“People recognize the competitive threat that we bring,” says Ratterman. “I will say there’s a healthy respect among the exchanges.” He’s personally acquainted with the heads of the London Stock Exchange, NASDAQ and the NYSE. “They’ve got great brands, they’ve been around servicing customers for a long time. We respect each other.
“But this is what competition does: It allows firms to one-up each other incrementally, and I’m not going to say that we haven’t been one-upped now and again as well,” he said. “We push the ball forward, we get a lead for a while, someone else comes up and bumps us, and we come around and bump again. That’s the positive effect of competition—we’re all trying to make the experience for our trading participants better.”
BATS now handles aggregate sales volume of 700 million to 1.2 billion shares a day, with the industry overall at roughly 6.5 billion shares. At 11.5 percent of the market last month—up from 10.6 in April 2011—BATS continues to increase its presence. “Some of that comes at the expense of NASDAQ and NYSE, who’ve been incrementally fragmenting down,” Ratterman said. “When we started, NASDAQ and NYSE were in the 30 and 40 percent market share. Today, the NASDAQ markets are 22 percent and the NYSE exchanges are in the mid-20s.”
Lessons Learned
The lessons of March 23, Ratterman said, came from focusing inward. “That Friday afternoon, I got everybody around the table upstairs, literally the entire firm, and I said, ‘Look, today was a really hard day. We failed to get something done that we intended to do. But it’s not going to define us. We are better than that. We’ve got seven years of solid history, our customers support us, they know us, we’re going to get better. Shake it off, go home this weekend, show back up on Monday—we’re going to start kicking ass again.’ ”
Operationally, he said, it was important to get the message out to the staff that the company was still the same organization it was the weekbefore. And it worked: Just five weeks later, BATS successfully completed the migration of the European trading platform following last year’s purchase of Chi-X Europe.
“We are way ahead of where we expected to be” in Europe,” Ratterman said. “We were pleasantly surprised” following a technology migration of gigantic magnitude and complexity. “It’s just common sense to expect there to be some dislocation,” he said, but from the 25 percent combined market share of Chi-X and BATS Europe heading into the flip of that switch, “we’d actually, from a financial perspective, forecasted a significant drop in market share, maybe down to 22 percent for several weeks, as we kind of rebuilt the momentum, if you will.”
The reality? “We were actually trading 27.5 percent” on the Monday of the launch, and roughly maintained that market-leading presence by the end of the first week.
Something else Ratterman learned from the IPO experience: You won’t find many friends in the national or global business media. Did their reporting on the IPO offer BATS a fair shake?
“Absolutely not,” he says, and repeats: “Absolutely not. It was a tough and embarrassing day for us and we may have deserved some of the negative media attention we received,” he says. “Certainly we felt like getting out there in front of the media at the first opportunity, talking about the issue and apologizing publicly was the best strategy and it earned us a lot of respect among our customers and investors. In the end, we’re very appreciative of all the support we received at a very difficult time.
“We wouldn’t have expected any media to write about our migration in Europe being successful. It would be nice, it’s a much bigger event than what happened to us on March 23rd. But clearly the focus on the 23rd of some drama vs. the solid migration of the largest platform in Europe was disproportionate media attention.”
Moving On
Ratterman sees growth opportunities. “I think there is a big opportunity with the election coming up. We believe a lot of retail investors are sitting on the sidelines right now, waiting to see what happens with the November elections before getting back into the market,” he said. “Once there is clarity in terms of what the new political landscape looks like, I think you’ll see a lot of money flowing back into the stock market.”
Should that happen, BATS is poised to add market share—and new markets.
“We’re looking around the globe for opportunities, we fully expect to be working towards the growth of at least one, if not a couple of new markets,” Ratterman said. Canada and Brazil are among such opportunities, as is a move into foreign exchange trading.
“Even if we go into Brazil or Canada, a good portion of those jobs will remain in KC to develop and support those markets,” Ratterman said. “So growth is not just in running U.S. and European equities up higher over time, it’s in building new marketplaces, because we have the capacity and the tools and the resources and the leverage, like a lot of our competitors, to actually do that.”
As for the IPO, it may come back this fall or in 2013, he said, but it will eventually happen, and BATS has likely positioned itself for a much better showing when it does.
“It’s no big deal; we’ll get it done,” he declares. “In an entrepreneurial world, when you’re swinging big, sometimes you’re going to make missteps or falter. Compan-ies actually get better from doing that.”
Incrementally, of course.