Technical glitch caused electronic trading venue to pull its own IPO on Friday
Over the weekend, BATS Global Markets CEO Joe Ratterman released the type of letter that no chief executive wants to sign – and very few will ever be in a position to.
As the company was about to trade its own stock publicly, a ‘serious technical failure’ on the US exchange it runs caused BATS to cancel the IPO. The glitch also briefly crashed Apple's stock by nearly 10 percent.
Calling it a ‘devastating moment’, Ratterman admitted the event was a major setback, just as BATS wanted to expand its share of the US market by going after IPO listings.
While operations quickly returned to normal within a day, the meltdown caused a wave of negative coverage that will be difficult for the company to counter, at least in the short term.
The letter, which was sent to the company’s customers, stated that the glitch was caused by a ‘software bug related to facilitating IPO auctions.’
First attempt at corporate issue
‘It was the first time we had done the auction process for a corporate issue, although we had done it for nine exchange-traded funds with no issue at all,’ Randy Williams, vice president of investor relations and communications for BATS, tells IR Magazine.
‘Even though the issue was fixed, we elected not to go back into the auction process with that stock because of what had happened. The feedback we were getting from the banking syndicate was that there was a significant erosion of [investor confidence in] the stock at that point.’
Although the BATS share of US trades was 9.2 percent on Friday – lower than its usual 11 percent – by Monday things had largely recovered at 10.3 percent, according to Williams. European trading didn't seem to be affected, although the systems are the same as in the US.
Technical problems ‘common’ for exchanges
The technical problem actually commonly happens, according to Aite Group senior analyst Howard Tai.
‘If you've been around the markets long enough, you'll see various venues that display market data having that problem throughout the year,’ he says, noting that this particular glitch affected listings that started with ‘A’ or ‘B’.
BATS decided to list its stock solely on its own exchange, which made matters worse when the glitch occurred.
Snubbing competitors might make sense as a marketing move, but it reduced the ways in which the overall trading system could deal with a problem.
‘It would have been more prudent if it had let the stock open for trading on all exchanges at the same time,’ Tai says. ‘That's typically the pattern for an IPO.’
Difficult to regain trust
Even though BATS has greater than 99.99 percent uptime, according to the company's SEC filings, it is now in a difficult position in terms of attracting IPO business.
‘I foresee very few issues with BATS’ bread and butter trading,’ says Tai. ‘But it will have to prove to the market that it can handle issuing.’
Although the BATS board has not yet said whether it will again undertake its initial public offering, logic suggests it will have to if for no other reason than to obtain the IPO business it wants.
‘Why would you have your stock listed before it tried to list its own stock first?’ Tai asks.
Yesterday, BATS’ board issued a statement offering its unanimous support for Ratterman. The announced added, however, that Ratterman would lose the position of chairman at the company, which he currently holds along with the chief executive role.
The board will separate the roles of chairman and CEO ‘as part of an enhanced corporate governance structure,’ according to the statement.