BATS to bring sub-millisecond trading to Europe

US ECN operator BATS Trading has decided to establish a trading platform in Europe that will be capable of trading faster than one millisecond.
By None

US ECN operator BATS Trading has decided to establish a trading platform in Europe that will be capable of trading faster than one millisecond. The company had been considering entering Europe for several months.

BATS expects the new platform, called BATS Trading (Europe), to go live during 2008. The platform will be based in London, and BATS says it has chosen a data centre in the London area. The firm plans to release more details about this shortly. It is now urging companies to start connecting to the new system.

According to Randy Williams, vice president, sales and communications at BATS, the order book of the new platform will be similar to that of the BATS US operation, which is primarily displayed, with around 10% of the daily volume executed on a non-displayed basis. The platform will employ a so-called ‘taker-maker’ tariff structure, where traders will get a rebate for posting liquidity, and a charge for taking it away. Williams says the company has not yet decided on the levels for the charges and rebates for Europe.

The platform will be based on BATS’ proprietary technology. Williams says the company does have a clearing and settlement arrangement, but is not yet ready to announce it.

The company is close to announcing a London-based management team that will run BATS Trading (Europe). Williams says the firm is expecting to make an announcement in the first half of April.

As well as competing with Europe’s incumbent exchanges, BATS will be pitting itself against pan-European MTFs Chi-X Europe and Turquoise. And, similarly to these firms, BATS is backed by a consortium of brokers. But one feature that could set BATS Trading (Europe) apart from both exchanges and rival MTFs is its speed. Williams says that on average, the time between an order hitting BATS’ firewall and the platform sending acknowledgement of execution is 500 microseconds. By comparison, Chi-X Europe claims its lowest average latency, using proximity hosting, is two milliseconds.

“The London Stock Exchange is bragging about its TradElect system being able to turn orders around in six milliseconds. Our system is 12 times faster than that on average,” says Williams.

BATS decided to make the leap into Europe after around six months of research. “We’ve only been a market centre for just over two years , and we wanted to get a little more traction in the US before we made a decision like this,” says Williams. “It didn’t take long for us to realise that a BATS-style platform could be very successful in Europe, but we wanted to take our time and make sure we dotted our ‘i’s and crossed our ‘t’s.”

He adds that the biggest driver for BATS setting up in Europe is the demand it perceives for such a trading platform. “The brokerage community is very interested in having a higher-speed platform in Europe that has BATS’ technology,” he says. “You have seen the success Chi-X has had in a short amount of time, so, weighing all those factors, it makes a lot of sense.”

The US operation of BATS is now matching around 9% of the US equities market after two years of operation. Williams is reluctant to say how much market share BATS is targeting in Europe, but he adds, “We are going to be every bit as aggressive in Europe as we have been in the US.”