Tag Archives: BATS Global Markets


Bats Europe Enables Direct Access for Buy-Side Managers

According to MarketsMuse market structure mavens, if you can say “dis-intermediate” five times in under 5 seconds, or if you can simply spell the word (without looking at this blog post), then “you’ll get the joke” i.e. exchange operator Bats Global Markets (acquired last year by CBOE for $3.2bil) is a disrupt-or. After sell-side firms were given direct access to a new block trading service for the European equity market launched by stock exchange operator Bats Europe in December,  it was just revealed that starting next month, buy-side asset managers will gain direct access to the same block trading platform. The pending roll-out will enable buy-side traders to submit their own Indications of Interest (IOIs) so as to reduce information slippage.

Bats Europe licensed technology from Bids Trading, the largest block trading ATS by volume in the US to launch Bats LIS (Large in Scale) in December. Per reporting from Markets Media….

Dave Howson, chief operating officer at Bats Europe, told Markets Media that average trade size has grown to more than €1m over the past month since sell-side firms were given direct access to Bats LIS. He added: “We have eight to ten brokers regularly utilizing the platform with additional participants joining all the time.”

Buy-side firms have been able to access Bats LIS through a broker but the service is being rolled out so asset managers also have direct access.

Dave Howson, Bats

“Over the next month, buy side will have direct access to submit indications of interest into the Bats LIS platform,” said Howson. “One of the key benefits of the platform is that the buy side control their IOI up until it is matched before turning it over to a designated broker for execution, which means information leakage in minimized.”

Under MiFID II, the new European Union regulations which come into effect in January next year, block trades above a specified minimum size can trade under a large in scale waiver which allows market participants to negotiate trades without the need to make quotes public to meet the pre-trade transparency requirements. The ability to trade large blocks will become even more important as MiFID II also places volume caps on trading in a dark pool without a waiver.

Another MiFID II compliant service for block trading that has been introduced by Bats Europe is the Periodic Auctions book. Launched in October 2015, the Periodic Auctions book is a separate lit book that independently operates intra-day auctions throughout the day. Howson said: “A priority is to change the structure of our Periodic Auction order book to optimise the duration of the auction, which should result in increased order matching.”

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He continued that another priority in Europe is to increase the volume of trading of exchange-traded funds, which should be boosted by the MiFID II requirements to report ETF trading. Howson added: “The new trade reporting obligation under MiFID II will increase transparency in ETFs so should we expect to see an increase trading of these products on trading venues.”

In June last year Bats launched a new indices business with the introduction of a UK-focused benchmark index series of 18 different indices. In December, Bats added eight indices for the French, German, Italian and Swiss markets bringing the total number of European indices managed by Bats to 26.

“We are currently focused on building European coverage with our indices,” added Howson. “Further down the road we’ll look to create products on the back of the indices, but right now we’re focused on expanding our reach.”

Bats Europe operates a trade reporting facility, BXTR, which will be registered under MiFID II.  BXTR reported more than €4.8trillion in transactions last year.

To continue reading Markets Media coverage, click here
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BATS Takes 2nd Stab at IPO

The second time is hoping to be a charm for exchange operator BATS Global Markets as it announced a 2nd stab at an IPO, which will be led by Morgan Stanley and Citi and enable an exit for investors that include BAML and Knight Capital.

Bats Global Markets announced the launch of its initial public offering Monday, with a price per share expected to be between $17 and $19. The offering, which could value the company as high as $1.8 billion, comes as the U.S. IPO market has seen its slowest start in seven years.

The IPO has been widely anticipated in part because market observers have been looking for activity in this year’s slow IPO market. Just nine companies launched IPOs in the U.S. in the first quarter of the year, the lowest number in a quarter since 2009, according to data from Dealogic.

The valuation is more than double the size of Bats Global Markets’ attempted IPO in 2012. That effort, which was halted due to a technical glitch shortly after shares started trading, valued the company at around $760 million, according to Bloomberg.

The company has grown significantly since its last IPO attempt. In January 2014 it acquired Direct Edge Holdings LLC, including the two exchanges EDGX and EDGA. In March of last year it acquired Hotspot FX Holdings, the operator or an electronic FX trading platform. Then last September, Bats expanded its Hotspot acquisition by launching a Bats Hotspot platform in London. Last November the company launched the EDGX Options trading platform. It has also significantly grown its exchange traded product (ETP) trading in the past few years.

