NYSE Arca Unveils Exchange Traded Products Incentive Program

NYSE Arca received approval from the Securities and Exchange Commission to launch its Exchange Traded Product Incentive Program. This 12-month pilot program is intended to encourage lead market-makers to become the primary market maker in certain exchange traded products.

NYSE Arca is the only Exchange in the U.S. to offer this program, according to Arca. It provides greater certainty to ETP issuers that the LMM will receive the economic incentive tailored to their specific ETP. In return, the LMM is required to meet industry-leading quoting obligations and requirements aimed at improving market quality. The program will launch in the second half of 2013.

Under the program, issuers can select five existing ETPs in addition to any new ETP listed for inclusion in the program. The exchange said that issuers will immediately benefit from having oversight of an obligated market maker assigned to their newly listed ETPs, resulting in improved market quality with narrower spreads, increased quote depth and reduced execution costs for investors trading the products.
The program offers LMMs a predetermined payment for the months that they meet their obligations in place of the enhanced rebate structure for trade executions. The increased LMM obligations include a percentage of time at the national best bid and offer requirement, a maximum spread and minimum depth requirement, and a layering requirement which requires the LMM to display size within two percent of the national best bid and offer.