Private Exchange Wants to Challenge NYSE, Nasdaq

Tuesday, 29 Mar 2011 08:42 AM

 

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BATS Global Markets plans to list U.S. public stocks by year end, opening the door for companies to float shares somewhere other than the Big Board or Nasdaq for the first time in years.

The privately held exchange operator confirmed it sent draft rules to regulators and said it will formally file as a primary U.S. market shortly. BATS would launch its listings market in the fourth quarter, according to the plan.

Listing stocks would open yet another front in the Kansas City-based company's battle against Nasdaq OMX Group and NYSE Euronext, cutting right to the heart of these traditional exchanges' reason for being: raising capital in initial public offerings.

"This is going after the fat part of the curve, or the bread and butter for Nasdaq and NYSE," BATS Chief Executive Joe Ratterman said in an interview, adding the time is right to offer companies "simplified" listing fees.

The rash of merger plans now sweeping exchange operators - including BATS itself - could also give the newcomer a foothold in a market that is already fiercely contested by the two New York-based incumbents, Ratterman said.

Nasdaq is considering making a counter-bid for NYSE, meant to trump a friendly takeover offer from Germany's Deutsche Boerse, sources familiar with the situation said earlier this month.

If successful, such a move would bring all U.S. listings under one roof - and could raise concerns from issuers and regulators worried about a monopoly.

Ratterman said BATS could step in to that potential breach. "I've heard from a number of customers that would make them feel very uncomfortable about having a monopoly in the U.S.," he said.

"If Nasdaq were to have any success there I think the industry would demand a real alternative to the monopoly."

Thousands of companies based in the United States and elsewhere list their shares on one of the so-called primary venues run by Nasdaq OMX or NYSE Euronext - exchanges that derive some 20 percent of overall revenue from listings and related services, including their European businesses.

While most countries have one place to list shares, the Unites States is rare in that it has historically had two or more venues.

NYSE Euronext bought the American Stock Exchange in 2008, leaving two operators to vie for and list IPOs.

"Despite what most people believe, listings is an oligopoly and it's not a very competitive business" in the United States, said Edward Ditmire, exchanges analyst at Macquarie.

BATS is owned by many of the world's largest banks, including JPMorgan Chase and Credit Suisse, and by trading firms such as Lime Brokerage.

Catching The Floatation Wave

IPOs gained steam late last year, after a near shutdown because of the financial crisis that rocked markets in 2008 and 2009.

As of March 10, U.S. IPO activity totaled $12.5 billion for year-to-date 2011, the strongest start for U.S. IPOs since 2000 and six times the IPO activity last year at this time.

BATS said it will not be targeting specific sectors or regions - such as Chinese companies looking for U.S. exposure - when it launches listings in the fourth quarter.

The plan is not to be the cheapest listing venue, Ratterman said, and it will not aim for the smallest-cap stocks.

Some mid- to large-cap companies will find BATS is the most economical option, he added. Unlike Nasdaq or NYSE, BATS will not base its annual fees on the number of shares outstanding.

Though no final decision has been made, it may adopt "a flat fee type of approach," Ratterman said, declining to give more details.

"Any firm that wants a listing in the U.S. will be open to us," he said.

Nasdaq Global Market's listing entry fee ranges from $125,000 to $225,000, based on shares outstanding, according to its Web site, and ranges from $35,000 to $99,500 annually.

The market lists many of Nasdaq OMX's mid-cap U.S. shares.

BATS' listing standards will be similar to Nasdaq's, Ratterman said, adding the company expects an "incremental" volume jump as more trading in the opening and closing auctions migrate from the Nasdaq and NYSE. He did not give listings targets.

Last month, BATS, which trades U.S. and European shares, said it would acquire fellow private exchange operator Chi-X Europe, propelling it into the merger frenzy that has swept up NYSE, Deutsche Boerse, London Stock Exchange and Canada's TMX Group.

Nasdaq has remained on the sidelines.

"If the experience that we have in the U.S. is positive ...then extending into Europe would be a natural next step," Ratterman said of the listings business.

Reuters first reported that BATS was considering a listings business in early 2009.

© 2014 Thomson/Reuters. All rights reserved.

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