REFILE-BATS, No. 2 in stocks, considers second U.S. options exchange -CEO

Mon Feb 3, 2014 4:52pm EST

By John McCrank

NEW YORK Feb 3 (Reuters) - BATS Global Markets, which became the No. 2 U.S. stock market after closing its merger with Direct Edge on Jan. 31, is looking to open its second U.S. options exchange, chief executive Joe Ratterman said in an interview on Monday.

With the Direct Edge merger, the exchange operator adds Goldman Sachs and Citadel LLC -- both major options market participants -- as owners, a move that Ratterman said could lead to more options trading volume for BATS.

There are 12 U.S. options exchanges. BATS' current options exchange had a 3.28 percent market share in January, according to options clearinghouse OCC.

Adding a second options exchange would allow the company based in Lenexa, Kansas, to offer alternative pricing and market structures.

Ratterman said the new exchange is under consideration for 2015, once the integration of Direct Edge is complete.

In equities, BATS and Direct Edge had a combined 20.54 percent U.S. equity market share in January, ahead of Nasdaq OMX Group's 20.02 percent share and just behind the 20.58 percent of IntercontinentalExchange's NYSE Euronext unit, according to BATS' data.

BATS also runs the largest pan-European equities exchange, and Ratterman said his team is mulling opening stock trading platforms in Canada and Japan.

Direct Edge had considered starting an exchange in Brazil, but faced lengthy delays in gaining access to clearing. Ratterman said BATS would likely decide by mid-year as to whether to pursue those plans.

EYE ON THE SIP

Ratterman said BATS in the United States would be "very interested" in bidding to run the data processor for Nasdaq-listed stocks that was at the center of a three-hour trading halt in August.

Nasdaq intends to stop operating the securities information processor (SIP) that provides investors with stock quotes and last sale prices for Nasdaq-listed stocks, taking the view that doing so carries a lot of operational risk but little reward, Reuters reported on Jan. 14.

"There can be risk, but at the end of the day it's an important function," Ratterman.

"It's integral to the way that the securities industry hangs together, and we think that we could do a good job with it. We would like to continue to be a bigger and more important part of the securities industry, and it's something that we would see as a great thing to be responsible for."

A software glitch crippled Nasdaq's SIP in August, forcing the exchange to halt trading on stocks it lists. Soon after, U.S. Securities and Exchange Commission Chair Mary Jo White ordered the exchanges to come up with new protocols to improve the resilience of the processors.

There are also SIPs for NYSE-listed stocks and for options.

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