Direct Edge may do IPO in 12-18 months

NEW YORK (Reuters) - Direct Edge, an electronic stock trading platform, may go public as soon as 12 to 18 months from now, and expects to boost revenue and cut costs once U.S. regulators award it exchange status, Chief Executive William O'Brien said.

Speaking at the Reuters Exchanges and Trading Summit, O'Brien said becoming a stock exchange should allow Direct Edge to add $40 million of annual revenue from market data, and save $8 million to $10 million a year in costs.

The Jersey City, New Jersey-based company applied last week with the U.S. Securities and Exchange Commission to become an exchange operator, joining NYSE Euronext (NYX.PA), Nasdaq OMX Group Inc (NDAQ.O) and BATS Trading.

"I purposefully did not come to Direct Edge to flip it," said O'Brien, who joined the company from Nasdaq in 2007. "With the people and the products we offer, we could be here for the long term." An initial public offering, he said, "would be a natural part of that strategy."

Direct Edge is now an electronic communication network, or ECN, that matches equity transactions on two platforms, known as EDGX and EDGA.

It was the third-largest U.S. stock trading venue in April, with 12.5 percent of trades being "matched" on its platform.

The company's backers include Citadel Derivatives Group, Goldman Sachs Group Inc (GS.N), Knight Capital Group Inc (NITE.O) and the International Securities Exchange, the second-biggest U.S. options market.

Direct Edge and BATS' expansion in equity trading over the last couple of years sparked a price war that has reduced the cost of trading U.S. stocks, and cut into NYSE and Nasdaq market share.

O'Brien said winning exchange status would give Direct Edge greater capacity to branch into other products, but for now it is focusing on its primary business.

O'Brien, who used to head up new listings at Nasdaq, said Direct Edge could eventually compete for IPO listings with NYSE and Nasdaq, though he conceded it would difficult.

"The listings business is intensely competitive and requires a lot of resources," O'Brien said.

The chief executive of archrival BATS, Joe Ratterman, said separately at the summit that his exchange had no plans of its own for an IPO, or to take on the major exchanges for listings.

"The primary business is very well served by NYSE and Nasdaq," he said, adding that BATS would only contemplate taking on listings if it could offer a better service than the incumbents.

Expanding into Europe soon is not in the cards, in part because of heavy competition already there.

"We've got a lot on our plate in our home market," he said. "We're not going to take a lemming-like approach, whereby simply copying the initiatives of our competitors because they look good on a PowerPoint slide."

(For summit blog: blogs.reuters.com/summits/)

(Reporting by Jonathan Stempel and Phil Wahba, editing by Gerald E. McCormick, Gary Hill, Leslie Gevirtz)