As Nanex’s Eric Hunsader pointed out, while the well-paid HFT-lobbyists proclaim their rigging clients “knit together liquidity from all markets,” it appears BATS’ new CEO (since the lying old one left) disagrees. The exchange that caters significantly to the front-running HFTs believes it knows how to improve the market for thinly traded stocks… it will stop handling them.
BATS Global Markets Inc., which vies with NYSE Group for the title of biggest U.S. stock exchange operator, says it knows how to improve the market for thinly traded shares: Stop handling them.
The exchange wants to back away from lightly traded companies listed by the New York Stock Exchange or Nasdaq Stock Market. The plan would concentrate liquidity at the NYSE and Nasdaq, potentially making the stocks easier to buy and sell.
The proposal, which the U.S. Securities and Exchange Commission has to approve, would “enable market participants to more efficiently form prices,” according to a letter Thursday to customers from Chris Concannon (See Below), who just became the chief executive officer of Lenexa, Kansas-based BATS. “One venue also will be better able to innovate their markets specifically for thinly traded stocks.”
An exchange could increase volume by holding midday auctions, changing the price increments or amending market-maker standards, Concannon said during an interview. The change would affect 500 to 600 stocks, he said, adding that while the proposal won’t meaningfully sway the finances of BATS, it should help improve the overall market.
U.S. stock trading is distributed across 11 exchanges — including three run by NYSE Group, three at Nasdaq, and four at BATS — and dozens of alternative venues. Stocks can in theory trade on any of those markets at any time. The BATS proposal would keep lightly traded companies off its four exchanges. Unlike the NYSE and Nasdaq, BATS doesn’t offer corporate listings.
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BATS, at its core, has always been a problem solver, creating new and better ways to serve customers while making the markets more efficient for all participants. It’s at the center of everything we do, from our Kansas City headquarters to our offices in New York, London, Chicago, and, by virtue of the Hotspot acquisition, Singapore.
To that end, we have spent significant time trying to answer a question that has dogged the U.S. equities market for years: what can the industry do to improve liquidity in thinly-traded shares?
In our recent market structure letter – and subsequent SEC rule petition – we talked about ways the industry could potentially work to solve this long-running conundrum. With a goal of beginning an industry-wide conversation, we suggested a tiered approach to access fees, and rebates, moving away from the market’s current one-size-fits-all approach.
In that same vein, we have another proposal which we believe could help (though not solve) trading in illiquid securities.
This month, BATS will file a rule with the SEC proposing to no longer offer trading on the BATS markets in thinly-traded stocks that maintain a primary listing on other U.S. stock exchanges (Nasdaq and NYSE). Call it the “BATS Exclusive Listing Proposal.”
Our proposal is designed to facilitate the concentration of liquidity for these securities at the primary listing market with the goal of improving their trading experience. Our filing with the SEC will define the characteristics of the thinly-traded stocks that we believe deserve Exclusive Listings and we hope that other markets will be encouraged by this approach and follow our lead for the benefit of issuers and investors.
We believe that concentrating displayed liquidity in thinly-traded stocks at a single venue will enable market participants to more efficiently form prices, and that one venue also will be better able to innovate their markets specifically for thinly-traded stocks (i.e., tick size, auctions, etc.). Obviously, once a stock achieves certain liquidity and trading characteristics, it will graduate into the competitive world of multiple exchange trading. And most importantly, we are NOT advocating for a trade-at rule as part of this proposal as we believe it would be disruptive to the market.
We view the BATS Exclusive Listing Proposal as a potentially critical step towards de-fragmenting trading volumes of illiquid securities, for the benefit of all investors, and, particularly, for issuers of these low-volume stocks. More importantly, we view this proposal as a non-disruptive modification to U.S. equity market structure that BATS, other exchanges and the industry at large can implement with very little technical impact to the industry and its many participants.
As the #1 U.S. stock exchange (excluding the end-of-day auction) and top venue for both ETF and retail trading, we take our responsibilities as a market leader seriously and believe we owe it to the industry to put forth positive, but simple solutions like this proposal. We look forward to your input and feedback.
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It appears HFTs just wanna be left alone to “rig” AAPL and S&P e-minis… and not have to “deal with that whole liquidiyu-provision thing.”
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