Bats Resurrects IPO Plan Three Years After a Botched Attempt

  • In a rare move, Bats was forced to withdraw its 2012 offering
  • Though little known, 10-year-old firm is a titan of trading

Bats Global Markets Inc., which runs U.S. and European stock markets, resurrected plans for an initial public offering three-and-a-half years after an error in the company’s trading software wrecked a previous attempt to list its shares.

The company will list its shares under the ticker BATS on its own exchange next year, according to a filing with U.S. regulators on Wednesday. Bats didn’t disclose how many shares it would include in the IPO or the price it would seek in the sale.

Bats was formed a decade ago hundreds of miles from Wall Street to challenge the New York Stock Exchange and Nasdaq Stock Market by offering superior technology, cheaper prices and faster trading. The formula worked. Although it lacks the name recognition of NYSE or Nasdaq, Bats is now the second-largest operator of U.S. stock exchanges and the biggest equity market in Europe. The Lenexa, Kansas-based company recently expanded into currency trading by purchasing Hotspot.

While it’s not unheard of for a company to cancel an IPO, what Bats was forced to do in 2012 was extremely rare. After its underwriters completed selling shares to investors, the exchange operator couldn’t get the stock trading smoothly hours later. The pain spread to Apple Inc.’s shares, which were halted due to an error at Bats. Out of concern the situation would worsen, Bats withdrew the IPO.

The mishap was made possible by Bats’s decision to compete with NYSE and Nasdaq in running a listing exchange. Even though stocks trade on dozens of markets in the U.S., NYSE and Nasdaq run the only exchanges that public corporations can call home. Bats wanted to join them and decided its own stock would be its first listing. That meant it had to run an auction to establish the public price for the shares, but its software code wasn’t up to the challenge.

The company now has a chance to redeem itself. In its IPO filing with the Securities and Exchange Commission, Bats said it would list the stock on its own market. Although that exposes the company to the risk of another mistake, it avoids the uncomfortable position of relying on one of its competitors -- NYSE or Nasdaq -- to handle the task. This time around, the company has several years experience with such auctions given that it lists exchange-traded funds.

Bats will use the proceeds to pay down a 2014 loan and for potential acquisitions. The company’s sales amounted to $1.34 billion in the first nine months of this year, with operating income of more than $130 million. That compares with revenue of $834.8 million and net income of $19.8 million for 2010, the financial performance that Bats disclosed the last time that it sought to become a public company.

The firm’s earnings before taxes, depreciation and interest, or EBITDA, were $166.1 million in the nine months ended Sept. 30, compared with $75.7 million for the whole of 2012.

Bats’s share of U.S. equity trading has expanded to 21.1 percent from 12 percent in 2012, while it accounts for 9.9 percent of U.S. options trading, compared with 3.3 percent three years ago.

Bats was founded in 2005 by Dave Cummings, who also created high-frequency trader Tradebot Systems Inc. Its former chief executive officer, Joe Ratterman, lost his chairman title after the botched 2012 IPO, and turned over the CEO job to Chris Concannon, a former executive at Nasdaq and automated trader Virtu Financial Inc., earlier this year, when he again became chairman.

As a private company, Bats counts some of the biggest Wall Street banks among its shareholders. That’s not unlike the old days when NYSE was still a privately held organization where securities dealers called the shots. Through an IPO, Bats opens itself to public ownership.

After a decade operating markets, Bats is no longer the upstart in the world of trading. IEX Group Inc. -- the dark pool Michael Lewis lauded in his 2014 book “Flash Boys” -- has asked regulators for permission to become a full-fledged exchange. Bats was the first to raise objections to the application. NYSE and Nasdaq followed with their own complaints.

Bats did not say when it would reveal the size of the share sale or the likely price of the securities.

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