Nasdaq, the second-largest U.S. stock exchange, is looking to implement a program that would reward with financial incentives market makers who are willing to “go the extra mile” to keep ETF trading spreads tight and ensuring the funds’ liquidity.
In paperwork filed with U.S. regulators, the exchange is asking for exemptions from FINRA’s rule 5250—also known as NASD’s Rule 2460—that prohibit fund sponsors from paying someone to act as a market maker on its behalf. The rationale of 2460 is that market makers should do their jobs without the influence of an extra paycheck.
Nasdaq’s proposal aims to achieve what Rule 2460 prohibits; namely, allow ETF sponsors to pay market makers for helping their funds, especially smaller and newer ones that often need a helping hand to thrive. Market makers make their money by profiting from spreads between bid and ask prices.