What it means
BATS began as an alternative trading system, a privately run electronic marketplace that matches buy and sell orders outside a traditional exchange, and later registered as a full exchange in its own right. Its pitch was blunt: match orders in microseconds and charge less than the incumbents for doing it.
For a non-specialist the reason BATS matters is fragmentation. Trading in US shares is split across many competing venues, so the "last price" you see depends on which venue reported it, and brokers must decide where to send each order.
BATS is the standard teaching example of why there is no single place called the market. BATS also helped spread maker-taker pricing, where a venue pays a rebate to the side that posts a resting order and charges a fee to the side that trades against it.
That pricing drives order routing decisions, and it is why best execution reports show orders going to venues a client has never heard of. One episode keeps the name in circulation.
Its own share listing in 2012 failed because of a software fault on its own system, and the offering was withdrawn the same day, which made it a permanent case study in technology risk at trading venues. After the acquisition the BATS brand faded, but the order books it created continue to operate under new ownership alongside European equity venues built on the same model.
When people say BATS today they usually mean those books and the pricing model they popularised.
In practice
Real-world examples.
Example
A trading operations manager is asked why the same share shows four slightly different last-traded prices on four screens. She explains that each screen is reading a different venue, and that a consolidated feed is needed to see the full picture.
Example
A compliance analyst reviewing execution quality notices that a large share of the firm's resting orders are routed to one low-cost electronic book. The routing table is chasing rebates, so she checks that client execution prices have not suffered as a result.
Example
A fintech founder planning a brokerage models the economics of maker-taker pricing. At a rebate of $0.0020 and a take fee of $0.0030 per share, the routing logic decides whether the business makes or loses money on each 1,000,000 shares traded.
Formula
Calculation
Venue market share = shares matched on the venue / total shares matched across all venues, expressed as a percentage.
Suppose that over one month total consolidated volume in a market is 10,000,000,000 shares, and a venue family matches 1,200,000,000 of them. Market share is 1,200,000,000 / 10,000,000,000 = 0.12, or 12%.
Now add the pricing side. If that venue pays a rebate of $0.0020 per share to liquidity providers on half the matched volume, the monthly rebate bill is 600,000,000 x $0.0020 = $1,200,000, and it must collect more than that in take fees and data charges to make the book pay. These figures are illustrative round numbers chosen to show the arithmetic, not a report of any venue's actual volumes.Case study
Seen in the real world.
Pacific Ledger Exchange is a fictional venue invented for this illustrative example. In the story a group of trading firms launches it because they are tired of paying high fees to two incumbent exchanges, and they fund it with a modest $30,000,000 of capital.
Pacific Ledger wins share by charging less and matching faster, reaching roughly 9% of national volume in three years, mostly from liquidity providers chasing its rebates. Then a failed software release halts its book for 40 minutes during a volatile session, and brokers reroute orders away for weeks afterwards.
The illustrative point is that a trading venue sells reliability as much as price. Market share built on fees can be lost in a single morning of downtime, which is why venue operators spend so heavily on testing and failover.
Watch out
Common mistakes.
- Believing all trading in a listed share happens on the exchange where it is listed, when order flow is spread across many competing venues.
- Treating one venue's last-traded price as the market price, instead of using a consolidated feed that covers every venue.
- Assuming the cheapest venue always gives the best outcome, when rebate-driven routing can leave an order unfilled or filled at a worse price.
Questions
People also ask.
What did the BATS name stand for?
Better Alternative Trading System, a deliberate dig at the incumbent exchanges it was built to compete with.
Does BATS still exist as a company?
No, it was acquired by Cboe Global Markets, although the order books and pricing model it created continue to operate.
Why does maker-taker pricing matter to an ordinary investor?
Because it influences where a broker sends an order, which can affect how quickly and at what price the order is filled.
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