U.S. regulators have already approved Nasdaq Stock Market’s request to allow the sponsors of some exchange-traded funds to offer payments to market makers. The Securities and Exchange Commission’s decision loosened a ban on the compensation that has been in place since 1997.
Greifeld said an exclusive relationship between an “emerging growth company” and one exchange would allow the market maker to increase trading in the stock. The 2012 Jumpstart Our Business Startups Act defined an emerging growth company as one with less than $1 billion in annual revenue.
The SEC would have to approve what Nasdaq called its “liquidity concentration program.” Greifeld said he wasn’t sure if Nasdaq would petition the SEC to propose a regulation allowing it.
“We are not going to instantaneously create a deep and liquid market, but it will certainly be an easier path to get there,” Greifeld told the committee.
Greifeld, who met privately with new SEC chairman Mary Jo White today, said the proposal isn’t part of the effort to limit trading that happens away from exchanges.
The NYSE, the second-largest U.S. stock exchange, supports a separate committee recommendation to encourage trading of small stocks by increasing the minimum quoting increment, Niederauer said. That increment, known as tick size, was reduced from sixteenths of a dollar to one penny in 2001, which reduced profits for market makers and reduced their willingness to buy and sell less liquid stocks, Niederauer said.
The SEC is studying how to structure a pilot program to test wider tick sizes for small public companies. Such a program should include 300 to 500 companies and should last at least two years, Niederauer said.
“You have support for this not only from the issuer community, but also from from the trading and exchange community,” Niederauer said.