Stock Markets, Specialists at Odds on Pursuing ETF Listings

Interested in the potential trading volume exchange-traded funds can bring to an exchange, stock markets are now vying with the New York Stock Exchange and the American Stock Exchange for ETF listings, The Wall Street Journal reports.

At the same time, however, many specialists on their trading floors are eschewing ETFs because they are thinly traded and, with so many ETFs flooding the market, are taxing the seed money that specialist market-makers typically pony up to get them up and running.

“Some specialists have balked, and the ETF providers have had to invest their own start-up capital,” said Morningstar Analyst Sonya Morris. “That problem is compounded by the fact that specialists are a dying breed, since most stock trading systems are going electronic.

“If a new ETF is not adequately funded, it could have trouble attracting investors,” Morris continued, “and if assets are low, the ETF might have trouble keeping expenses down. It could also cause a widening of the bid-ask spread, another cost of investing.”

Stock markets are responding by offering incentives to specialists to handle thinly traded securities, and Nasdaq proved the point earlier this month when it announced it will create an ETF unit whose key function is to provide liquidity, particularly during a new ETF’s initial listing.

While Amex handles the fewest number of ETFs of any exchange, 20, it does trade the PowerShares QQQ Trust, which helps boost its market share of ETF trading year to date to 47.1%. The NYSE and its electronic trading platform, NYSE Arca, have handled 48% of ETF trading volume, and the Amex, while it trades the largest number of ETFs, has only a scant 3.1% share of the volume.

The staff of Money Management Executive ("MME") has prepared these capsule summaries based on reports published by the news sources to which they are attributed. Those news sources are not associated with MME, and have not prepared, sponsored, endorsed, or approved these summaries.