Trading on the combined BATS-Direct Edge US exchange will commence from 3 February after expected Securities and Exchange Commission (SEC) approval in January, sources close to the matter have said, with the group set to challenge the New York Stock Exchange’s dominance.
The 3 February date will mark the first trading day that all four equity order books operate under the combined BATS Global Markets brand, although there will be no material changes to execution or routing. Eventually, Direct Edge’s two books will transition to BATS’ exchange technology.
“I can confirm 3 February as the first trading day,” the source said. “It will be business as usual on day one but the longer term technology changes will occur with extensive testing.”
The SEC must approve the merger before the two entities can combine, but this is expected by the end of January, the source said. The 3 February date was corroborated by another source familiar with the merger, as BATS and Direct Edge prepare for trading after the merger gains official approval.
In October, the US Department of Justice gave its assent to the deal, which will intensify competition between BATS, NYSE and Nasdaq for market share in US equities trading.
In December, the four order books that will come under the BATS brand reached a combined total of 21.85% market share with US$899.1 billion in equities traded, up from 21.78% in November.
Meanwhile, NYSE’s two markets traded US$1.043 trillion, giving the exchange group a market share of 25.45% of US equities, while Nasdaq attracted 17.21%.
“With three major US equities exchanges there will be more competition, which will be good for the market,” commented Joe Gawronski, president and COO of broker Rosenblatt Securities.
Buy-side benefits
He said efficiencies created by bringing all four order books under one structure would lead to benefits for buy- and sell-side firms.
“When all four order books are running on common platform technology, any changes to technology will only have to be dealt with once by programmers at sell-side firms,” Gawronski told theTRADEnews.com. “The buy-side will benefit indirectly over time because these types of synergies will make it less expensive for the sell-side to deal with the exchange.”
Gawronski added that although BATS will logically move towards the listings business to rival the New York Stock Exchange and Nasdaq, this would probably not occur for some time as it focuses on integrating the two firms’ systems and technology after the merger receives final approval.
BATS’ efforts to list on its own exchange also fell prey to technical difficulties that set back the firms’ listings aspirations, although it has successfully listed a range of exchange-traded funds.
Current BATS CEO Joe Ratterman will retain his post, while Direct Edge CEO William O’Brien will take the role of president.
Speaking to theTRADEnews.com in September, O’Brien said the merger would lead to favourable outcomes for buy-side investors at a time when they are re-evaluating how they interact with the sell-side and exchanges.
“We have a unique opportunity to meet the evolving needs of the buy-side with respect to how they connect to the street, consume data and execute trades,” O’Brien said, adding he would continue meeting with buy-side firms to tailor new initiatives to their needs.