Nasdaq Scrambles to Gain Ground in ETFs

Exchange-traded funds may be having trouble attracting seed capital from dealers, but the exchanges themselves are still fighting for their business.

And this competition for listings could help ensure that trading in these baskets of stocks remains relatively liquid, even as the products themselves become increasingly specialized, appealing to fewer investors.

Last week, the Nasdaq Stock Market(NSDQ Quote - Cramer on NSDQ - Stock Picks) announced plans to create a new segment designed specifically for ETFs and exchange-linked notes -- a kind of debt linked to the performance of an index. The Nasdaq ETF Market will feature market makers, called designated liquidity providers, who help maintain that liquidity.

If this all sounds a lot like the NYSE Arca, the New York Stock Exchange's electronic marketplace, it is. In fact, NYSE Euronext(NYX Quote - Cramer on NYX - Stock Picks) was quick to point out that the Nasdaq is playing catch-up. "The idea is not new," says Lisa Dallmer, NYSE Group's senior vice president for ETFs and Indexes. "The NYSE Arca has had lead market makers to support the listings of ETFs and public companies since 2006. They're emulating what we already provide."

Nasdaq maintains that its version is not just newer but improved. "The Arca has only one lead specialist," says John Jacobs, chief executive of Nasdaq Global Funds. "We will have multiple people in the lead role, not just a single market maker. The ETFs can pick as many as they want for this role."

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