Bats Global Markets Inc., the third-largest U.S. stock exchange operator, plans to create a program to draw orders from retail customers to one of its two markets.
The Lenexa, Kansas-based company is seeking to compete with the New York Stock Exchange’s initiative to attract buy and sell requests from individual investors by offering them better prices than are available to other market participants. Nasdaq OMX Group Inc., Direct Edge Holdings LLC and Bats have said they’re working on plans similar to NYSE’s pilot program.
Exchanges are in competition with so-called equity wholesalers, a category of market makers that executes orders for individuals sent to them by retail brokers such as TD Ameritrade Holding Corp. and Charles Schwab Corp. Knight Capital Group Inc., Citadel LLC, UBS AG and Citigroup Inc. are the largest wholesalers trading orders away from exchanges at prices that match or improve on the levels offered publicly.
“A significant percentage of the orders of individual investors are executed over-the-counter,” Bats BYX Exchange said in its filing to the U.S. Securities and Exchange Commission. About a third of equities volume takes place away from exchanges, including orders from individual investors that can be executed immediately. “The exchange believes that it is appropriate to create a financial incentive to bring more retail flow to the public market,” Bats said.
The SEC must approve today’s filing from Bats for it to become effective.