BATS to Apply for Second Exchange License
Traders Magazine Online News, September 17, 2009
BATS Exchange will soon have a sibling. BATS Global Markets, which operates BATS Exchange, plans to apply for a second exchange license for a new equities market. The new exchange will be called BYX.
"We've been thinking about this for the last couple of years," said Randy Williams, a BATS spokesman. "Clients were pushing for a second market." He added that the company "will do something different on the pricing front [in BYX] as well as in the market structure, which we're figuring out now."
All of BATS's rivals have multiple exchange licenses. So far, BATS has made do with just one. BATS's market share in August was 9.98 percent, making it the third-largest exchange operator.
BATS expects the new exchange to open for trading in the first or second quarter of 2010. The exchange application must be approved by the Securities and Exchange Commission. The exchange company, based in Kansas City, MO, is owned by a group of 11 broker-dealers, including Tradebot Systems, GETCO, Merrill Lynch, Lime Brokerage and Citi. BATS expects to file its application for BYX with the SEC in the next 30 days.
The exchange company said BYX will rely on the same "technology, location and connectivity as the existing exchange." BYX's pricing will be announced down the road.
All of BATS's rivals have multiple markets. NYSE Euronext operates three: the New York Stock Exchange, NYSE Arca and NYSE Amex. Nasdaq OMX Group operates two: Nasdaq Stock Market and Nasdaq OMX BX. Direct Edge Holdings, an ECN operator, also has two markets. The company is in the process of converting its ECNs into exchanges, a task it hopes to complete by the end of this year.
Brian Hyndman, senior vice president for transaction services at Nasdaq OMX Group, said he understood the desire for an additional exchange license and wished BATS luck. "The market is fragmented," he said. "We'll look forward to seeing what their model will be and how they'll differentiate it."
Hyndman added that Nasdaq OMX has a third equities exchange license in the Philadelphia Stock Exchange. "It's to our competitive advantage to have that sitting on the shelf," he said. That exchange license is currently used only for options. The exchange operator shut down the Philly equities market in 2008.
BATS Global Markets also operates BATS Europe, a multi-lateral trading facility based in London, which began trading last fall. In early 2010, the company plans to launch a U.S. options exchange that will join the current seven exchanges trading equity options. BYX is expected to be up and running "not long after the options platform goes live," Williams said.
