BATS Blames Market Rules for Mishaps
January 11, 2013
BATS’s Origins
BATS was founded by a high-frequency trader in 2005 after the SEC approved rules that spurred competition with the then- dominant New York Stock Exchange. The company, whose acronym stands for Better Alternative Trading System, became an exchange in 2008.
Venues run by BATS execute about 12 percent of American share volume, compared with about 10 percent at the end 0f 2010, data compiled by Bloomberg show. Customers of the all-electronic exchange company range from retail brokers and securities firms to professional traders and institutional investors.
“My concern would be not really with BATS’s own reputation as a result of this, but the potential negative impact on the electronic market overall,” Sang Lee, managing partner at Aite Group LLC in Boston, said in an e-mail. “If one of the best technically driven exchanges is having issues, what does that say about the potential issues with the rest of the marketplace?”
Rule Violations
NYSE Euronext, the biggest U.S. exchange operator, agreed to pay $5 million in September to resolve regulatory claims that the Big Board violated rules by giving certain customers a head start on trading information. The NYSE sent data through two proprietary feeds to paying customers before relaying the information to the so-called consolidated feed, which distributes trade and quote data to the public, the SEC said.
Nasdaq Stock Market mishandled Facebook Inc.’s IPO on May 18 when an auction to set the first traded price for the shares failed. The exchange’s systems were overwhelmed by order updates and cancellations before the stock began trading, causing the exchange to make technology changes that prevented confirmations of orders and trades from being disseminated for hours, and leading to confusion among investors, brokers and market makers.
Investor Confidence
BATS’s error follows market breakdowns that have weighed on investor confidence. Trading for companies listed on U.S. stock exchanges has declined to an average 6.2 billion shares a day since the Facebook IPO, 17 percent lower than the previous 12 months, data compiled by Bloomberg show. Investors pulled money from mutual funds that invest in American stocks, with $377 billion in outflows since the May 2010 flash crash, according to data from Washington-based Investment Company Institute.
“It highlights why people don’t trust the market,” Rick Fier, director of equity trading at Conifer Securities LLC in New York, said in a phone interview. “Although it was not a very large problem, meaning it didn’t effect that many trades as a percentage, people at home will only hear that the market is not working properly still, and that no one is doing anything to correct it.”
