Bats Global cancels IPO after its errors derail trading

Equity exchange Bats Global Markets Inc. canceled its initial public offering, stunning Wall Street after errors on its own computer systems derailed trading in the stock and forced a halt in Apple Inc.

“We believe withdrawing the IPO is the appropriate action to take for our company and our shareholders,” Chief Executive Joe Ratterman said in a statement. Asked if that meant Bats is no longer going public, company spokesman Randy Williams said, “Yes, that’s correct.”

Pulling the IPO capped a day of missteps for the electronic exchange, beginning just as the shares were making their debut. Data received by Bloomberg around 11 a.m. in New York showed the stock, the first ever listed on its Lenexa, Kan., market, quoted at pennies after being priced Thursday at $16. Around the same time, a 100-share transaction in Apple was executed on Bats so far away from the market price that it triggered a halt.

“This is a tragedy,” said James Angel, a finance professor at Georgetown University’s business school in Washington. “I’m reeling from the shock. It’s like seeing an airplane crash on takeoff.”

The malfunctions may refocus scrutiny on modern American market structure, where two decades of government regulation have broken the grip of the biggest exchanges and left trading fragmented over as many as 50 venues. Bats, whose name stands for Better Alternative Trading System, rose to prominence in tandem with the proliferation of electronic firms that now dominate the buying and selling of equities in the U.S.

A single trade for 100 shares executed on a Bats venue briefly sent Apple down to $542.80, according to data compiled by Bloomberg. Two additional transactions, which sent the stock back above $598, were made before the halt. The stock stayed around that level once trading resumed five minutes later.

Bats sent a notice about 10 minutes before the Apple trade saying it was investigating “system issues” affecting companies with ticker symbols ranging between A and BF. Apple’s symbol is AAPL. Bats’ is BATS.

“Historically, Bats has been very reliable, but this is a question going forward,” said Bruce Weber, dean of the Lerner College of Business and Economics at the University of Delaware.

As of the pricing yesterday, the third-largest U.S. stock exchange operator had raised $100.7 million in its initial public offering Thursday after selling shares at the bottom of the proposed range. Bats sold 6.3 million shares for $16 each on behalf of existing stockholders. The company had offered them for $16 to $18, according to a regulatory filing.

Founded by a high-frequency trader in 2005, Bats was steered to prominence by brokers trying to hold down fees as the New York Stock Exchange and Nasdaq bought their biggest electronic rivals. The company executed 10.9% of U.S. equities volume last month.

The exchange operator raised money less than two years after a crash erased $862 billion in less than 20 minutes from U.S. share values, a plunge that some critics linked to the fragmented electronic market structure that helped Bats thrive. The company was initially built to service high-frequency firms like Tradebot Systems Inc., whose chief executive founded Bats. Automated trading firm Getco in Chicago and Wedbush Inc., owner of a Los Angeles investment bank whose clients include high-speed firms, bought equity stakes.

An official with the Securities and Exchange Commission’s enforcement division said last month that the agency is examining equity trading practices that gained dominance in the last decade amid the shift automation. Daniel Hawke, head of the market-abuse unit, said the SEC is looking into techniques such as co-location, in which exchanges let traders place computers close to the market’s systems to shave time off executions.

Bats itself got a request from the SEC for information on the types of orders customers use on its venues. The request, disclosed in a regulatory filing Feb. 23, sought information about how order types have evolved at the company.