Wo years ago, self-described computer geek David Cummings took up the mantle of revolutionary, starting a stock market called BATS Trading to challenge what he calls "the evil duopoly" of the Nasdaq Stock Market and the New York Stock Exchange. Those titans shed their brokerage-firm owners, went public and bought up rivals, creating anxiety among Wall Street firms about declining competition and higher prices. Users flocked to the Kansas City, Missouri°©based firm's lightning-fast execution engine and bargain-basement fees; barely a year and a half after BATS began trading in January 2006, it handles more than 330 million shares per day, on average, making it the country's third-biggest market behind the NYSE and Nasdaq, with about 6 percent of total U.S. equity volume. Nine major brokerage firms, including Citigroup, Lehman Brothers and Morgan Stanley, have bought minority stakes in the new market, whose name is short for Better Alternative Trading System.
Last month, as BATS continued its transition from start-up to standout, Cummings stepped down. The biggest reason for the move: BATS has applied to become a registered securities exchange, a designation that brings many benefits but also the responsibility to police its members. That's a problem because Cummings owns Tradebot Systems, the automated trading firm he founded in 1999, which sends orders to be executed on various exchanges. Regulators saw his dual role as a potential conflict of interest. Another, less critical, concern for BATS as it enters a new phase in its development is Cummings's boisterous, sometimes belligerent, public profile. His periodic e-mails to a wide array of clients, journalists and market observers pulled no punches -- especially with Nasdaq CEO Robert Greifeld, whom Cummings once referred to derisively as "Bob the Bully."
Cummings is going back to Tradebot full-time (he still retains a minority stake in BATS), making way for his No. 2 and co-founder, Joseph Ratterman, to take over as president and CEO of BATS.
"As BATS grows and matures, it is healthy to be led by a professional manager such as Joe," Cummings wrote in a June 29 e-mail announcing his move. In an interview earlier that month, he revealed no small measure of professional restlessness, saying "I'm an entrepreneur. I like to start things and build them." Those who know him well say they wouldn't be surprised to see him leave Tradebot in the near future to try something else.
Ratterman, a former market-data executive at Reuters who joined Tradebot as vice president of business development in 2003 and moved with Cummings two years later to launch BATS, plans to keep the exchange on its current course: providing the cheapest possible trade-execution for its broker-owners. But if the substance winds up being the same, the style is sure to be different.
"There will be some subtle changes," says Ratterman. "Dave and I are different people. He's really good at plotting a path, picking a vision. My strength is execution."
That means BATS' primary near-term focus will be doing everything it can to become an officially registered exchange, a plan hatched under Cummings once the market snared more than 10 percent of the volume in Nasdaq-listed stocks early this year. Exchange status will let BATS post its quotes directly on the consolidated tape viewed by market participants; heretofore it has delivered orders to the market through the Chicago-based National Stock Exchange, one of several regional bourses with exchange licenses. BATS's growing volumes create capacity issues for any third party asked to deliver its quotes.
Ratterman also plans periodic e-mail updates for clients and others in the industry, but his will be far less frequent and more, well, tactful than those of his predecessor.
"You'll see some e-mails from me," says the new CEO. "But I will probably not go out of my way to specifically attack competitors, certainly not by name. I'll point out where we're strong and where others might be weak, but I have a healthy respect for our competitors."
