Image: Bloomberg

(Bloomberg) -- Maybe it was worth the wait.

When Bats Global Markets tried to convert into a public company back in 2012, a software error at its own stock exchange spoiled the event and prompted Bats to shelve the initial public offering. Poised to try again, Bats has in the intervening years grown into a more formidable player in trading.

Since 2012, Bats jumped ahead of Nasdaq to become the second-biggest operator of U.S. stock exchanges and got into currency trading, the world's biggest asset class. Both leaps forward were fueled in part by takeovers. Bats also hired a chief executive officer whose resume includes stints at Virtu Financial Inc., one of the world's top trading firms, and Nasdaq.

The numbers illustrate the improvement: Bats was valued at $760 million in its 2012 IPO, pricing the shares at the bottom of the marketed range. This time, it's seeking a valuation of as much as $1.8 billion, according to its most recent prospectus.

"They look very different from what they looked like before," said Sang Lee, co-founder of research firm Aite Group. "They're a more mature marketplace, and they've acquired and grown new business opportunities. They're at a pivotal point, where this could help take them to the next level."


Bats also offers a ray of hope in an otherwise woeful year for IPOs. If the exchange follows through on going public this time around, it's poised to be the first non-healthcare IPO of the year. And with an offering size of as much as $212.8 million, it'd be the biggest so far.

That's adding an additional layer of pressure for the deal to get done smoothly, said Kathleen Smith, principal at Renaissance Capital. After a number of larger U.S. offerings faced pressure from investors on valuation and were postponed because of stock-market volatility, all eyes will be on the Bats IPO.

"There's no doubt this is the beginning; this is the ice breaker," said Smith, whose firm manages exchange-traded funds that track indexes of recent IPOs. "This is the type of company that can do it. It's a profitable, high-growth company."

Bats last year raked in $384.4 million in net revenue -- or sales after trading rebates and other items are deducted -- up 25% from a year earlier. Net income climbed 67% in 2015 to $82.2 million.


Bats handled about one-fifth of U.S. equity volume, a figure improved by the 2014 purchase of Direct Edge, another stock-market operator. Only the New York Stock Exchange and its sibling markets handle more. After it acquired its Hotspot FX venue from KCG Holdings, it now handles 11% of publicly reported institutional spot foreign exchange market, according to company.

Chris Concannon, an industry heavyweight, became the company's chief executive officer last year, less than a month after the Hotspot deal was announced. In addition to executive roles at high-frequency trading firm Virtu and Nasdaq, he has also worked at Island, one of the earliest electronic trading platforms, and the U.S. SEC.


Bats was founded as an alternative trading venue in 2005 by high-speed trader David Cummings of Tradebot Systems Inc. Seeking to match incumbent exchanges on speed and beat them on price, Bats's name was originally an acronym for "Better Alternative Trading System." Along with Direct Edge, Bats helped pry loose the duopoly on American stock trading that the New York Stock Exchange and Nasdaq Stock Market once held.

Bats is planning to list its shares on its own exchange under the ticker BATS, the same process that went awry four years ago. Bats failed to get its shares trading smoothly in the first IPO and ended up scrapping the endeavor, in a humiliating moment for a company that specializes in markets and trading technology. Investors are reminded of the blunder in the risk factors of its current deal prospectus.

Bats is telling investors on its roadshow that it has tested its systems extensively, and is equipped to handle volume three times greater than the Facebook Inc. IPO in 2012, according to a person familiar with the management's presentation who asked not to be identified because the information is private.

Alluding to its own trajectory from newcomer to incumbent on its website, Bats says it "may no longer be the ‘alternative' startup, but the Bats team hasn't lost that fire."

Bats is no longer an upstart compared to others in the industry. IEX Group, which is seeking regulatory approval to open the 13th U.S. equities exchange, has emerged as a new challenger to the status quo in the trading realm. The dark pool operator, which played a starring role in Michael Lewis's 2014 book "Flash Boys," has touched off a furious debate over its application to become a full-blown exchange with a fraction-of-a-second delay on orders.

Bats flip-flopped in February from offering qualified support to IEX in November to questioning the upstart's "professional judgment" and advising the SEC not to approve its proposal to become an exchange. By urging the regulator not to approve IEX as an equities exchange, Bats fell in line with competitors Nasdaq and NYSE Group, which also raised complaints related to the application.

Bats's relationship with IEX was already fraught. After former President William O'Brien appeared in a CNBC debate with IEX Chief Executive Officer Brad Katsuyama, Bats was forced to correct something O'Brien said about the way its exchanges work.

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