Regulators approved Nasdaq Stock Market’s request to allow sponsors of some exchange-traded funds to offer payments to market makers.

The decision by the U.S. Securities and Exchange Commission loosens a ban on compensation that has been in place since 1997. Nasdaq OMX Group Inc., which plans to begin the program as a one-year pilot, argued along with NYSE Euronext before Congress in 2011 that payments to market makers may increase liquidity and improve prices to investors in less-active securities.

Approval of the program comes amid concern that stocks with lighter volume are suffering in America’s computerized equity markets because they are less attractive to automated traders. NYSE Arca, an all-electronic venue that competes with Nasdaq, submitted a request to the SEC yesterday for its own initiative. Payments for market making in smaller companies is allowed in some European countries.

Nasdaq had originally sought to limit the arrangements to ETFs with average daily trading of fewer than 2 million shares and subsequently cut the threshold to 1 million.

The exchange told the SEC it expects the Financial Industry Regulatory Authority, which oversees almost 4,300 U.S. brokers and bans payments to market makers, to allow its program.

Finra imposed the prohibition almost 16 years ago to improve investor confidence. It said at the time that the decision to make a market in a security should be based on supply and demand, competition, the firm’s expectations about trading and its inventory of shares. It shouldn’t be influenced by payments from issuers, the regulator said.

There were almost 4,800 exchange-traded products globally with $2 trillion in assets in February, compared with 106 with $79 billion in 2000, according to data compiled by BlackRock Inc. The 1,444 U.S. products accounted for $1.4 trillion of the total, the data show.

SEC staff expressed concern that allowing payments has the ’’potential to distort market forces because the program may act to artificially influence trading in ETFs.’’ Those were mitigated by Nasdaq’s proposal to submit monthly reports about the program to the SEC and public, among other precautions.