02.29.2012
By Terry Flanagan

Exchange Plans Global Expansion

Bats Global Markets, which has made a splash in the US and Europe via M&A and aggressive pricing, will look to bring its unique brand of trading to Canada and Brazil.

Bats plans to enter new asset classes and new geographic locations within the coming years. According to its initial public offering filing with the Securities and Exchange Commission, amended Feb. 23, Bats will expand to countries where it sees “opportunities to leverage its technology platform to capture market share,” including Canada and Brazil. Its goal is to enter “at least two new markets by the end of 2014.”

The company will also look to venture outside of cash equities and options trading, where in the U.S. it commands roughly 11% and 3% market share, respectively. It will look into the trading of U.S. Treasury securities and other fixed income products, foreign exchange, U.S. futures, and other derivative products.

Bats is currently under a memorandum of understanding with Claritas, a Brazilian asset management firm, to explore opportunities in the Brazilian market, including the potential creation of a new exchange. It has not made any official announcements regarding potential expansion into Canada, aside from the SEC filing.

The company will also consider strategic alliances and further M&A activity. “Our focus will be on opportunities that we believe can enhance or benefit from our technology platform, provide significant market share and profitability and are consistent with our corporate culture. We believe that the establishment of a public trading market for our common stock will enhance our ability to pursue strategic opportunities by providing a currency with which to execute future acquisitions.”

Founded in 2005 as an electronic communications network for trading, Bats has since grown to be the third largest exchange operator in the U.S., behind NYSE and Nasdaq. Bats operates two trading platforms in the U.S., Bats BZX and Bats BYX, as well as and Bats Options, an options exchange.

It recently acquired Chi-X Europe to form Bats Chi-X Europe, a pan-European multilateral trading facility and the largest electronic trading platform in Europe with 25% market share. The transition of Chi-X Europe to Bats’ trading platform is expected to be complete during the second quarter.

Bats also recently launched its own primary listings service to take on NYSE Euronext and Nasdaq OMX. It plans to use a new aggressive pricing model to attract new business. The first securities listed on Bats are a suite of eight BlackRock iShares exchange traded funds. The funds are linked to indexes of international stocks.

The new pricing comes on the heels of a new market maker program introduced by Bats. The new program uses a rewards-based system to incentivize market makers to make tighter quoted spreads with increased liquidity for each listing on Bats. The so-called Competitive Liquidity Provider program will particularly benefit small- and mid-cap companies who may have a lack of liquidity of their stock, which can make attracting larger investors difficult.

Bats announced in May 2011 its plans to go public in a $100 million initial public offering. According to industry estimates, that values the company at just above $1 billion. Initially slated for late 2011, the IPO is now expected to occur by April.

A request to Bats for comment was declined due to a quiet period related to its IPO filing.

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