Best Exchange Technology: Bats Global Markets

Terry Flanagan

This Markets Choice Award was presented on Feb. 20.

Bats Global Markets has been on the forefront of trading-venue technology since it launched as an electronic communication network in 2005. With its recent purchase of Direct Edge, Bats’ technology stands to power about one-fifth of U.S. stock-exchange trading as of next year.

“2013 was a transformative year for Bats, both in the U.S. and in Europe,” said Chris Isaacson, global chief information officer for Bats. “In the U.S., it was dominated by the announcement of our merger with Direct Edge. All four equity exchanges currently run by both BATS and Direct Edge will be running the Bats technology starting in January 2015.”

For Bats, last year was about maintaining its market-leading technology, and adding tools for customers to get more out of trading on its exchanges, at a low cost. “Technical requirements for trading haven’t changed much in the past year – it is still about low latency and high reliability,” Isaacson told Markets Media. “What you’ve seen from us in the last year is increased functionality. Things our brokers previously would not have asked of exchanges, they are now.”

In Europe, Bats became a registered investment exchange in May 2013, which Isaacson said opened up business with retail brokers. The exchange operator also launched a pan-European trade reporting service, BXTR. “We became a market leader in our first full month of operation, November 2013, capturing 40% market share in OTC reporting,” he said.

“We view this as a major initiative in Europe, because it is complementary to our leading market share across Europe on our exchange books,” Isaacson continued. “Add trade importing to that, and we have an incredibly rich market data set.”

Bats also launched a pan-European ETF listings business, which complements its U.S. ETF listings business. The Lenexa, Kansas-based firm also rolled out a competitive liquidity provider program in Europe that’s similar to its U.S. offering. Issacson noted that Bats had ‘kill switches’ in place for the entirety of 2013, and the company provided leadership in holding consolidated tapes accountable for the level of systems they’re providing to the market.

In the U.S., Bats added tools and services to improve market quality by augmenting existing industry data. These included a rollout of market-quality statistics published online, which Isaacson said shows the quality of all U.S. equities markets on a stock-by-stock basis. “In the fourth quarter of 2013, Bats BZX was ranked first or second in the quality of trading in 79% of the stocks in the S&P 500,” he said. “That number will go higher” with the Direct Edge merger, he added.

“We also rolled out our retail price improvement program in January of last year,” Isaacson said. “That is continuing to hit new highs, with more than three million shares per day and providing price improvement of about 0.4 cents per share, which is strong price improvement for retail orders.”

“With the merger of Direct Edge and Bats, EDGX has been a key destination for many non-marketable retail orders,” he continued. “And BYX was where the retail price improvement program was launched with the target of marketable retail liquidity. We’re trying to reach out not just to the buy side and the sell side, but also to the retail community.”

Isaacson noted that Bats canvassed its members in the second half of 2013 regarding where the combined Bats-Direct Edge U.S. data center should be located, and customers resoundingly said the Equinix facility in Secaucus, N.J. “Customers want efficient and reliable technology,” he said. “They want us to consolidate data centers for cost synergy purposes, and provide one data center as well as one technology platform.”

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