Eyeing Exchange Status, Ratterman in Charge At BATS; Cummings Returns to Tradebot
July 9, 2007
Securities market entrepreneur and market-center gadfly David Cummings will no longer be so closely identified with the BATS Trading electronic communications network (ECN) that he founded and that has had a major impact on institutional stock trading since it opened early last year.
BATS at the end of June announced the promotion of EVP and COO Joe Ratterman to replace Cummings, who stepped down as CEO to return to Tradebot Systems, the black-box trading powerhouse he formed in 1999. Cummings said he will remain on the BATS board and serve as an adviser on market-structure issues, but with BATS planning to become a full-fledged exchange, he would have been prohibited from holding a management position there while also owning broker-dealer Tradebot.
That leaves the fast-growing ECN in the hands of the 41-year-old Ratterman, one of its founding employees. Ratterman was VP of business development at Tradebot in 2004 and 2005, chief information officer at Lab One of Lenexa, Kan., a health screening and clinical diagnostic testing company that was acquired by Quest Diagnostics, in the two previous years, and chief technology officer at Bridge Information Systems--which was acquired by Reuters--from 1990 to 2002. He earned a degree in mathematics and computer science from Central Missouri State University in 1988.
Cummings, an electrical engineer by training, and Ratterman appear to be on the same page in terms of BATS' business strategy of providing low-cost trade execution to broker-dealers. Cummings, who was known for his opinionated e-mail blasts to clients and friends, said in a farewell note on June 29 that the time was right to hand the 37-employee organization over to a "professional manager." He described his successor as a "driving force in leading BATS' exchange initiative" and "the right person to lead the company to the next level."
"Our business model is not about making money, but gaining market share," Ratterman said in an interview, reflecting Cummings' frequent complaint that established exchanges have become too profit-driven. "I wouldn't say we're getting near [to exchange status]," Ratterman said of the application to the Securities and Exchange Commission, but he added that the "process is going very well." In preparation for the formal filing of the application, when it will be published for public comment, the firm is ironing internal requirements, such as connecting to the securities information processors (SIPs) that collect and disseminate quotes and print trades. Securities Industry Automation Corp. is the SIP for stocks listed on the New York Stock Exchange and American Stock Exchange, and Nasdaq is the SIP for its own securities. BATS currently uses the National Stock Exchange to print trades and send data to the SIPs; as an exchange it will send the data directly.
Ratterman explained that Cummings' ownership of Tradebot, which like BATS is in Kansas City, was identified early on as an issue, and the best way to resolve it was for him to divest his interest or step down from a BATS management role.
So exactly two years since Cummings founded the ECN company, it enters a new era. As recently as a year ago, it was executing only a million shares a day, although it had established a presence on many market players' radar screens. In October, trading firm Getco and high-volume clearer Wedbush Morgan Securities took stakes in the company, and by year-end 2006 its daily volumes were exceeding 100 million shares. A fee special in January encouraged more market participants to connect to the ECN, and by the latter part of June the daily average was 380 million, or approximately 12 percent of Nasdaq Stock Market volume.
