UPDATE 3-BATS to launch U.S. options exchange next year

* BATS eyes live trading on new platform in early 2010

* BATS to use maker-taker model with price time priority

* Aims to get 3-5 pct of equity options market share (Adds European business, ownership, details, New York dateline)

By Doris Frankel and Jonathan Spicer

CHICAGO/NEW YORK, July 8 (Reuters) - The parent of BATS Exchange, the third-largest U.S. stock exchange, plans to launch an options market early next year with a pricing model it hopes will grab up to 5 percent of U.S. equity options.

BATS Global Markets' all-electronic platform could bring to nine the number of venues battling for order flow in the crowded options arena. There are now seven U.S. options exchanges, with two others set to launch.

BATS -- known for its aggressive pricing strategies and owned by a consortium including JPMorgan Chase & Co (JPM.N) and Citigroup Inc (C.N) -- intends to leverage its current stock-trading customers to help propel it into options.

"Many of these members already trade options," Ken Conklin, global head of business development and marketing for BATS, said in a phone interview.

"We plan to employ the maker-taker model with a price time priority, meaning the first customer that enters an order" will have that order executed first, he said.

The maker-taker model, used by the smaller options exchanges, rewards liquidity providers by crediting them with a rebate and charges fees to those who remove liquidity.

Launching an equity options exchange would put BATS in competition with top players the International Securities Exchange and the Chicago Board Options Exchange, which plans to launch an all-electronic exchange dubbed C2 this year.

Together they accounted for about 54 percent of total U.S. equity option trading in the first half of 2009, according to the Options Clearing Corp. CBOE is private while ISE, the largest U.S. equity options mart, is owned by derivatives exchange Eurex, whose parent is Deutsche Boerse (DB1Gn.DE).

Options trading has bloomed in the last few years, underscoring institutional and retail investors' appetite for products that help manage risk and generate income.

BATS expects its platform to capture 3 percent to 5 percent of equity options market share within a year of launch, Conklin said.

Reuters reported in May that BATS was preparing to launch an options market.

The company has not yet announced its maker-taker pricing fees but plans to do so closer to launch. "We have been aggressive in pricing in U.S. equities and intend to do the same in U.S. equity options," Conklin said.