Behind the NYSE, which is owned by Intercontinental Exchange Inc. (ICE), BATS is the second-largest U.S. equity exchange, with approximately 21% market share. It lags well behind Nasdaq Inc. (NDAQ) in terms of market capitalization, however. BATS is the world's largest ETF market and the the largest exchange in Europe, though a planned merger between the London Stock Exchange and Deutsche Börse would push it to second place. (See also: Predicting the Biggest IPO of 2016.)
Source: BATS website. "Other" includes dark pools, which make up around 13% of the total, according to Credit Suisse data, and other trading venues.
BATS earns the majority of its revenue from selling market data to subscribers. It has gained ground in the fast-growing ETF market by paying providers to list on its exchange, rather than charging them. It relies on trading fees to recoup the lost revenue.
The company will price 13.3 million shares between $17 and $19, valuing the deal at $239.4 million, according to Renaissance Capital. At the midpoint, the company's valuation would be around 17 times its 2015 adjusted earnings, a slight discount to Nasdaq's 19 times, the FT reports.
Reviving the IPO Market
BATS' would be the largest IPO of 2016 so far, and the only one with positive operating income, according to Renaissance Capital's data. A number of companies have withdrawn their plans to list shares due to a challenging market environment, and the few that have listed are either "blank-check" companies or fledgling biotech firms such as the unprofitable Editas Medicine Inc. (EDIT).
Its role as the year's first major IPO is not the only reason markets are watching BATS' listing closely, however. This will be its second attempt, following an embarrassing botched IPO on its own exchange in 2012. On March 23 of that year, a trading glitch affecting tickers at the beginning of the alphabet caused three trades of Apple Inc. (AAPL) stock to execute at just a few cents, tripping circuit breakers. The same happened for BATS stock, causing it to crash from the IPO price of $16 to less than a penny.
Dennis Dick, a Detroit-based market structure consultant and trading member at Bright Trading LLC, told Reuters, "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?'"
Morgan Stanley and Citi, which were underwriters for the failed IPO, are now giving BATS a second chance, and while investors have not forgotten the incident, they seem to have faith that BATS can execute this time. Larry Tabb, founder of the capital markets consultancy Tabb Group, told the FT that it's "highly doubtful" BATS will repeat its mistake.
BATS, which stands for "Better Alternative Trading System," was founded in the Kansas City area in 2005 and has expanded through acquisitions, including Europe's Chi-X and Hotspot, a currency trading platform.
The Bottom Line
BATS, the U.S.'s second-largest equity exchange by market share and the largest ETF exchange, plans to list shares on its own exchange Friday, in the first significant IPO of the year and the company's second attempt at going public. With luck, things will go more smoothly than they did in 2012.