BATS Exchange has been an almost stealth success in the world of trading stocks. In about four years it now claims to have about 10% of the US equity trading market share and about 8% of the FTSE 100 market share in trading volume. The company also recently filed rules with the SEC to launch US equity options trading and a second U.S. equities exchange both slated for launch in early 2010. Now it plans to launch a new ‘primary listings market’ by summer of 2010, which 24/7 Wall St. would dub the (or an) “other-other IPO market” for companies. BATS said that it wants to provide “a competitive alternative to incumbent exchanges by expanding into the US listings market.” The details were very limited in the release, so we will wait for more data and information before signing this up for the party or for the funeral.
The history of alternative exchanges has a very mixed history, at best. There is the OTC Bulletin Board and the Pink Sheets, which have created many millionaires and many paupers. There is a reason that many mutual funds are outright barred by investment policy from buying stocks that are OTC-BB or Pink Sheets. Some companies chose to list on the AIM in London with less regulation and little requirements for capitalization or number of shares issued, although this has not gone without controversy. Then there was the EASDAQ, which was a NASDAQ-styled market for pan-European companies. There was Luxembourg before that.
There is also the NYSE Alternext today, what the NYSE calls a tailor-made market for small and mid-sized companies seeking simplified access to the stock market with streamlined listing requirements and trading rules.
BATS has done a great job of capturing share from almost out of nowhere. But the question really remains, does the world in a more highly regulated financial system really need yet one more alternative for companies to raise cash?
In the past there were the old blank check companies where companies would go public with the goal of acquiring any business in any sector. Then came special purpose acquisition companies, or SPACs, which would generally set at least a few parameters in a sector or of a certain classification of business with size parameters. These SPACs are still around and are still filed, but they are not coming one per day as it seemed they were in part of 2007 and 2008 when the world of private equity was still booming.
Sometimes there can be too many alternatives to going public. No offense to BATS, but today’s world of financial markets versus the world of financial markets in 2007 and before are two entirely different worlds. Companies holding themselves out open to the general public for investments into those companies need to have standards.
To be continued….
JON C. OGG