Mar 26, 2012
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.
Anish Puaar
+44 (0)20 7397 3817
anish.puaar@thetrade.ltd.uk