BATS Global Markets said it received approval to implement a program it proposed that will let market makers compete for a daily reward for posting quotes in a stock or exchange-traded product.
The operator of the Z and Y exchanges and the BATS Options Exchange said the Securities and Exchange Commission approved its Competitive Liquidity Provider program, proposed last year.
The program is designed to spur interest in listing on BATS’ main exchange. BlackRock became the first company to list with BATS, last month saying it will list eight exchange-traded products with the Lenexa, Kansas, developer of electronic markets.
“Our Competitive Liquidity Provider program is designed to help improve market quality for issuers and we are excited to bring this innovative program to market,’’ said Joe Ratterman, Chairman and CEO of BATS Global Markets
The program is designed to incent market makers to make tighter quoted spreads, with the intended result being more buy and sell orders for each listing on BATS. BATS expects the rewards program to benefit small- and medium-sized companies that lack the kind of investor interest and liquidity of large stocks.
Each “competitive liquidity provider” would be rewarded for the spreads and sizes of quotes they put into the market for securities they are registered to make markets in.
Here’s how market makers would be rewarded for posting competitive quotes in a stock or exchange traded product:
- The Exchange will measure the performance of a CLP in assigned securities by calculating Size Event Tests (“SETs”) during Regular Trading Hours on every day on which the Exchange is open for business.
- The Exchange will measure each CLP’s quoted size at the national best bid and national best offer at least once per second to determine SETs. The CLP with the greatest aggregate size at the NBB and NBO at each SET will be considered to have a “winning SET.”
- A CLP must have at least 10% of the winning SETs on any trading day in order meet its daily quoting requirement and to be eligible for any daily quotation rebate provided by the Exchange.
- Eligible CLPs will be ranked according to the number of winning SETs each trading day, and only the Eligible CLP ranked number one, and in some cases the Eligible CLP ranked number two, will receive the daily rebate.
Each liquidity provider must be a registered market maker on BATS and there will be no limit to the number of CLPs that can be registered in each corporate listing.