BATS cancels its IPO following technical glitches
NEW YORK - It was hardly the stock market debut BATS Global Markets was hoping for.
Since being founded nearly seven years ago, the Kansas-based stock exchange operator has been doing battle with its much larger rivals Nasdaq and the New York Stock Exchange for a piece of the stock exchange market. On Thursday night the initial public offering of its own stock priced at $16 apiece, the low end of what the company had originally predicted. Intended as a symbol of its newfound stature, the IPO would trade on BATS's own exchange.
If only the problems stopped there.
The shares immediately plunged to just pennies before being halted. They never reopened. By late afternoon, BATS withdrew its public offering and said it had no plans to refile. All trades made that day would be canceled.
Meanwhile, a problem linked to a faulty trade on a BATS platform in Apple caused that stock to be temporarily halted. BATS also said it temporarily suspended trading of all stocks whose ticker symbols began with A through BF, though it restored that trading by early afternoon.
"We have an electronic mess," said Joe Saluzzi, co-head of equity trading for broker Themis Trading.
The botched IPO was a blow was not only to the exchange, but to a new business for which it had high hopes. In February, BATS offered free listings to companies whose shares traded a certain amount each day. It strove to define itself as a tech-savvy exchange, and said companies would benefit from its "world-class customer support and technology."
To help the business, BATS picked a new listing that would be sure to garner attention: itself.
The irony was hard to miss.
"It was the biggest day of the life of the company, and their own stock melts down," says Larry Tabb, CEO of Tabb Group, a markets research firm. "This doesn't build confidence."
Saluzzi called the glitch a "black eye" for the complicated web of more than 40 electronic trading venues that has largely replaced the open outcry system of human traders yelling numbers at each other. "All it takes is one piece of the puzzle to fall, and they all fall."
The problems brought comparisons to the May 6, 2010, "flash crash," when a crush of electronic trading glitches caused a stomach-churning plunge in the markets. They also raised questions about the safety of the new stock trading platforms such as BATS that have sprung up in recent years.
High-frequency trading driven by powerful computers and complex mathematical formulas has largely elbowed out guys in jackets on the NYSE floor as the main source of trading. The computers comb the markets for securities priced too high or too low for a split-second, then trade on them.
Though computer glitches aren't all that unusual in the fast-paced world of high-frequency trading, the embarrassment couldn't have come at a worse, or more public, time for BATS. Based in Lenexa, Kansas, with about 170 employees, it's trying to position itself as an alternative to the bigger, much older NYSE and Nasdaq.
When companies go public, they pick one of the exchanges to list themselves on.
With memories of the flash crash still fresh, regulators have been taking a closer look at high-frequency trading firms. The Wall Street Journal reported Friday that the Securities and Exchange Commission is investigating whether such platforms give some traders an unfair advantage. The Journal, which cited people familiar with the matter, said the investigation includes BATS.
The SEC declined to comment. BATS said in regulatory filing in February that it had received a request for information from the SEC's enforcement division about "our communications with certain market participants ... regarding the development, modification and use of order types; our information technology systems; and trading strategies." BATS said in the filing that it was cooperating with the SEC.
Friday's trouble was exacerbated at 10:57 a.m., when a trade on a BATS platform marked 100 Apple shares as $542.80 for a millisecond, when a split-second earlier Apple had been $598.26.
That triggered a "circuit breaker," which is meant to alert traders when a stock trades at a price that is significantly different from its previous price.
BATS temporarily halted trading of all stocks whose tickers began with A through BF. It said later that a "systems issue" had affected those stocks, and that the issue was corrected by 12:50 p.m.
BATS and the Nasdaq, where Apple is normally traded, both declared "self-help" against each other. Exchanges are normally required to consider other exchanges' prices when accepting order prices. But they can declare "self-help," meaning they do not need to consider another exchange's price, when the other exchange is malfunctioning, said Manoj Narang, chief executive of Tradeworx.
BATS' motto is "Making Markets Better."