BATS cancels its IPO following technical glitches
Saturday, March 24, 2012
NEW YORK (AP) — It was hardly the stock market debut BATS Global Markets was hoping for.
Since being founded nearly seven years ago, the Kansas-based company has been doing battle with its much larger rivals Nasdaq and the New York Stock Exchange for a piece of the stock trading business. On Thursday night the initial public offering of its own stock priced at $16, the low end of what the company had originally predicted.
If only the problems stopped there.
Shortly after starting to trade, the share price plunged to just pennies before being halted. By late afternoon, BATS withdrew its public offering and said it had no plans to refile its IPO. All trades made that day would be canceled.
There was more bad news. Apple Inc.’s stock was temporarily halted following a faulty trade on BATS’s systems. BATS also 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 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, hoping to draw IPOs away from Nasdaq and the NYSE.
BATS, whose motto is “Making Markets Better,” 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.”
BATS is one of several dozen relatively new companies that offer high-speed, low-cost electronic stock trading as an alternative to the NYSE and Nasdaq. Making up about 12 percent of all U.S. stock trading, it’s the third-largest stock exchange in the country behind NYSE and Nasdaq.
BATS spokesman Randy Williams said in an email that the company’s systems have been “extremely reliable” in the past. “I’m not saying that atones for today, just that we’ve been considered the industry gold standard for the past several years.”
The trading problems Friday 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 new trading systems such as BATS.
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.
While computer glitches aren’t unusual in the fast-paced world of high-frequency trading, this embarrassment couldn’t have come at a worse, or more public, time for BATS. 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 a regulatory filing in February that it had received a request for information from the SEC’s enforcement division. BATS said it was cooperating.
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.
AP Business Writers Bernard Condon and Matthew Craft contributed.