March 27, 2011 – Privately-held electronic stock exchange BATS Global Markets’ public trading debut lasted just a little longer than the time it takes for an electronic transaction on its exchange. In an unprecedented move, BATS went from private company, to public company and finally back to private company all in the same day.
BATS’ Friday IPO Disaster
BATS Global Markets ran the gamut of classifications on Friday during its botched IPO. BATS, a high-speed electronic exchange founded in 2005, was proudly listed on its own exchange under the ticker “BATS”. However, the Company’s plan of listing BATS shares as the first initial public offering on its own exchange badly backfired.
A series of internal technical glitches caused BATS’ stock to plummet from its $16 per share initial offering price to just pennies shortly after markets opened and ultimately led to the embarrassing withdrawal of its initial offering by early Friday afternoon, just hours after its trading began.
The perhaps worst-managed IPO in history has also raised doubts that BATS, who transacts approximately 11% of US-equity trades, would be able to convince any reputable private company to go public on the BATS exchange anytime soon.
BATS’ initial offering as the first public company registered on its own exchange was meant to signify its challenge to the duopoly held by the New York Stock Exchange and Nasdaq. However, shortly after markets opened software errors derailed BATS’ biggest public moment.
As the system failed, orders for securities within the alphabetic range, including BATS, were unable to process which resulted in the flash crash to less than one cent. Simultaneous orders for Apple on a BATS exchange also failed to process causing its stock to drop 9% and momentarily halted Apple trading.
By late Friday morning, BATS had corrected the technical errors, cancelled affected orders of BATS and Apple stock, and considered unfreezing its IPO. However, investor confidence was rattled by the exchange’s inability to support its own auction process and functionality, thus, BATS management took the unprecedented step of shelving its IPO indefinitely and cancelling the trades of the revolting underwriters, mutual funds, and hedge funds who had participated in the offering.
As BATS’ trading volume and image suffer in the near-term due to the botched offering, going private (again) affords the Company a chance to regroup and rebuild without the certain public scrutiny of if BATS had continued forward with the flawed offering. Additionally, pulling the offering avoids potential litigation which would tie up resources necessary in winning back consumer confidence and re-positioning brand BATS as a reliable exchange.
Recent public PR disasters such as the Netflix Qwikster business split and RIM’s global service failure have captured headlines with sinking share price in the spotlight. BATS’ re-privatization removes this quantifiable metric of their mistake’s price. Furthermore, as a private company, BATS can refocus on its customers and operations without accountability to public shareholders and stakeholders.
BATS has not announced any management shakeups, but has taken appropriate PR measures such cancelling all IPO-related bonuses and offering public apologies. Though these moves are necessary, BATS’ most important task during this would be “quiet period” is to restore investor trust and confidence in high-frequency electronic trading through a reinvigorated focus on internal operations.
Though BATS has not announced a new IPO date in the foreseeable future, its Chairman has stated a successful IPO as soon as Q2 is the only option to move past this public failure. Until that day comes – if it does – BATS’ sole purpose should be to quietly re-instill investor and regulator confidence in BATS Global Markets’ high-frequency electronic trading – of other companies’ shares.