BATS Trading Inc. has been given the green light by the U.S. Securities and Exchange Commission to operate as a registered national securities exchange. In the relatively short period of time that BATS has been operating, it has shown that it is a force to be reckoned with. With its newly acquired status, BATS is set to give NASDAQ OMX and NYSE Euronext some stiff competition.
Building on the success BATS (an acronym for Better Alternative Trading System) has enjoyed with the launch of its electronic communications network (ECN) in January 2006, the Kansas City-based company filed for exchange status with the SEC in November 2007. CEO of BATS, Joe Ratterman is reported as saying that the motivation behind the application to become an exchange was a “desire to participate directly in the national market system and compete on a level playing field with our primary competitors, NASDAQ and the New York Stock Exchange.”
The BATS ECN is designed to facilitate anonymous high-volume, high-speed algorithmic trading for broker-dealers. The company’s highly competitive pricing plan, which was introduced in January 2007, has been a driving force behind their increased trade volumes and on 14 August the company reached a market share in U.S. equities of 11.11 percent. Their pricing plan has also had the effect of forcing both the NYSE and NASDAQ to revise their fees to remain competitive.
In January of this year the BATS ECN passed the one billion volume mark. Also in January, Deutsche Bank and JP Morgan joined the growing ranks of Wall Street banks to invest in BATS. Other supporters are Merril Lynch, Credit Suisse, Morgan Stanley, Citi and Lehman Brothers.
Once the company has been established as an exchange, which they anticipate will take around two months, they will no longer need to go through other exchanges for stock quotes. This will facilitate even faster transaction times and will help BATS generate increased revenue from its own market data.
BATS has also set its sights on European markets and intends to launch a platform through its London-based wholly owned subsidiary that will compete with Europe’s domestic exchanges. While acknowledging that there is a lot of hard work ahead for the BATS team as they take on the additional regulatory responsibility, Ratterman expressed his confidence that they are up to the challenge.
