Bats Chi-X Europe plans to become the region’s first alternative trading system to register as an exchange in a renewed challenge to traditional bourses such as London Stock Exchange Group Plc.
The European unit of Lenexa, Kansas-based Bats Global Markets Inc. has filed a proposal to become a Registered Investment Exchange with the Financial Services Authority, the U.K. regulator, according to two people familiar with the situation. They declined to be identified as the information isn’t public.
The company, currently deemed a Multilateral Trading Facility, is seeking the license to attract business from retail investors and fund managers who may be legally restricted to trading on an exchange, the people said. It would also mean firms could choose to list their shares on Bats Chi-X Europe. Julia Streets, a spokeswoman for Bats Europe in London, declined to comment.
The move would make Bats Europe the third exchange in the U.K., after LSE, Europe’s oldest independent bourse, and ICAP Plc’s Securities & Derivatives Exchange. Bats Europe is one of a wave of alternative trading systems that opened after European Union regulations introduced in 2007 opened the door to competition with incumbent bourses.
Bats, the third-largest U.S. equity-exchange operator, canceled its initial public offering on March 23 after errors on its computer systems kept its own stock from trading and forced a halt in Apple Inc. shares.
“Bats Chi-X Europe has been undertaking a host of growth initiatives since its failed IPO earlier in the year,” Peter Lenardos, an analyst at RBC Capital Markets in London, wrote in a report today. “This seems like a natural progression for the company to further legitimize its business.”
Founded by a high-frequency trader in 2005, Bats was steered to prominence by brokers trying to hold down fees as the New York Stock Exchange and Nasdaq Stock Market acquired their biggest electronic rivals. The company became an exchange in the U.S. in 2008.
The firm, whose name stands for Better Alternative Trading System, rose to prominence in tandem with the proliferation of electronic firms that now dominate the buying and selling of equities in the U.S. Bats’ owners include Morgan Stanley, Credit Suisse Group AG, Citigroup Inc. and Chicago-based Getco LLC.
LSE shares erased gains and fell as much as 9 pence, or 0.9 percent, to 955.5 pence on the news of Bats Europe’s license application. They later recovered, rising 0.7 percent to close at 971 pence in London.
“We expect this announcement, which could take a year to establish, to have little impact on LSE’s market share,” Lenardos wrote today. “We expect intense competition to always be present in the exchange industry.”