BATS to pursue US listings business despite IPO failure
BATS Global Markets will continue to search for US corporate listings on its BZX Exchange, despite a technical failure that caused the firm to withdraw the debut of its own stock.
The market operator’s CEO, Joe Ratterman, has apologised for the outage in a note sent yesterday and has said BATS’ plans to go public are on hold for the “foreseeable future”.
At 10.45 EST on Friday, BATS’ BZX Exchange encountered a software issue related to the IPO auction process, which meant that customers were unable to enter orders in the firm’s own stock and also meant the auction did not complete as expected.
The exchange then requested for quotes in its stock to be removed from the consolidated tape. The bug knocked out trading in BATS’ stock for two-and-a-half hours, after which the firm determined that investor confidence had eroded and the timely resumption of fair and orderly trading was unlikely. BATS then took the decision to withdraw its IPO, cancelling all executions and informing affected trading participants. US equity trading in other stocks across all other markets was unaffected.
“We believed that pulling the IPO was in the best interest of our new shareholders and we made the difficult decision to do so,” read the note from Ratterman. “Given the technical issues that happened on our exchange that caused us to halt the trading of the BATS stock, we were concerned that if we reopened trading in the stock, the results would be devastating.”
As a result of the IPO auction glitch, BATS experienced crosses on its second equity exchange BYX that were based on stale quotes from BZX. The stale quotes were pulled and three erroneous trades in Apple were subsequently cancelled.
Although BATS’ own listing – which was expected to raise US$100 million – is now on hold indefinitely, Ratterman said the market operator would work to win back issuer and industry confidence for its listings business.
“We pioneered a new approach to market maker support for our issuers that has a proven track record of providing high quality quotes in terms of quoted spread and size at the inside,” said Ratterman. “While our own corporate IPO auction suffered from a software failure, we are confident that the core elements of our program will bring increasing value to issuers on our exchange over time.”
BATS opened its listings business on 5 December on BZX and listed its first instruments – a series of iShares exchange-traded funds (ETFs) – on 24 January. In trying to differentiate itself from Nasdaq OMX and NYSE Euronext, the only other US listings venues, BATS launched a competitive liquidity provider scheme, whereby selected market-making firms competing for a daily reward by posting quotes in a stock or ETF.
The system failures experienced by BATS again raised questions about the fragility of US market structure. The 6 May 2010 ‘flash crash’ saw some stocks plunge to near zero before rebounding just as quickly, while more recently, options bourse NYSE Amex was forced to adjust and bust over 30,000 trades following an erroneous order from a market making firm last month.