U.S. stock exchanges are jockeying for new exchange-traded fund listings and trading volume as they battle for a bigger share of this fast-growing market, MarketWatch reports.
With so many new ETF listings, “some specialists have balked, and the ETF providers have had to invest their own start-up capital,” says Morningstar Inc. analyst, Sonya Morris.
“It’s clear that the market dynamics in the ETF industry have completely shifted,” says Jim Wiandt, editor of trade publication Journal of Indexes. “ETFs have always been a good fit for electronic markets, but lightly traded issues have benefited from designated market makers or specialists.”
New York Stock Exchange, Nasdaq Stock Market Inc. and the American Stock Exchange are adapting to the shifting landscape as they compete for more ETF business. One tactic is to offer incentives to specialists to make markets in newer, thinly traded funds while encouraging sponsors to list new products on their exchange.
According to Morgan Stanley, Nasdaq handled 47.1 percent of ETF trading so far this year at the end of May. That compares with 48 percent for NYSE and NYSE Arca, the exchange’s electronic trading platform, combined.
Amex, meanwhile, handled only 3.1 percent of the volume even though it lists the most ETFs. Under unlisted trading privileges, exchanges are permitted to trade any securities listed on other exchanges.
The shift to automated trading is being underscored by the transfer of all 162 NYSE-listed ETFs to NYSE Arca. A recent NYSE memo notes that the process should be finished before year end, a move “initiated by specialist firms and in conjunction with [ETF] issuers.”
Although its slippage in stock trading is widely known, the American Stock Exchange is the ETF leader with 327 funds listed as of June 30 with assets of $191 billion. During the first half of 2007 alone, the Amex launched 121 new ETFs from 10 different issuers.
Cliff Weber, Amex’s executive vice-president of development and strategy, said the exchange is making its trading platform faster and more automated, and a new fee schedule is designed to compensate market makers and specialists. He also hints that larger ETF providers may have an advantage over smaller rivals in the changing environment.