Bats Global Markets has been quietly attracting exchange traded fund listing, and the exchange may quickly expand its market share of ETFs after the Chicago Board Options Exchange acquisition.
The CBOE has acquired Bats Global Markets in a $3.2 billion deal, Bloomberg reports.
Bats controls about a quarter of ETFs’ total trading volume in the U.S., which provides CBOE a significant foothold in the ETF business.
“This combination gives more power not only to listing of ETFs, but also to the trading of ETFs,” Bats CEO Chris Concannon said Monday following the CBOE deal announcement. “The scale we will achieve as a combined company allows us to be that much more aggressive.”
Bats is one of three exchanges that provide coverage for the $2.4 trillion U.S.-listed ETF market, competing against the dominant NYSE Arca exchange, which lists ETFs worth $2.23 trillion, and Nasdaq Inc.
Bats has aggressively expanded into ETF trading with fast trading technology as regulatory and technology changes diminished profits in other areas. CBOE, on the other hand, mainly trades options linked to the funds. With the Bats acquisition, CBOE is passing over its trading software for Bats’ technology.
Spencer Mindlin, an analyst at Aite Group LLC, argued that the Bats’ marketplace for both ETFs and ETF options could provide CBOE support to challenge the Intercontinental Exchange, which offers both options and equities trading.
“If it’s under one roof, they’d be in a pretty good position to turn around some options-plus-ETF products that market participants could take advantage of,” Mindlin told Bloomberg. “That potentially gives them a leg up, the ability to offer products that combine listed options on ETFs with the underlying ETF product.”
Bats has been enticing ETF listings through its cash incentives programs. Recently, Bats adopted a program that would allow lead market makers to receive as much as $400,000 per ETF each year on the BATS exchange, depending on the average daily volume. Concannon has pledged to make Bats the top listing venue for ETFs in the next three to five years.
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