In its prospectus the company said it is the second largest exchange operator in the U.S. by market share (after the New York Stock Exchange) with a 21.1 share of the overall U.S. equity market as of Dec. 31, 2015. It is also the largest exchange operator of exchange traded funds (ETFs) and other ETPs by market share with a 22.4 percent share of ETP trading last year. The company also had a 9.6 percent share of the U.S. equity options market last year. In Europe, its Bats Europe was the largest European exchange operator as measured by notional value traded as of Dec. 31 of last year.

The prospectus listed several potential growth strategies for the company, including increasing penetration in U.S. options with new products and services, expanding its global FX platform into other currency instruments, and building strength in U.S. equities by leveraging its position in ETPs to expand listings. The company also said it aims to fully monetize the value of its market data and connectivity.


BATS Global is Batty About ETFs-Buys ETF.com

While many people are “koo-koo for Cocoa Puffs”, BATS Global is batty about ETFs. On the heels of launching a dedicated electronic exchange platform for ETF products dubbed BATS Marketplace,  BATS Global Markets announced yesterday that is even more batty about ETFs and to prove it, the exchange operator is acquiring the ETF industry’s leading provider of exchange-traded fund news, data and analytics, ETF.com.

“This is a brand burnishing 201 case study for an otherwise staid electronic exchange industry as operators seek innovative, content-specific applications to distinguish themselves

(MarketWatch.com) Exchange operator BATS Global Markets said Tuesday it would buy ETF.com, a provider of data about the market for exchange-traded funds. BATS CEO Chris Concannon said the purchase “underscores [BATS’s] commitment to the ETF industry and our focus on providing unique, value-added content for issuers, brokers, financial advisors, market professionals and investors.”

ETF.com’s data will add to BATS’s existing proprietary market data and analytics offerings, according to a news release. BATS operates four stock exchanges in the U.S., which represent the largest venue for trading ETFs in the country when taken together, says BATS. Financial terms were not disclosed. The deal is set to close on April 1, according to the statement. The acquisition comes as Lenexa, Kansas-based BATS is trying to grow its ETFs listing platform. The exchange operator last year launched BATS Marketplace, offering to pay ETF providers as much as $400,000 to list on its exchange.

BATS listed 30 new ETFs on its US market last year─11 in December alone, more than any other US market, officials say─bringing its total ETF listings to 56, says the deal will expand the proprietary market data and analytics that BATS offers to support market participants in making “educated trading nad investment decisions.” ETF.com will become an independent media subsidiary of BATS Global.


Pay-to-Play Rebate Schemes Confuse Smartest Traders

Within the context of market structure, the ever-evolving rules of the road for those attempting to navigate how and where to secure best pricing when executing equities orders has become so convoluted thanks to pay-to-play rebate schemes, its not only the curators at MarketsMuse who are scratching their heads, even the most sophisticated traders from both the buy-side and sell-side are confused.

As noted in today’s NYT article “Stock Exchange Prices Grow So Convoluted Even Traders Are Confused” by  reporter Nathaniel Popper, one of the sharpest knives in the drawer when it comes to distilling both technology and regulatory policy issues that impact financial markets, “computer-driven American stock markets have become so complex that any moment in time more than 800 different pricing possibilities are being offered to trading firms across 12 official exchanges, according to a report prepared by Royal Bank of Canada (RBC).”

Here are some of the noteworthy extracts from Popper’s piece:

Mehmet Kinak, T.Rowe

“The level of complexity has grown to such an extent that it is unknown to most market participants,” said Mehmet Kinak, the head of electronic trading at T. Rowe Price Group, and a client of RBC with which the research has already been shared. “Instead of finding natural buyers and sellers, we’re finding intermediaries who come in and are benefiting from the complexity.”

“When we trade we don’t even know what it will cost us,” said Rich Steiner, the head of electronic trading strategy at RBC.

The prices are far from the only factor introducing complexity into the markets. Twelve public exchanges are now in operation, compared to a time when the markets were largely ruled by one: the New York Stock Exchange.Then there are the dozens of so-called dark pools, where stocks can be traded privately away from the public exchanges.

All of these trading venues offer many different types of orders that determine how and when a stock can be traded. A 2014 research report identified 133 unique order types, including some for particular times of the day and others for trades of a particular size.

RBC and other critics of the stock market structure argue that the rebates given out by exchanges can skew the incentives of brokers and banks, encouraging them to trade where they can get the largest rebate, rather than where they can get the best price for their client.

