Competitive Liquidity Provider Program
The Competitive Liquidity Provider (CLP) program is a supplemental, rewards-based program designed to encourage quoting activity for Cboe-listed stocks. Issuers may take advantage of the CLP program in addition to the Cboe LMM program to attract liquidity to the ETPs. The CLP program is currently operating as a pilot program on the Exchange, and unless extended, would currently expire on July 31, 2017.
ETPs are eligible to participate in the CLP program until trading in the stock reaches one million shares CADV (Consolidated Average Daily Volume). ETPs initially listed on Cboe may also participate in the program for the first six months, regardless of their CADV.
Each liquidity provider must be a registered Market Maker* and register to be a CLP for the ETP. Liquidity providers may be a CLP in multiple listings.
How the Program Works
The Cboe CLP program attracts traders and institutions in two ways:
First, the program encourages initial involvement by allowing multiple registered CLPs to participate in the launch of the ETP. This makes it easier for liquidity providers to participate by allowing each of them to put up a smaller amount of seed capital, which may limit their individual risk. This arrangement also promotes more liquidity from the beginning because multiple CLPs have a stake in the ETP.
Secondly, the program encourages participation post-IPO with an incentive for CLPs to provide liquidity and create tighter spreads, which may result in enhanced liquidity and market quality in CLP securities. This is done with an issuer-sponsored, monetary reward in which CLPs compete against each other. It is possible that upon withdrawal from the CLP program, a CLP security may experience lower levels of liquidity and a negative price impact as compared to the period during which the security was participating in the CLP program.
Each day CLPs compete for a reward ranging from $20–$400. The reward is split between the top two CLPs on the bid side and the offer side. The top two CLPs on each side receive 60% and 40% of their side's split, respectively.
For example, if the daily reward for an ETP is $200, $100 is awarded to the top two CLPs on the bid side and $100 is awarded to the top two CLPs on the offer side — $60 going to the first-place CLP, and $40 going to the second-place CLP.
To become one of the top two CLPs, Market Makers are awarded "credits" for winning SETs (Size Event Tests) during the trading day. A SET is a random testing event done within each second between 9:25 a.m. and 4:05 p.m. ET.
Winning SETs and Credit Distribution
The three CLPs with the greatest aggregate size at the NBB (or NBO) for a security will win the SET. The CLP with the most aggregate size will win first place and be awarded three credits; second place will receive two credits, and third place will receive one credit.
If there is a tie for third place, all CLPs in third place will receive one credit. If there is a tie for second place, there will be no third-place winner.
In order to qualify for winning a SET:
- CLPs must quote a minimum of 500 shares on a side to win that side.
- CLPs must be quoting at least one round lot at or within 1.2% of their offer (bid) to have a winning-offer SET (winning-bid SET).
- Only round lots will be counted toward the CLP's quoted size.
At the end of the day, the two CLPs on both the bid and offer side that have earned the most credits will receive 60% and 40%, respectively. If only one CLP qualifies for the reward, the CLP will receive the entire reward.
Additionally, CLPs must win at least 10% of the SETs each day to qualify for the reward.
CLP Score Card
To track an ETP's performance and activity within the ETP, Cboe provides a score card to both issuers and CLPs. The score card details SET rankings and other significant metrics, such as CLP market share percentage, and the average trade size.
For further information regarding CLP securities in the program or the CLP program more generally, contact firstname.lastname@example.org or 913.815.7100.
Visit our CLP Securities page for a complete list of securities in the CLP program, including CLPs on the ETP, the date it entered the program, basic CLP fee, supplemental CLP fee, withdrawal/termination date and issuing company.
* See the Cboe BZX Exchange Rule Book for Market Maker requirements.