By John McCrank and Trevor Hunnicutt

NEW YORK (Reuters) - Nasdaq Inc NDAQ.O on Wednesday said it plans to increase the amount it pays to trading firms that support exchange-traded funds in an effort to make thinly traded ETFs easier to buy and sell.

While there is ample trading liquidity in the most popular ETFs and other exchange-traded products (ETPs), many lesser-known names can be difficult to trade.

Nasdaq plans to pay more to firms that support trading in lower-volume ETPs while reducing rebates for higher-volume ETPs, the exchange operator said in a regulatory filing. Nasdaq will also add rebates for new ETFs listed on its exchange and further incentives based on the amount of ETPs a firm supports.

"We want to try to offer programs that help less-liquid products improve their trading quality," Jeff McCarthy, Nasdaq's head of ETP Listings, said in an interview.

Nasdaq competes with Intercontinental Exchange Inc's ICE.N NYSE Arca and Bats Global Markets BATS.Z for ETP listings.

Some 264 ETPs have launched over the last year in the United States, up from 241 in the prior year period, according to Morningstar Inc MORN.O. But the number of such funds trading fewer than 5,000 shares a day, on average, has grown nearly 10 percentage points to 31 percent in two years, according to XTF, a London Stock Exchange Group LSE.L unit that excluded exotic "leveraged" ETFs from its analysis.

Trading firms known as market makers are essential to the smooth trading of ETFs.

The lead market maker, or designated liquidity provider, will often use its own money to buy and distribute the first shares of a new ETF. The companies also help keep the funds' market prices roughly in sync with the value of the securities held by the funds. Companies that sign on to support new funds are required to offer to buy or sell shares at competitive prices in return for trading rebates.

Yet some ETF issuers have had to delay fund launches as they vie for backing from overextended trading firms that have millions of dollars of seed capital and trading support tied up in fledgling ETFs.

Under Nasdaq's changes, which take effect on Sept. 1, market makers will earn rebates of 36 cents to 47 cents per 100 shares traded, depending on the volume of the ETP. Current rebates of 40 cents to 46 cents are not tied to trading volume.

Firms may also receive rebates of up to 70 cents per 100 shares on new ETPs.

(Reporting by John McCrank; Editing by David Gregorio)