 16 percent, and the rest is spread among a plethora of liquidity providers.

Indeed, Nasdaq hopes the new PSX venue, which has about 2 percent of the current U.S. ETP order flow, will experience a jump in volume starting this year. Officials at the exchange declined to project or quantify what that growth might be.

“We’re focused on delivering long-term value to investors by significantly broadening the asset classes we offer to our member firms, and the establishment of a preeminent marketplace for ETPs supports that effort,” Eric Noll, Nasdaq OMX’s executive vice president of Transaction Services, said in the press release.

“PSX is a key piece of our larger strategy to better service the ETP industry with a platform designed to incent high-quality liquidity, market incentive programs and ETP-specific functionality,” he added.

PSX, as noted, is one of three exchanges Nasdaq operates. They are: the Nasdaq Stock Market, sometimes referred to within Nasdaq as the “mother ship;” the Nasdaq OMX BX, formerly the Boston Stock Exchange; and the Nasdaq OMX PSX, formerly the Philadelphia Stock Market.



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