operator BATS Global Markets has revealed plans to enter at least two new
markets by 2014 and is considering broadening the asset classes it offers.
The firm’s growth
strategy was revealed in the latest disclosures made to US regulator the
Securities and Exchange Commission (SEC) on 23 February as part of its IPO
filing. BATS Global Markets announced its intention to list in May last year.
The filing confirms
BATS’ intention to start trading in two new markets, citing Brazil and Canada,
within the next two years.
While the firm
has not announced any formal plans for launching in Canada, it has partnered
with asset management firm Claritas to explore opportunities in the Brazilian
market. Rival US exchange Direct Edge has also laid out plans to launch in
Brazil by the end of this year, pending regulatory approval.
However, BATS and
others could face an uphill struggle to get established in Brazil after Edemir
Pinto, CEO of domestic exchange BM&F Bovespa, stated that he would not
allow competing trading venues access to the firm’s vertically-integrated
clearing house. In theory, BATS would need to build or buy-in its own clearing
infrastructure in Brazil, but the process would be costly and time-consuming.
Although BATS has
remained cagey about the precise timing of the IPO, the firm is understood to
be impatient to end its extended pre-float ‘silent period’ in order to move
forward with its expansion plans. Press speculation has slated a US$100 million
deal to hit the road between 5-19 March. While many of the brokers that took
out stakes in the early stages of the firm’s development are looking for a
return in their investment, management is keen to retain as much cash as
possible from the transaction to fund future growth.
relatively benign market conditions, one insider said the IPO would likely take
place “sooner rather than later, as we’re not interested in a first day
pop”. Underwriters for the deal include
Rosenblatt Securities, a niche New York-based broker that has recently expanded
its investment banking suite and was one of the firms that supported the
Chicago Board Options Exchange’s IPO last year.
New asset classes
operator also said it was considering an expansion into new instruments such as
US treasury securities and other fixed income products, FX and US derivatives.
In Europe, where
BATS completed the purchase of multilateral trading facility (MTF) Chi-X Europe
on 1 December, the Kansas City-headquartered exchange operator is also looking
to broaden its value proposition. The firm has run its own MTF in Europe since
2008, but its 23 February SEC filing also said it aimed to register as an
exchange during 2012, potentially allowing it to compete with the London Stock
Exchange, Nasdaq OMX Nordic, Deutsche Borse and NYSE Euronext for primary
listings. The UK competition authorities investigation into the deal is one of
the reasons for the delay to the IPO, which had been expected in Q2/Q3 last
Europe, as the joint entity is now known, traded 24.6% worth of pan-European
equity trading last month, making it the region’s largest trading venue,
according to figures from data vendor Thomson Reuters.
BATS Chi-X Europe
intends to retain both MTFs’ lit and dark pools but migrate to the same
technology platform by 30 April. The firm is expected to unveil execution tariffs
in the coming weeks. At the start of this year, both Chi-X and BATS Europe stole
a march on other trading venues in the region with the introduction of interoperability
schemes that allow members to direct trades to any of four pan-European central
counterparties – EMCF, SIX x-clear, LCH.Clearnet or EuroCCP.
In the US, BATS
has already converted its two equity markets – BZX and BYX – from electronic
communications networks into exchanges. Combined, the two markets account for
around 11% of monthly US equity trading. BZX received authorisation by the SEC
to become a listings venue in December last year and listed its first
instruments – a series of iShares exchange-traded funds (ETFs) – on 24 January.
In an attempt to
grow trading in BATS-listed instruments, the exchange has launched a
competitive liquidity provider scheme, which involves selected market-making
firms competing for a
daily reward by posting quotes in a stock or exchange-traded product.
BATS claims the
scheme is already a success. By offering market makers the opportunity to
effectively trade for free – if they manage to offer prices closest to the best
bid and offer more consistently than their peers – BATS has reduced spreads on
their ETFs to as little as a penny.
The first BATS
stock listing looks likely to be the firm itself. The firm admits that further
listings are likely to come from the small and mid-cap sector, typically from
new floats rather than listed firms switching from existing exchanges.
BATS has also
left the possibility of further acquisitions on the table. “We intend to seek
additional opportunities to grow our business through strategic alliances or
acquisitions that are complementary to our business or enable us to enter new markets
or provide new products or services,” read the SEC filing.
BATS was founded
in 2005 by Dave Cummings, who brought 12 colleagues, including current CEO Joe
Ratterman, from his previous company, Kansas-based automated trading firm
Tradebot Systems, with the aim of launching an alternative market for trading
US stocks. The aim was to challenge the US stock exchange duopoly of Nasdaq and
NYSE, which bought Island ECN and Arca respectively to develop their electronic
order book offerings. Cummings returned to Tradebot in 2007 but still has a
position as a director on the BATS board. Other current shareholders include
Bank of America Merrill Lynch, Citigroup, Credit Suisse, Deutsche Bank, GETCO,
J.P. Morgan, Morgan Stanley and Wedbush.
BATS declined to comment on its future plans for growth.