What Is Bats Global Markets?

Woman looking at stock trade options on a computer monitor

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.

Definition and Example of Bats Global Markets

When it was first launched in 2005, Bats Global Markets 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. On March 1, 2017, CBOE Holdings Inc. acquired Bats for $3.4 billion. Bats became a part of the second-largest U.S. equities exchange in the world.

  • Alternative names: Bats exchange, Better Alternative Trading Systems

Bats' entry into the European market in 2008 quickly pushed it to prominence on the global exchange market. As a part of the Chicago Board Options Exchange (CBOE), Bats is now one of the largest U.S. equities exchanges in the world. The merger of the two companies achieved economies of scale in operational costs. 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 it.

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 designed to challenge the major exchanges in other ways. ATS's 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 that brings more risks.

What It Means for Individual Investors

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. It has enabled individual investors to gain exposure to European markets.

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.

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's 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's 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 as a major player in European and forex markets, the CBOE is the second-largest U.S. options market by volume.

Article Sources