As the minutes tick down to 4 p.m. each trading day, a crucial process plays out in the U.S. stock market. Bats Global Markets wants to shake up how it works.
Bats, recently acquired by CBOE Holdings Inc., is debuting a new way to execute orders during the daily closing auctions, according to a statement Monday. The plan is to siphon off trades that would normally be completed at exchanges owned by NYSE Group and Nasdaq Inc., the two primary places that corporations and ETFs can turn to to get listed in the U.S. Bats says its new system will cost traders less.
The end-of-day auctions are increasingly important amid a shift to passive investment strategies. Index funds tend to aggregate clients’ trades and execute them then. This ends up being a good business for NYSE and Nasdaq, because traders tend to execute the orders on the exchange where a given stock is listed. Bats, given that it lists far fewer securities, loses out. It hopes to change that with its new system.