Bats takes a swing at NYSE and Nasdaq in closing auctions spat

NEW YORK (Reuters) - Bats, the CBOE Holdings Inc-owned CBOE.O exchange operator, lambasted the New York Stock Exchange and Nasdaq Inc NDAQ.O over their criticism of a Bats plan to compete for end-of-day stock orders, calling it disingenuous in a letter to regulators.

The New York Stock Exchange (NYSE) is pictured in New York City, New York, U.S., August 2, 2017. REUTERS/Carlo Allegri

Bats said in May it planned to offer brokers a type of order that would give them the same closing prices derived from the closing auctions on Nasdaq and the NYSE for stocks listed on those exchanges, but with lower execution fees.

NYSE and Nasdaq have said the Bats proposal would risk undermining exchanges’ closing auctions by siphoning orders away from the primary markets, resulting in distorted prices and a more fragmented market that would harm companies and their shareholders.

“We find their sincerity about this concern quite lacking given they run this risk every day,” Bats said in a letter to the U.S. Securities and Exchange Commission dated Aug. 2.

That is because Nasdaq and NYSE affiliate NYSE Arca already run closing auctions for securities listed on rival exchanges every trading day, said Bats, which only lists ETFs and the stock of its parent, CBOE.

For instance, Nasdaq-listed exchange-traded fund Purefund Solactive FinTech ETF FINQ.O had no volume in Nasdaq's closing auction for the entire month of June, but orders were entered and executed in NYSE Arca's competing auction in 14 of June's 22 trading days, Bats said.

If the SEC approves Bats’ proposal, it would allow the exchange operator to compete for a bigger share of the trillions of dollars in trades at the end of the session, when fund managers execute most of their orders so they can price their assets off final prices on the listing exchanges.

Bats said its proposal would not impact prices because it would accept only “market on close” orders, which are matched at the closing price.

NYSE Arca and Nasdaq’s competing auctions, however, accept both market on close orders and “limit on close” orders, which are executed only if the closing price is better than the limit price specified and therefore help set the price, Bats said.

“Both Nasdaq and NYSE seem to be comfortable with creating dueling closing auctions themselves but they are unwilling to allow for a non-disruptive closing process when it creates competitive pressures on their revenues,” Bats said.

Reporting by John McCrank; Editing by Bernadette Baum