Nasdaq mulls new exchange to ease trading in illiquid ETFs - CEO

The acquisition of U.S. options exchange operator ISE from Deutsche Boerse AG was approved by the U.S. Department of Justice last week, Robert Greifeld, Nasdaq’s chief executive officer, said on a call with analysts.

The deal still needs approval from the U.S. Securities and Exchange Commission, but could close as early as the end of the quarter, versus earlier guidance of the second half of the year, he said on the call following the announcement of Nasdaq’s first-quarter earnings, which topped expectations.

ISE operates three electronic options exchanges. Each equities exchange regulatory license allows for one options exchange and one stock exchange, giving Nasdaq the possibility of adding to the three U.S. stock exchanges it already runs.

Nasdaq will likely make use of those licenses over time, but only if doing so would add something innovative to the market, Greifeld said in an interview.

“I am optimistic that we can add some value and use some of them over time,” he said.

One of the most interesting ideas his team has come up with so far is to create a marketplace where financial intermediaries would support the trading of lower-volume ETFs, he said, without getting into detail.

While there is ample trading liquidity in the most popular ETFs and other exchange-traded products, most of the lesser-known names are more difficult to trade.

Over the past three months, half of the 1,878 U.S.-listed ETFs traded less than 20,321 shares a day, compared with an average of 117 million for SPDR S&P 500 ETF, the most popular ETF, according to data from Morningstar Inc. On Monday, 266 ETFs did not trade at all.

“We’re interested in the market - our customers want us to be,” he said, adding that Nasdaq had not committed to anything yet.

Bats Global Markets has been making a big push into the ETF listing and trading space and last year said it would pay ETF issuers to list their products on its exchange, ranging from $3,000 to $400,000, depending on their level of trading volume. (Additional reporting by Trevor Hunnicutt)