What Is Bats Global Markets?

Definition & Examples of Bats

Woman looking at stock trade options on a computer monitor
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Laurence Dutton / Getty Images

Bats Global Markets, formerly known as Better Alternative Trading System, was a stock exchange operator located in Lenexa, Kansas. It began as an alternative exchange, operating electronically, and later became a major global exchange operator.

On March 1, 2017, CBOE Holdings Inc. acquired Bats for $3.4 billion. This makes it part of the second-largest U.S. equities exchange in the world. Learn more about the history of Bats and where it fits among the global stock exchanges.

What Is Bats Global Markets?

When it was first launched in 2005, Bats was marketed as an alternative trading system (ATS) highlighting a more innovative process for investors. As an alternative exchange, it was still regulated by the U.S. Securities and Exchange Commission (SEC) but able to offer different trading and counter-trading options to investors.

Bats' entry into the European market in 2008 quickly pushed it to prominence on the global exchange market. Now, as a part of the Chicago Board Options Exchange (CBOE), Bats is one of the largest U.S. equities exchanges in the world. The merger of the two companies achieved economies of scale in operational costs, anticipating this would lead to lower costs for investors. It also made CBOE a stronger competitor against the New York Stock Exchange and the Nasdaq.

The former BATS platform had four U.S. stock exchanges: BZX, BYX, EDGA, and EDGX. It also operated BATS Options and BATS Chi-X Europe, the biggest pan-European stock market. These have been folded into the CBOE options exchanges: Cboe BZX, Cboe EDGX, Cboe Options, and Cboe C2 Options. CBOE now uses the Bats advanced order matching system to lower costs on the Chicago Board Options Exchange.

Options are derivative contracts that give owners the right to buy or sell securities at an agreed-upon price within a certain time period. Call options give you the right to buy a security and put options give you the right to sell them.

How Bats Works

The Bats platform was an all-electronic alternative trading system. Its goal was to provide better technology, with lower costs, while maintaining better customer service. It was created to avoid the kind of technology problems (major outages, for instance) plaguing the major exchanges.

As an ATS, Bats was also designed to challenge the major changes in other ways. These systems allow traders to place orders without displaying order size and pricing to other traders. This system is known as a "dark pool" system. The benefit of this setup is that it prevents large orders from having an outsized impact on the broader market and provides more access to liquidity than is available on formal exchanges. However, as a less-regulated market, an ATS has fewer rules governing subscriber conduct, and this brings more risks.

As a part of the CBOE, Bats is no longer an alternative exchange but now one of the major global exchange operators. Its innovative electronic trading technology has been incorporated into various products on the CBOE. 

Brief History of Bats

Bats was founded in June 2005. At that time, BATS was an acronym for "Better Alternative Trading System." It received SEC approval to become an actual stock exchange, BATS BZX, in October 2008. It launched a BATS exchange in London that same year and opened a second U.S. exchange, BATS BYX, two years later. The two U.S. exchanges have different pricing policies.

In 2011, BATS acquired Chi-X Europe Limited, the largest cross-border trading center in Europe. Unlike the Deutsch Bourse or the London Stock Exchange, it allowed trading across 15 major European markets with just one platform and rule book.

Bats suffered a flash crash when it listed its own initial public offering on its own exchange. During its initial IPO in March 2012, Bats was forced to withdraw when the stock price plummeted from $15 a share to just pennies. The crash pushed Apple's stock down 9%, forcing a temporary halt in its trading. It prompted the Securities and Exchange Commission to investigate rapid, high-frequency trading exchanges, including Bats.

After recovering from that stumble, though, Bats continued to grow. In 2014, Bats merged with Direct Edge to create the second-largest stock exchange, trading fewer shares than the NYSE Euronext but more than Nasdaq. In 2015, Bats' acquisition of Hotspot brought it into the foreign exchange (forex) market. After merging with CBOE in 2017 and integrating Bats technology into the CBOE trading platform, CBOE is now the second-largest U.S. options market by volume.

Key Takeaways

  • Bats Global Markets originally began as an alternative exchange and is now part of the CBOE, one of the largest exchange operators in the world.
  • Bats' electronic trading technology was designed to make trading faster and easier, and it has been incorporated into products on the CBOE.
  • In addition to operating at a major player in European and forex markets, the CBOE is the second-largest U.S. options market by volume.

Article Sources

  1. CBOE. "CBOE Holdings Announces Close of Acquisition of Bats Global Markets." Accessed Aug. 25, 2020.

  2. CBOE. "Cboe U.S. Equities." Accessed Aug. 25, 2020.

  3. U.S. Securities and Exchange Commission. "Alternative Trading System ("ATS") List." Accessed Aug. 25, 2020.

  4. CBOE. "Our History." Accessed Aug. 25, 2020.

  5. CBOE. "Cboe Options Exchanges." Accessed Aug. 25, 2020.

  6. U.S. Securities ane Exchange Commission. "Alternative Trading Systems (ATSs)." Accessed Aug. 25, 2020.

  7. CBOE Holdings. "Memo." Accessed Aug. 25, 2020.

  8. CBOE. "U.S. Options Market Volume Summary." Accessed Aug. 25, 2020.