initial public offerings (IPOs) trading on American exchanges

Friday, March 23, 2012

BATS Global Markets (BATS) cancels IPO after its errors derail trading

Equity exchange Bats Global Markets Inc. canceled its initial public offering, stunning Wall Street after errors on its own computer systems derailed trading in the stock and forced a halt in Apple Inc.

"We believe withdrawing the IPO is the appropriate action to take for our company and our shareholders," Chief Executive Joe Ratterman said in a statement. Asked if that meant Bats is no longer going public, company spokesman Randy Williams said, "Yes, that's correct."
Problem: BATS shares couldn't even trade on its own exchange
In a breakdown that resembled a mini version of the 2010 "flash crash," a series of blunders hit the market debut of BATS Global Markets Exchange Inc on Friday, causing the company to take the extremely rare step of withdrawing its initial public offering of shares. Here’s the short statement from the company:
BATS Global Markets, Inc. (“BATS”) today announced it has withdrawn its planned initial public offering (IPO), which was scheduled to close on March 28, 2012.
“Although our affected market has reopened, in the wake of today’s technical issues, which affected the trading of certain stocks, including that of BATS, we believe withdrawing the IPO is the appropriate action to take for our Company and our shareholders,” said Joe Ratterman, chairman, president and CEO of BATS Global Markets.
Dave Cummings, left, BATS founder; Joe Ratterman, right, BATS chairman and CEO

The problems Friday morning caused BATS shares briefly to trade for less than a penny, confusing investors and potentially threatening the future of the fledgling exchange itself.

The glitches also fouled a trade in shares of Apple Inc, the world's most valuable company, and caused a temporary halt in the stock.

Prices plunged shortly after BATS shares began their first day of trading on the BATS exchange, a start-up that in a few years has captured about 11 percent of U.S. equity market volume and 3 percent of equity options volume.

"The one thing they would have guarded against is the integrity of their platform on the day they went public," said Francis Gaskins, president of IPO research site, in Los Angeles.

The exchange operator had priced 6.3 million shares at $16 per share late Thursday in an initial public offering sold by lead underwriters Citigroup Inc, Morgan Stanley and Credit Suisse Group. Several former or current Credit Suisse bankers serve on BATS' board, according to a BATS regulatory filing.

As trading began on Friday, BATS stock dipped to $15.25. Then extreme turbulence hit. A slew of bad trades at less than a penny sent the stock plunging. Though the trades were later voided, the plunge unnerved investors.

Around the same time, a bad trade for 100 shares of Apple also went through, triggering a circuit breaker that temporarily halted trading of Apple.

At 11:07 a.m. EDT the BATS exchange said it was investigating system issues with trading in symbols in the range "A" through "BF," which include Apple and BATS.

The trading snags also came on the same day The Wall Street Journal printed a front-page story saying BATS was the subject of an SEC probe of high-frequency trading.

More investigations against exchanges are pending, according to a person familiar with the matter. BATS, headed by 45-year-old Joe Ratterman, was formed in 2005 by major banks and trading firms looking to break the stranglehold that the NYSE and Nasdaq had on U.S. stock trading, forcing the traditional venues to modernize their technology.

Last November, BATS acquired pan-Europe equity exchange Chi-X Europe for $300 million to challenge that region's dominant exchanges with faster and cheaper trading services.

According to BATS' offering documents, the BATS exchange has an 11.3 percent share of the U.S. equity market and a 3.1 percent share of the U.S. equity options market. BATS was scheduled to be the first IPO to list on the exchange.

Its difficult debut on Friday led some traders to question whether the exchange is reliable to compete with its bigger rivals.

"I think some companies might say ‘If they can't handle the IPO of their own stock, how can they handle the IPO of our stock?'" said Dennis Dick, a Detroit-based market structure consultant and trading member at Bright Trading LLC. "There is going to be a confidence issue of listing on BATS."

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