Cboe boosts its incentives

Darren Sinden

A focus on market quality meant that the Cboe BZX exchange was able to capture 36% of all new ETP launches in the US in 2020

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Cboe Global Markets a US-based exchange operator has announced plans to introduce a new range of market maker incentives for traders in ETPs, listed on its exchanges.

The new incentives are designed to enhance the quality of markets in exchange-traded products and would become effective from the February 1st, subject to regulatory approval.

The new incentive plan will reward lead market makers (LMM) with a choice of incentives that combine either flat fee payments or remuneration based on the number, or volume, of transactions completed in certain designated products.

The variable payments are designed to improve available liquidity and price discovery in newly launched or thinly traded ETPs.

The Cboe consulted with market participants before proposing the new incentive plans and it’s thought likely that market makers will move away from the flat fee structure to the volume related payments.

Senior Vice President and Global Head of Listings at Cboe Laura Morrison was quoted as saying that: “We have received extremely positive industry feedback on our LMM ( led market maker) incentive offerings, and based on further dialogue with our family of issuers and market makers, we are pleased to enhance our incentive program in an effort to help provide deeper liquidity for listed ETPs”

She added that the incentives were “Designed to benefit all market participants, our new incentive program will offer LMMs greater choice and flexibility to support trading in issuers’ ETPs, which we believe will result in better market quality for investors”

Cboe has a reputation for flexibility in its approach to trading trying to enhance its markets to tract and retain key groups of traders. For example, last year it introduced retail order priority on its equity exchanges allowing that order flow to move directly to the top of the order book assuming it met certain pre-set criteria.

The Cboe has focused on market quality in its pursuit of ETP listings and it believes that this is the reason that it was able to capture 36% of all new ETP launches/listings on its BZX exchange.

The Cboe BZX exchange is the second-largest ETP exchange in the USA when ranked by the number of primary listings and is home to 445 ETPs with a combined value of some $440 billion. Those ETPs have been bought to the market by more than 50 different managers including iShares, Wisdom Tree, ProShares, State Street and JP Morgan.

Among its most active listings are ETFs linked to VIX index which tracks equity volatility. That’s quite fitting as the VIX Index itself is probably the Cboe’s best-known product.

However, more than 300 of the ETPs listed on the BZX exchange have 20-day average volumes below 100,000 shares and 200 of those trade less than 11,000 shares per day on average. It will interesting to see if the new incentive schemes can boost the turnover in these issues.

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