Bats Cuts Some Fees, Ratchets Up Rivalry With Nasdaq
By Edgar Ortega
March 29 (Bloomberg) -- Bats Trading Inc., which over the last 14 months has grown into the third-busiest U.S. equity market, will charge less for some orders than rival Nasdaq Stock Market Inc., fueling competition among exchanges.
Bats cut its fees for completing trades against orders already in place to 24 cents from 26 cents per 100 shares, the Kansas City, Missouri-based company said in an e-mail to customers today. Bats also reduced the rebate it offers for trades that get executed against incoming orders to 22 cents from 24 cents per 100 shares. The company still will make 2 cents per 100 shares traded after the new prices go into effect April 1.
The reductions underscore the rivalry between Bats and Nasdaq, which last month moved to lure back business by lowering what it charges some of its biggest customers. Other competitors, including the Chicago-based National Stock Exchange, have also lowered their fees to grab a bigger portion of the 5.5 billion shares that trade each day in the U.S.
``We are going to do what we have to do to win that price war,'' Randy Williams, a spokesman for Bats, said in an interview today. ``This probably isn't the last volley that will be lobbed.''
Bats also said today it will eliminate a program to share with customers revenue from the sale of market data in trades for shares listed on the American Stock Exchange. Instead, the company will pay a rebate of 32 cents per 100 shares for trades in Amex-listed stocks that are executed against incoming orders. The plan, which means Bats pays a higher rebate than the fee it charges brokers for each trade, is a test that may be extended if it lures more quotes from customers, Bats said in the e-mail.
Shifting Market Share
NYSE Group Inc., owner of the New York Stock Exchange and the Arca electronic market, matches buyers and sellers in about 45 percent of the shares traded daily, according to data on the NYSE's Web site. Nasdaq last month matched 27 percent of shares traded, or about 1.48 billion daily. Last year, Nasdaq and NYSE received a total of about $2.3 billion in transaction fees and from the sale of market data.
Bats last month handled an average of 307.4 million shares, or about 5.6 percent of the total, up from almost nothing in January 2006 when the company started trading, according to data on its Web site. Bats, a closely held company, now commands about 13 percent of the trading in Nasdaq-listed stocks, by drawing business from brokerages that rely on rapid-fire, computer-driven strategies.
Price War
During the fourth quarter, Nasdaq's share of trading NYSE- listed stocks more than doubled from a year earlier to 14.1 percent. Nasdaq lost ground in trading of its own listings, dropping to 46 percent from 52.5 percent, in part because of gains by Bats.
In response to its decline in market share, Nasdaq lowered its fees. For top clients, Nasdaq this month reduced its fee to 26 cents per 100 shares from 27 cents for trades executed against orders already in place, the company said. Bethany Sherman, a spokeswoman for Nasdaq, declined to comment today.
NYSE Group will maintain the fees it charges brokers to trade on its Arca electronic system, Chief Executive Officer John Thain said in a March 9 interview. Arca hasn't changed its fees for the past three years, he said.
While earlier fee reductions had ``increased our conviction that a price war was possible,'' the decision by Bats to maintain its 2-cent margin doesn't pose ``the big threat we feared,'' JPMorgan Chase & Co. analyst Kenneth Worthington wrote in a note to clients today. Worthington has ratings of ``neutral'' on Nasdaq and ``underweight'' on NYSE Group.
Mounting Competition
Bats also faces competition from other new markets including BIDS Trading Inc. and the ISE Stock Exchange, as well as older regional exchanges in Boston, Chicago and Philadelphia which overhauled their trading systems with investments from Wall Street's largest brokerages.
Since 2005, brokerages such as Merrill Lynch & Co., Morgan Stanley and Lehman Brothers Holdings Inc., which are based in New York, as well as Zurich-based Credit Suisse have invested a total of more than $40 million in Bats to foster competition among exchanges and lower trading costs.
The perception that the exchange business is price sensitive ``does not bode well for the future profits in Nasdaq trading,'' Worthington said. ``Someone will always want to take market share by using price.'' |
