ETF Watch: Bats Changing Its Incentives

Exchange shifts incentives focus from issuers to market makers.

Bats Global Markets has been known for offering incentives to ETF issuers to list their funds with the exchange and has clearly made ETFs a key area of its focus. Issuers can list their ETFs for free on the exchange, and up until now, have been paid annual incentives based on the consolidated average daily volume (CADV) associated with their ETFs.

The incentives go up to $400,000 for funds that achieve a CADV of 1 million shares or more per day. However, after consultation with and support from issuers, Bats will instead be paying those incentives to the lead market makers, effective Sept. 1. The incentive scheme will be called the Lead Market Maker Partnership Program.

“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 ETP 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,” said Bats Executive Vice President and Head of U.S. Markets Bryan Harkins.

Bats Global Markets is the parent company of ETF.com.

The rates for the new program will range from an annual payment of $3,000 for a CADV range of 1 million to 3 million shares and up to $400,000 for 35 million shares or more. The point of the shift in policy is to motivate market makers to make deeper markets for funds of all sizes, and in fact, the incentives for the larger-volume funds provide capital for market makers that they can then use to build liquidity in lower-volume ETFs.

“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 ETP’s life cycle. By further incentivizing market makers, through the most competitive ETP incentive scheme available globally, they will be able to provide deeper and more resilient liquidity to all their assigned products,” noted Laura Morrison, Bats’ senior vice president and global head of exchange-traded products.

Bats was the largest venue for ETF trading in July, executing nearly a quarter of the total volume. Of the new ETF listings so far in 2016, 28% have listed on the Bats ETF Marketplace. In all, 15 issuers have listed nearly 100 ETFs on the Bats exchange.

Contact Heather Bell at [email protected].