Together, BATS and Direct Edge Look to Take On NYSE
U.S regulators are examining Tuesday’s computer system malfunction at Goldman Sachs (NYSE:GS) as part of an investigation into a larger issue: The number of recent high-profile trading failures that have damaged investor confidence. Sources told the Financial Times last week that Securities and Exchange Commission officials are preparing to conduct meetings regarding the latest incident, worried that market participants are racing to develop speedier computer systems at the expense of safety controls.
While the trend toward larger, speedier, and more technologically advanced trading systems has concerned the SEC, it also has prompted industrywide consolidation. Announced before the markets opened Monday, a merger agreement between the electronic exchanges BATS Global Markets and Direct Edge is only the most recent example. As a single unit, they will be the second-largest stock exchange in the United States behind NYSE Euronext’s (NYSE:NYX) New York Stock Exchange.
No financial information was released, but the deal is expected to close in the first six months of 2014, pending any regulatory approval. That the details of the merger were few is no surprise: as The New York Times reported, there was a great deal of secrecy surrounding the negotiations.
When the chief executives of the exchanges met several weeks ago in Kansas City, Missouri, code names were used to refer to the two companies — “Delta” for Direct Edge and “Blue” for “BATS.” The reason for the secrecy is clear in the merger’s goal: To displace the New York Stock Exchange and the Nasdaq OMX Group-operated (NASDAQ:NDAQ) exchange as the largest stock markets in the world.