Home / Business and Economy / ICICI Prudential Mutual Fund Appoints New ETF Market Maker
ICICI Prudential Mutual Fund Appoints New ETF Market Maker
16 Aug
Summary
- ICICI Prudential Mutual Fund replaces Kotak Securities with Parwati Capital Market as ETF market maker
- Market makers ensure smooth ETF transactions and bridge liquidity gaps
- ETF liquidity depends on both underlying assets and secondary market trading
According to a news report from last week, ICICI Prudential Mutual Fund has replaced one of its existing market makers, Kotak Securities, for its Exchange Traded Funds (ETFs) with Parwati Capital Market. This change in the ETF market maker lineup is a significant development in the Indian financial landscape.
Market makers act as intermediaries in the ETF trading ecosystem, ensuring smooth transactions when investors buy or sell ETF units on stock exchanges. They play a crucial role in bridging liquidity gaps, particularly when there are sudden changes in demand and supply for ETF units. Unlike equity shares, which trade based on a company's fundamentals and market forces, ETFs represent a basket of securities, so their liquidity depends on both the underlying assets and the trading activity in the secondary market.
Ideally, the traded price of an ETF should stay close to its indicative Net Asset Value (iNAV) - the real-time value of the ETF's overall holdings during market hours. However, if trading activity is low or there are sudden shifts in demand and supply, the traded price can drift away from the iNAV. This is where market makers step in to align the market price with the iNAV, earning a modest profit margin in the process.
