Bloomberg News

Bats Founder Says Suspend Bonuses, Resurrect IPO

March 25, 2012

Bats Global Markets Inc. (BATS) should suspend employee bonuses and resurrect its botched initial public offering by the end of June, according to founder Dave Cummings, who defended the changes to U.S. equities markets that the company benefited from.

The third-largest operator of U.S. stock exchanges withdrew the IPO on March 23 after errors on its own computers kept the stock from trading and halted Apple Inc. Pulling the deal capped a day of embarrassments for the Lenexa, Kansas-based company, which rose to prominence with the electronic trading industry.

“This was a freak one-time event,” Cummings, 43, wrote in an e-mail today. He left Bats, which he founded in 2005, to rejoin high-speed trading firm Tradebot Systems Inc. in 2007. “American capitalism is sometimes messy, but it is what makes this country great.”

Chief Executive Officer Joe Ratterman said in an interview yesterday that the potential for “uncoordinated and chaotic” trading after bad code corrupted its computers prompted Bats to cancel the deal.

“Ironically, the software bug itself is probably the easiest thing to correct,” Cummings wrote. “Bats has built great software,” he said. “However, the code to open an IPO is new. It has been tested in the lab, but until this week not in real-world production. These systems are very complicated. Bugs do occur. Bats just happened to discover a bug at the most embarrassing time possible.”

Archipelago, Inet

Bats was formed two months after the New York Stock Exchange announced plans in 2005 to go public by combining with Archipelago Holdings Inc. and Nasdaq Stock Market announced its purchase of Inet ECN. Archipelago and Inet were then the largest electronic communication networks, or ECNs, which match buy and sell orders and compete with exchanges.

Cummings created Bats with 12 employees to counter the emerging NYSE and Nasdaq duopoly. Executives at Goldman Sachs Group Inc., Citigroup Inc., Merrill Lynch & Co. and other banks said in 2005 that the lack of competition after the purchases would hurt users by limiting their choice about how and where to execute orders and enabling exchanges to raise transaction fees.

“When the public wants to invest, they can push a button and get a fair fill in less than a second,” Cummings wrote today. “The markets will never be perfect, but the reality is that they work very well.”

Cummings, a Bats director, said employee bonuses should be suspended because of the failed offering.

“Bats won’t pay bonuses which were based on the completion of the IPO, since it wasn’t completed successfully,” Randy Williams, a Bats spokesman, said in an e-mail today.

To contact the reporter on this story: Nick Baker in New York at nbaker7@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net


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