The dearth of IPOs and the tough trading environment for small cap companies have generated debate for years.

Whether you blame Sarbanes Oxley and other regulations, a punishing market structure or the rise of passive investing and ETFs, the fact is that we're still seeing a lot less analyst coverage and fewer market makers supporting these stocks. While the idea of small issuers paying research companies for coverage has been kicking around for years, the idea of small issuers paying market makers for trading support is seems fresher. It's an idea that's starting to generate more interest.

The NYSE Arca will seek approval for a pilot program that would allow issuers to pay market makers to support certain ETFs, notes Bloomberg Businessweek. Nasdaq OMX also has plans to pilot similar payment programs by issuers in its BX Venture Market, which caters to smaller companies and small ETFs. The exchange would collect payments from the issuers and distribute them to market makers. If all goes well, we might hear some proposals to extend these programs to actual small cap stocks. In Europe, Euronext apparently offers such programs already.

The conflict of interest is readily apparent, but the conflict could be minimized by savvy rules at the exchange level. You would think that the conflicts are less pronounced in the case of ETFs. In any case, the lack of market-making support has intensified to the point where creative solutions are necessary.

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