The pricing structures that RBC details in its new report are a result of the efforts by exchanges to calibrate the rebates they offer to some customers and the fees they charge to others.

In one example given in the report, the BATS-Y stock exchange — one of four stock exchanges run by BATS Global Markets — sent out a fee notice at the end of March 2014 announcing that it would offer 15-thousandths of a cent to traders buying certain stocks, thus bettering the 14-thousandths of a cent that Nasdaq BX had been offering. Fifteen minutes after the BATS-Y filing, Nasdaq made its own filing matching the new BATS-Y price. The next morning, BATS-Y filed again, increasing its offer to 16-thousandths of a cent.

Between 2012 and 2015, RBC found 362 filings with regulators announcing changes to trading fees, with some of the filings including multiple fee changes. The number of pricing tiers proliferates quickly because each tier can apply to similar trades in different ways depending on how frequently a trader uses a particular exchange.

Vimal Patel, who oversaw the research at RBC, said that he had no idea how tangled it had become until he began trying to sketch it out last summer. “It snuck up on people that the world is this complicated,” he said.

According to Popper, the new research from RBC is likely to strengthen the hand of an upstart company, IEX, that is currently asking regulators for approval to become an official stock exchange. Although IEX Founder/CEO Brad Katsuyama is a alumni of RBC, the report issued by the bank and scheduled to be submitted this week to a Senate Committee investigating market structure issues makes no reference to IEX.

For Popper’s story published by the NY Times, click here

Rule 48, ETF Dislocation: BATS CEO Says “No Humans Needed”

When ETFs were first launched in 1993, the ‘framers’ might not have fully appreciated what would happen to the respective ETF cash index in the event of a lopsided market opening when the underlying constituents had not yet opened for trading, despite the easy recall of October 1987..

Since that time, market structure experts and the cast of exchange characters regulated by the SEC have introduced a litany of steps, including NYSE’s Rule 48 that are designed to serve as circuit breakers to bring calm to the chaos caused by out-sized volatility, particularly during market openings. According to observations in the wake of the most recent market turmoil, when ETF market-makers stepped back and provided wide-as-a-truck pricing because constituent issues had yet to open, the CEO of BATS Global Markets, the electronic trading platform that has grown from the size of mouse to being one of the bid kids on the block, sent a signal to the media that led many, including MarketsMuse editors, to infer that he believes that humans are no longer relevant in the new age of Wall Street, computer horsepower and smart algorithms.

As noted by the WSJ in its Sep 1 story by Bradley Hope , “…in a strongly worded rebuke to its rival and NYSE operator Intercontinental Exchange on Tuesday, BATS Chief Executive Chris Concannon said that NYSE Group’s process for opening trading on stocks listed at the exchange was “broken” and that major changes needed to be made to protect investors from future problems. “No one on the planet operates that way, and no one should operate that way,” he said in an interview, adding that he sees “very limited value” in the use of humans on the trading floor

Some traditional market experts have since quietly suggested that Concannon “could have bets in his belfry if he believes that computers should be taken out of the equation.”

NYSE officials and floor brokers have argued for years that they serve a crucial role providing slower trading within today’s high-speed, electronic markets.

“The debate is about whether we need a slower market structure or a faster market structure on days with large systemic volatility,” said David Weisberger, managing director at market-analytics firm RegOne Solutions. The slower version is driven largely by people, whereas the faster one is controlled by computers and trading algorithms, he added.

The NYSE spokeswoman defended the exchange’s approach by contrasting it with a notable failure that BATS experienced itself with its own initial public offering.

Here’s the two points of Rule 48 and what the debate is based on.

  • IN A NORMAL MARKET: Market makers indicate where a stock might open. That helps investors modify buy and sell orders.
  • IN A VOLATILE MARKET: Market makers don’t have to indicate where a stock might open. That should make it easier for stocks to open quickly. But investors have less information about the market prices for securities.

Ted Weisberg, a longtime floor trader and founder of floor brokerage Seaport Securities Corp., said invoking Rule 48 can speed up the opening of stocks but leads to less transparency.

“When you invoke Rule 48, you’ve opted for speed over price discovery and speed over transparency,” he said. “‘What’s in the public’s best interest is transparency and time to react.”

An NYSE spokeswoman said: “Rule 48 allows us to expedite the opening of stocks on volatile days while maintaining the hallmark transparency that we are known for.”

