Lehman Brothers Buys Stake in BATS ECN

By Ivy Schmerken

Lehman Brothers has acquired a minority stake in BATS Trading, operator of the Kansas City-headquartered BATS ECN, the investment bank announced on Tuesday. Financials of the transaction were not disclosed.In 2005, BATS - which stands for Better Alternative Trading System- was started by Dave Cummings, founder of high-speed, automated liquidity provider Tradebot Systems, to handle high-speed, high-volume and anonymous algorithmic trading for broker-dealers. The ECN sent live on Jan. 27 of this year.

In the release, Michael Bleich, head of liquidity strategy at Lehman Brothers, said the emergence of BATS "as a thought leader, innovator and technology provider in the execution platform space is a significant development for the marketplace and will greatly benefit our clients. We look forward to other institutions also realizing the value of this platform."

Recently, BATS ECN has experienced sharp growth to average about 40 million shares per day the last week of August 2006. On Sept. 12 Cummings announced in an email that subscribers pushed BATS past the 50 million-share mark for the first time.

BATS' internal match rate was 68.46 percent and the ECN had a record of 13 subscribers trading more than one million shares apiece, that day, the CEO wrote. BATS is not trading NYSE-listed stocks currently and is waiting to see what happens when the NYSE-Hybrid initiative is rolled out.

BATS has also been adjusting its fee schedule. For Nasdaq stocks, effective Oct. 1, the access fee for taking liquidity drops from $0.0027 to $0.0025 per share, for both matched and routed volume. The liquidity rebate for posting limit orders drops from $0.0025 to $0.0024. batstrading.com/subscriber_resources/BATS_Fee_Schedule_20061001.pdf In the Lehman release, Cumming said, "We hope that this transaction sets the stage for partnerships with other firms in the future." 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