Deutsche Bank and JPMorgan have each invested in BATS Trading, operator of BATS ECN, acquiring a minority stake in the fast growing alternative market center in U.S. equity securities. Financial terms were not disclosed. This brings the number of sell-side investors in Kansas City-based BATS up to 10.
BATS ECN has grabbed the attention of the industry with its high-speed trading platform that appeals to high frequency and algorithmic traders and with its aggressive rates for adding and removing liquidity, which have turned up the heat on the NYSE and Nasdaq.The investments are occurring at a time when BATS' application to become a registered U.S. securities exchange is pending before the Securities and Exchange Commission (SEC). The application was filed on Nov. 30, 2007. BATS is currently waiting for the SEC to open up the application for public comment, according to BATS' spokesman.
In a statement, Robert Flatley, managing director and global head of Autobahn Equity at Deutsche Bank, said, "We are confident that our investment in BATS Trading will allow us to take advantage of ongoing market structure developments and continue enhancing our trading capabilities."
Carlos Hernandez, global head of equities at JPMorgan stated,, "As the alternative execution space continues to expand and evolve, we remain committed to its development while providing our clients with the broadest access."
Commenting on the news, David Easthope, senior analyst with Boston-based Celent, a market research and advisory wrote, " BATS has made a lot of noise the past year or so by taking on NYSE and Nasdaq in their own backyards, often with innovative rebate pricing and grabbing a nice slice of the execution pie." According to Easthope, "Most investment banks continue to make these type of market infrastructure investments for a few reasons. First, for a relatively small investment, it gives the banks a seat at the table to helps et the future direction of the firm and keep close tabs. Second, it potentially allows the banks to benefit from BATS' continued growth and its likely future as a registered, publicly traded exchange. At the same time, BATS receives an increased amount of capital to fund investments in technology," Easthope wrote in a commentary emailed to the media.
The growth in BATS' trading volume as an alternative to the traditional exchanges is a major factor attracting the sell-side investors. BATS' average daily trading volume is about 600 million shares a day and it hit a high of 839 million shares in the fourth quarter. BATS' has about eight-to-nine percent of the total equity market including NYSE, Nasdaq and American Stock Exchange volume, according to BATS' spokesman. "It's important for us to become an exchange. Then we can make that push to get to 15 or 20 percent of the market," says the spokesman.
But are the investment banks investing now because they expect BATS to eventually become a public exchange and they want to cash in on the IPO? "From the broker's perspective, they like us being a private entity," says the BATS spokesman. "When NYSE and Nasdaq went public, they jacked up fees, and it cost the brokers money. So they're definitely not pushing us to go public," he says.Deutsche Bank and JPMorgan have each invested in BATS Trading, operator of BATS ECN, acquiring a minority stake in the fast growing alternative market center in U.S. equity securities. 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