BATS is accustomed to Donald Trump-style brashness  In prior MarketsMuse coverage ,they are strong advocates of “pay-to-play” kickbacks that provide rebates in exchange for orders sent to their electronic venue as opposed to sending to competing electronic trading venues. Here’s an excerpt from that story: Continue reading

Up at BATS: Another Edge; EDGX Options Exchange Approved

MarketsMuse Strike Price section spots news that BATS Global has received approval from the Securities and Exchange Commission to open its second options trading venue, EDGX Options. Launch of the EDGX Options system is tentatively set for Monday, November 2, BATS said.

The actual SEC Approval Order from the SEC can be found here.

As reported by Traders Magazine, EDGX Options will be based on a customer priority/pro rata allocation model and is designed to complement its BZX Options market, the exchange operator’s first U.S. options market which had a 10.8% market share in July, and one that is a “pure” price-time priority market. The launch of EDGX Options will enable BATS to compete for a new segment of order flow that does not trade on the price-time markets that BATS currently operates.

“We are pleased to receive approval from the SEC to launch EDGX Options and we are looking forward to making our mark in a new segment of the options market,” said Bryan Harkins, executive vice president and head of U.S. Markets at BATS. “Two-thirds of U.S. options market volume is executed on exchanges with a pro rata model and we believe we can help make markets better for participants in this segment of the market through our innovative technology, operating efficiency, market-leading pricing, and first-class customer service.”

BrokerDealer Exchange Rebates: BuySide Not Happy

On the heels of the recent NYSE ‘outage’, which actually had little impact on overall equities trading volume, but did lead to volume spikes away from the NYSE and at competing exchanges across the fragmented marketplace, the volume also increased with regard to spirited discussions about market structure. And, whenever talking about market structure, the “rebate debate” insofar as “maker-taker” rebate and fee schemes remain a front burner topic. It is no surprise that many (but not all) sell-side brokerdealers are characteristically in favor of these complex Chinese menus offered by the assortment of major exchange venues and dark pool operators. After all, brokers are ever more dependent on these ‘rebates’ as the race to zero in terms of commission rates paid by institutional customers continues to eat into executing broker income. To counteract the business model impact on BDs, savvy executing brokers have [for a number of years] been making up for lower rates via capturing offsetting revenue from routing customer orders to those bounty-paying trade execution platforms.

On the other hand, nobody should be surprised that an increasing number of institutional investment managers from the buy-side are beginning to “get the joke”, but they aren’t laughing as many realize that brokers are effectively double-dipping by charging their customers a commission and also pocketing kickbacks from competing execution venues that pay those brokers to help light up their screens and provide so-called actionable liquidity execution.

A comprehensive database of global brokerdealers in more than 30 countries, including the US is available at www.brokerdealer.com

To wit, and in our continuing coverage of this topic, MarketsMuse curators spotlighted this week’s story from buy-side publication Pensions & Investment Magazine, which profiles the heightened concern on the part of buysiders and the growing number who are expressing their angst with the SEC, the agency that is ostensibly supposed to ensure fair market practices and protect the interests of public investors. Below are select take-aways from the P&I story.

The Buy-Side Says: “Along with conflict-of-interest issues with rebates, other concerns like increased transaction costs and lack of transparency have added to the complexity of today’s market structure,” says Ryan Larson, RBC Global Asset Management. Added Larson, “Whether it’s SEC mandated, or better yet, driven from market participants themselves, I think it’s time to finally address the elephant in the room and start thinking about possible alternatives to the maker-taker model. … It’s not just the buy side that has been calling for a pilot on maker-taker. It’s the sell side, some of the exchanges, Congress, even members of the (SEC) as well. When you see that diverse of a group calling for change, I think it suggests something very important — whether maker-taker is the right approach. This could be one of the most impactful tests ever taken up in market structure.”

The Not-So-Subjective Market Data Vendor Says: “The whole point of maker-taker is to incentivize display of liquidity in lit markets,” said Henry Yegerman, director of trading analytics and research at financial data provider Markit Group Ltd., New York. “Market participants who place trades that rest passively in a venue, and so add liquidity, get a rebate. Investors who aggressively cross the spread to access that liquidity pay a fee to do so.” Institutional investors that are looking to buy or sell large blocks of stocks “are frequently takers of liquidity,” he said.

