Market Making Incentive Scheme


ETF Market Making Scheme

Will the liquidity of ETF market impove by introducing this scheme?

TSE will pay the Incentives to Market Makers who have fulfilled the Quote Obligation.
As a result, for ETFs designated as market makers, many more orders are continuously quoted than ever before. Then investors wish to trade, they can trade at more favorable prices, and it is expected that the liquidity of the ETF market will improve.

Do you plan to expand the target of this scheme to ETN and leveraged or inverse type ETF in the future?

Since TSE aim to improve the liquidity of diverse ETFs so that investors can use ETFs for stable asset building, this scheme will not apply to ETN and leveraged or inverse ETFs.

Will not the fee paid by investors increase by introducing this scheme?

Incentives to be paid to the market makers are paid by TSE (or by Asset Manager in sponsored Market Making), so there are no additional burden on investors.

Market Maker

What company is designated as a market maker?

Japanese securities companies and the market makers acting in overseas markets are designated. In detail, please refer to the following page.

List of Market Maker

Is only one company per a ETF specified as a market maker?

There is no limit to the number of market makers per a ETF.

Which ETF Market Maker is designated?

For each ETF, it is announcing whether or not market maker is designated. In detail, please refer to the following page.

List of ETFs

Is there no possibility that a market maker manipulates the price of ETF?

Since Market makers will show quote for both selling and buying, orders that are far out of the theoretical price by quoting too expensive or too cheap incur loss. From the viewpoint of preventing unfair trade etc., TSE will monitor and examine all transactions in TSE.

Obligations & Incentives

What is "spread" and "depth"?

The spread shows the difference between best offer price and best bid price, and the depth shows the value of the quoting at each price. Improvement of both spread and depth is necessary to improve liquidity.
TSE is announcing the quantitative data of quoting all ETFs including spread and depth on a daily basis on the following page.

Quantitative data of quoting ETFs

What does it mean that the obligation and incentives are set in "bps"?

"Bps" (basis point) means 0.01%.
For example, there is an incentive corresponding to trading value, then this will be calculated according to "trading value(JPY) times incentive unit price(bps)".The incentive unit price is set at 0.1 to 0.9 bps based on liquidity etc. of each ETF. If the trading value is 100 million yen and the incentive unit price is 0.5 bps, the amount of the incentive will be 5000 yen.

What concretely is the obligation?

It concretely shows the obligation imposed on the market maker "to order properly". Market makers can receive incentives if they meet the following conditions.
(1) Number of ETFs for quoting
(2) Quoting time
(3) Spread and minimum quantity

What concretely is the incentive?

Payment according to trading value and discount of access fee (cost imposed per order) etc. will be made to market makers who fulfill obligations.

Even after improved liquidity, can market makers continue to get incentives?

As the average daily trading value of each ETF in the continuous auction, the amount of the incentive is set to decrease in stages. TSE will not pay incentives proportional to trading value for each ETF whose daily trading value exceeds 5 billion yen.

Sponsored Markert Making Scheme

What is Sponsored Market Making Incentive Scheme?

In addition to the incentive that TSE will pay to market makers, asset managers can set its own obligations and incentives for their own ETF.
In detail of target ETF or conditions, please refer to the following page.

Sponsored Market Making

Why can ETFs with sponsored conditions be expected to quote at a higher level?

For ETFs that have sponsored conditions set, there is a tendency for many market makers to participate, as the incentive paid to market makers. As a result, it is expected that newly singning up as market makers will increase the depth by quoting for fulfilling the obligation.