One of the exchanges is transforming the way it attracts and supports ETF business. ETF shops and market makers alike should take heed.

Bryan Harkins BATS Global Markets, Inc. Executive Vice President, Head of US Markets

Yesterday Kansas City-based Bats Global Markets switched up its Issuer Incentive Program for exchange-traded products (including ETFs) from directly paying the ETF shops themselves to directly paying the lead market makers who support ETFs' liquidity.

Barron's, Bloomberg, ETF.com (which Bats bought this spring), and ETF Trends all covered Bats' ETF incentives changeup.

Bats launched version 1.0 of the incentive program in October 2015, offering to pay ETF shops up to $400,000 per year, per ETF, for listing the ETF on Bats. The scale was based on consolidated average daily volume, with the top payments reserved for issuers offerings ETFs with Consolidated Average Daily Volume (CADV) of 35 million or more shares.

Now version 2.0 of Bats' incentive program uses the same trading scale, with the same breakpoints and same payment levels; yet now the payments go to the lead market makers who ensure liquidity and low bid-ask spreads for the ETFs.

"In order for market makers to better support trading in ETPs across a varying liquidity spectrum, they should be rewarded with incentives generated from the most liquid of products," states Bryan Harkins, executive vice president and head of U.S. markets at Bats. "That allows them, in turn, to better support newer and less liquid ETPs with higher quality markets as issues look to garner more assets."

Harkin tells Bloomberg that none of the 98 ETFs listed on Bats now currently hit that top, $400,000-per year incentive level, though some trade enough that their lead market makers would qualify for $50,000 a year in incentives. Those 98 ETFs come from 15 ETF shops.

Bats claims to account for 28 percent of all new U.S. ETF listings year-to-date and 23.8 percent of all ETF trading volume last month. Bats landed its first ETF primary listing in January 2012. 

Edited by: Neil Anderson, Managing Editor


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