The Altruistic Sell-Side Perspective: Joseph Saluzzi, partner, co-founder and co-head of equity trading of Themis Trading LLC, a Chatham Township, N.J.-based agency broker for institutional investors said the link between liquidity and maker-taker doesn’t exist. What maker-taker does increase, Mr. Saluzzi said, is volume. “Liquidity and volume are two different things,” Mr. Saluzzi said. “Maker-taker creates volume, and a lot of that is artificial.”

Mr. Saluzzi said liquidity access is not helped through maker-taker, but by changes in a fragmented market structure that would reduce the number of trading venues. “Liquidity is not helped by rebates, but by less fragmentation,” Mr. Saluzzi said. “Maker-taker is the linchpin of the problems with the market. It’s a relic of a system that was around 15 years ago.”

The Exchange Perspective: Not Everyone Agrees: IEX, the dark-pool operator whose ATS platform is now awaiting SEC approval to operate as a regulated exchange is perhaps the most outspoken critic of maker-taker fee/rebate schemes; customers are charged a flat rate commission irrespective of how an order interacts with prevailing bid-quotes. The New York Stock Exchange came out against maker-taker rebates in testimony by exchange executives in 2014, while Nasdaq Global Markets is running a pricing test program that lowers rebate pricing for select stocks to gauge the effects on liquidity. In two reports this year on the test, Nasdaq has said the lower rebates have had a negative effect on liquidity.

At the other end of the spectrum, executives at BATS Global Markets Inc., which is perhaps the second largest equities exchange as measured by volume, don’t support an outright maker-taker ban and think the rebate paid to liquidity providers matters, “particularly with less liquid securities,” said Eric Swanson, general counsel at BATS, Kansas City, Mo.

[MarketsMuse editor note: Mr. Swanson is a former SEC senior executive who served as Asst. Director of Compliance Inspections and Examinations during the same period of time that his wife Shana Madoff-Swanson, the niece of convicted felon Bernie Madoff, received millions of dollars in compensation while she served as head of compliance for Bernard L. Madoff Investment Securities. According to Wikipedia, Swanson first met Shana Madoff when he was conducting an SEC examination of whether Bernie Madoff was running a Ponzi scheme. Ms. Madoff-Swanson’s father Peter is the brother of Bernie Madoff and is currently serving an extended sentence in a federal jail while Uncle Bernie is serving a 150-year sentence.]

The full story from P&I can be accessed by clicking this link.


What’s Next? Another Dark Pool: LSE Jumps In via Plato’s Retreat

MarketsMuse.com Tech Talk update profiles the latest news flash for FinTech wonks: Whilst the securities industry landscape continues to debate the “dark pool vs. lit market” topic, the London Stock Exchange (LSE) is taking a chapter from the behometh brokerdealer universe with their own scheme to introduce a dark pool, but the regulated LSE proposes to make their platform a ‘non-profit utility”. Below is courtesy of extract from Bloomberg LP reporting. MarketsMuse Editor’s note: Our MM title editor apologizes to those who might be confused by the reference to the once notorious Manhattan NY gathering place for those seeking to keep their wild side ‘dark’..but we thought it was a fun title nonetheless..
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BATS Is Up At Bat Again; Another Options Exchange Is Pitched

MarketsMuse.com Strike Price update profiles the most recent plan for yet another Options trading platform on the part of BATS. Coverage is courtesy of TradersMagazine.

BATS Global Markets has announced they are opening a second U.S options marketplace, EDGX Options. According to BATS, EDGX Options will be based on a customer priority/pro rata allocation model. The new exchange will complement the BZX Options exchange, BATS’ first options market (previously called BATS Options), which is a price-time priority market.

The target date for the opening of the newest BATS marketplace is November 2015, pending SEC approval. The launch of EDGX Options will enable BATS to compete for a new segment of order flow that does not trade on the price-time markets that BATS currently operates, the exchange said in a release.

Brian Harkins, BATS
Bryan Harkins, BATS

According to Bryan Harkins, executive vice president and head of U.S. markets at BATS “With two-thirds of U.S. options market volume executed on exchanges with a pro rata model, we see a big opportunity to bring our innovative technology, operating efficiency, market leading pricing, and first-class customer service to help make markets better for participants in this segment of the market.” Added Harkins, “We are excited to build on our options momentum with the launch of EDGX Options, which we believe will complement our existing innovative BZX Options market.”

For the full coverage from TradersMag, please click here