Direct Edge Considering IPO
February 24, 2012
Direct Edge is looking at joining its rival, BATS Global Markets, in offering shares to the public,.
The operator of the EDGA and EDGX exchanges said Friday that an initial public offering of stock is under consideration as part of the “evolution” of its business, which it plans to expand outside the United States this year.
“It is natural for a business in our stage of maturity to look to the capital markets for its next evolution and we are considering those options, including an IPO,’’ said chief executive William O’Brien, in response to an inquiry from Securities Technology Monitor.
The statement came one day after BATS Global Markets, operators of two competing electronic exchanges, known as BZX and BYX, filed an S-1 registration statement with Securities and Exchange Commission. An S-1 is an SEC filing used by companies to register their securities when they intend to issue shares to the public.
The exchanges launched by Direct Edge account for between 10 percent and 12 percent of average daily trading in U.S. stocks. So do the BATS exchanges.
In turn, Direct Edge and BATS each are trying to take market share away from the long-term incumbents, NYSE Euronext, owner of the New York Stock Exchange, and Nasdaq OMX Group, operator of the Nasdaq Stock Market.
O’Brien declined to elaborate on what stage Direct Edge has reached with any capital markets strategy it might be considering, including an IPO.
The Wall Street Journal reported in late January that Wells Fargo & Co. (WFC) and Bank of America Merrill Lynch (BAC) have been hired to examine those options, including either a sale of the company or a sale of shares.
Direct Edge got its start in 1998 as an electronic communications network called Attain.
In 2005, it was purchased by Knight Capital Group, re-branded as the Direct Edge ECN. In 2007, Knight set Direct Edge off as an independent company and brought in Citadel Securities and Goldman Sachs as partners. In 2008, options exchange operator International Securities Exchange – a unit of Deutsche Boerse Group -- took a 31.5% ownership of Direct Edge, diluting the shares of Knight, Citadel, and Goldman to just under 20%. In that deal, Direct Edge took operational control of the ISE Stock Exchange.
When it looked like Deutsche Boerse Group and NYSE Euronext were going to merge, the U.S. Justice Department ruled that the combined company would have to divest its stake in Direct Edge.
Like BATS, Direct Edge is known for technical innovation. And like BATs, Direct Edge is eyeing foreign markets for growth.
In November, Direct Edge said it planned to open and operate an exchange in Brazil, a fast-growing market that appeals to high-speed trading firms. At the time, O’Brien said Direct Edge’s trading systems will be “customized to the unique needs of the Brazilian market."
In its registration statement, BATS Thursday said it is looking to expand in both Canada and Brazil.