BATS Europe, the pan-European multilateral trading facility launched last week by US exchange BATS Trading, is aiming to pass a 5% share of European equities trading “as soon as possible”, according to CEO Mark Hemsley.
“We have a two-year plan to arrive at break-even,” Hemsley told theTRADEnews.com. “We are building market share and we would be very disappointed if we ended up with 5%. Our target is significantly above that. We aim to expand market share first and profitability will come once we have that. We aim to pass that 5% point as soon as possible.”
Rival MTF Chi-X, which launched in April last year, now has a 20% market share of FTSE 100 stocks, 19% of the Dutch AEX index and 16% of France’s CAC. Turquoise is aiming for a 5% share of the European equities market by the end of this year and is ultimately thought to be targeting 20%. It now has a pan-European market share of around 4%.
By contrast, Equiduct, a pan-European regulated exchange that plans to launch this year, is aiming for a more modest market share of 2-4% by 2010.
BATS started trading 10 constituent stocks of the UK’s FTSE 100 index last Friday. Tomorrow, it will begin trading all the constituents of the FTSE 100 and 250 indices. In its first day of operation, £10 million ($13 million) of shares were traded on the platform.
A variety of firms, including proprietary trading houses, bulge-bracket brokers and smaller broker-dealers are at different stages of using BATS Europe, according to Hemsley. Some are trading at full capacity, putting both proprietary and client flow into BATS, and others are at the testing and connectivity phase.
In the US, BATS made a big splash when it offered ‘inverted’ pricing for the month of January 2007 – charging $0.0020 a share for removing liquidity and rebating $0.0030 a share for adding liquidity in stocks priced above $1. This temporary loss-leader greatly boosted its market share in Nasdaq-listed stocks.
But BATS Europe will not rush into price promotions, despite recent actions by rival MTFs. Nasdaq OMX Europe launched a fee scheme last week, under which it will charge 0.25 basis points for taking liquidity and rebate the same amount for posting liquidity – effectively making trading free.
“We have moved into Europe with a good record and reputation based on what we have accomplished in the US. As a result, it didn’t seem like the right time to do anything different such as inverted pricing,” said Randy Williams, vice president of sales and communications at BATS. “That doesn’t mean we won’t be as aggressive as we have been in the US on price. Our introductory pricing structure is aggressive, particularly when compared with incumbent exchanges.”
But Hemsley has not ruled out pricing promotions in the new year. “Pricing promotions will be more effective once we have got a critical mass of people trading on the platform. Liquidity comes first. It’s about how you manage your market. Simply throwing out cheap prices does not work,” he said.
BATS did not introduce its US inverted pricing promotion until almost a year after its launch. “While there are differences between the US and Europe, the lessons learned are clearly useful,” said Hemsley.
According to Williams, BATS Europe is already ahead of schedule in attracting users. “The landscape is ripe for us,” he said. “At this point, we have signed up more participants than we expected to have by the end of the year. The reception from participants and potential participants has been tremendous.”