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BATS Trading Receives Approval for Exchange Status

Transition from ECN to exchange will take about 60 days.

BATS Trading Inc. received regulatory approval today from the Securities and Exchange Commission(SEC) to operate as a registered national securities exchange. BATS expects the transition from its current status as an ECN to exchange to take approximately 60 days.

"It's a very gratifying day for the BATS team, and an important moment for the marketplace as a whole," stated BATS Chief Executive Joe Ratterman in the release. "As we have stressed repeatedly, our motivation to become an exchange has come from our 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," added Ratterman.

In a lengthy email to BATS subscribers and members of the trading community, Ratterman called this "an important milestone in the history of U.S. market structure," noting that the previous common path to exchange status involved acquisitions and/or consolidation. Even though BATS was warned by others that there were "too many exchange licenses out there" and that approval "was a highly political and bureaucratic process, BATS "felt there was value in starting from a clean slate," wrote Ratterman in the email.

BATS initially filed for exchange status in November 2007. In the email Ratterman thanked the SEC staff "who worked diligently in processing our exchange application, which helped us meeting our internal goal of obtaining exchange status before year end 2008," stated Ratterman.

BATS also urged its subscribers to complete waive-in membership agreements immediately so they are able to trade on BATS as exchange members when it becomes active as an exchange.

According to Matthew Samelson, senior analyst at Aite Group, "BATS' exchange status is more a benefit to its owners than anyone else. As an exchange, BATS becomes a self-regulatory organization (SRO) instead of being regulated as a broker-dealer," said Samelson in comments that were emailed to the media. "This, of course, will help BATS economically: the firm will get a larger share of market data revenue, be able to enter the more lucrative options business, and will — no doubt — help them with regulators as they expand globally. It will provide BATS with operational benefits, as well, such as the ability to distribute its own quotes. With more revenue and deeper pockets, BATS is likely to become a more formidable competitor to NYSE and Nasdaq," said Samelson.

The regulatory approval for BATS Exchange also comes after a long-running explosive growth trend in terms of trading volume. In November 2007, the month when BATS filed its exchange application with the SEC, BATS average volume was 638 million with matched market share at 6.90 percent. In July 2008, BATS' average daily volume was up to 1.1 billion and its average daily matched market share was 10.1 percent. In the last three weeks leading up to the Aug. 18 approval for exchange status, BATS has seen intra-day matched market share peaks near 12 percent during the regular trading session.

Drawing an apples-to-apples comparison with matched market share for the month of July, Ratterman said Nasdaq came in at 30.35 percent, NYSE/Arca came in at 18.01 percent and NYSE/Hybrid came in at 15.96 percent. Ratterman said BATS has its sights set on exceeding 15 percent matched market share by the end of 2008.

Ivy is Editor-at-Large for Advanced Trading and Wall Street & Technology. Ivy is responsible for writing in-depth feature articles, daily blogs and news articles with a focus on automated trading in the capital markets. As an industry expert, Ivy has reported on a myriad ... View Full Bio

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