BATS Speeds Up Rebates

June 18, 2007

The BATS Trading electronic communications network (ECN), in its latest move to make itself more inviting as an execution venue, has instituted weekly rebates, instead of the more typical monthly practice. Since opening early last year, Kansas City-based BATS has emphasized cost-effectiveness and efficiency and has succeeded in attracting low-teen percentages of Nasdaq trading volume since a fee special in January drew significant liquidity providers to connect to the system. The shorter rebate schedule is unlikely to dramatically affect BATS' business, but it will benefit some of its biggest users providing liquidity and, perhaps more importantly, strengthen the ECN's marketing appeal.

"Part of this is recognition that big liquidity providers would like to get paid sooner and pick up more interest on their rebates," said David Easthope, an analyst at Boston-based Celent. "And part of it is probably getting the message out that BATS does offer these rebates and is an innovator."

That, in fact, has been one of BATS' strengths, surprising given founder David Cummings previously ran Tradebot, a secretive black-box trading firm and now a backer of BATS, and views himself as more of a quant trader than a marketer. "You have to be out there with something new in this market" to get customers' attention, said another execution-venue executive.

BATS' marketing image as well as its well-regarded technology and low cost have all served to establish it as a force in equity execution. That position was confirmed earlier this month when Citigroup acquired a minority stake in the ECN, and in March when Merrill Lynch became an investor. They joined a list of backers that includes Credit Suisse, Getco, Lehman Brothers, Lime Brokerage, Morgan Stanley and Wedbush.