Bats IPO Turns Ugly

System error stymies equity exchange’s debut as public company.

You think you had a bad day?

Bats Global Markets Inc., the six-year-old equity exchange, saw its debut as a public company go haywire as a system error caused incorrect price quotes and Apple Inc. was halted due to a transaction on its platform.

“It’s a pretty inauspicious start,” Sam Ginzburg, a partner and head of capital markets at First New York Securities LLC, a New York-based proprietary trading firm, said today in a phone interview.

Data received by Bloomberg showed Bats’s shares, the first ever to be listed on its Lenexa, Kansas-based market, traded for pennies following the initial public offering at $16. Nasdaq OMX Group Inc. later said they were canceled and Bats suspended its own stock until further notice. At the same time, a single trade of 100 shares of Apple, the world’s most valuable company, triggered a circuit breaker that paused the stock.

The malfunctions may refocus scrutiny on modern American market structure, where two decades of government regulation have broken the grip of the biggest exchanges and left trading fragmented over as many as 50 venues. Bats, whose name stands for Better Alternative Trading System, rose to prominence in tandem with the explosion of electronic firms that now dominate the buying and selling of stock in the U.S.

The Bats website shows its shares changed hands on the company’s exchange for $15.25 at 10:45 a.m. New York time. The shares fell below 1 cent, according to data compiled by Bloomberg, in trades that were later voided.

Spokesman Randy Williams couldn’t be reached for comment.

“It’s not wildly unusual for exchanges to have system issues, but because they happen to go public today it makes it more newsworthy,” Mike Shea, a managing partner at Direct Access Partners LLC in New York, said in a phone interview.

A single trade for 100 shares executed on a Bats venue briefly sent Apple down to $542.80, according to data compiled by Bloomberg. The order was executed at 10:57 a.m. New York time. Two more transactions, which sent the stock back above $598, were made before the halt. The stock stayed around that level once trading resumed five minutes later.

Bats sent a notice about 10 minutes before the Apple trade saying it was investigating “system issues” affecting companies with ticker symbols ranging between A and BF. Apple’s is AAPL. Bats’s ticker is BATS.

 

Bottom of Range

The third-largest U.S. stock exchange operator raised $100.7 million in its initial public offering yesterday after selling shares at the bottom of the proposed range. Bats sold 6.3 million shares for $16 each on behalf of existing stockholders. The company had offered them for $16 to $18, according to a regulatory filing.

Founded by a high-frequency trader in 2005, Bats was steered to prominence by brokers and traders trying to hold down fees as the New York Stock Exchange and Nasdaq Stock Market bought their biggest electronic rivals.

The exchange operator raised money less than two years after a crash erased $862 billion in less than 20 minutes from U.S. share values, a plunge that some critics linked to the fragmented electronic market structure that helped Bats thrive. The company was initially built to service high-frequency firms like Tradebot Systems Inc., whose chief executive officer founded Bats. Automated trading firm Getco LLC in Chicago and Wedbush Inc., owner of a Los Angeles-based investment bank whose clients include high-speed firms, bought equity stakes.

Bats executed 10.9 percent of U.S. equities volume last month, compared with 10.7 a year earlier, the company said. Its U.S. options market share was less than 3 percent and its two European platforms had a combined share of 25.3 percent of value traded, Bats said.

 

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