Tuesday, May 17, 2011

BATS: Value Added From The Latest Publicly-Traded Exchange

Last week we learned that the BATS, locally based and the third- largest U.S. stock exchange operator, filed for an initial public offering as it seeks cash to compete amid the busiest period for industry takeovers. In other words, in the great scramble for consolidation in a market place fragmented beyond repair, BATS suddenly realized it is woefully behind, and needs cash to compete with such HY-funded LBOs as the now off-the-table Nasdaq acquisition of NYSE. Which in turn makes BATS itself a possible acquisition target. As such, I decided to take a quick look at typical value added provided by the exchange and its constituent robots. As many trading charts these last several years show, it is none other than some BATSy algo that enjoys testing the stupidity of other robots by sending out a bid about 10% from the NBBO. What is impressive is how many algo's that are stupid enough to fall for this bottom fishing strategy. And that is true price discovery. Ironically, perhaps we need many more such BATS algos to push prices to real fair market value.

No comments: