5 ms·

The third largest stock exchange in America is a startup

103 points by danteembermage 17y ago

mindaugas 17y ago
It's a fine example of B2B startup.
elecengin 17y ago
BATS does not only compete on price and speed. It offers many unique order types tailored to it's main market - high speed traders. Targeting high speed traders gave BATS an advantage because those are the customers that make exchanges money - both because of volume, and the specific types of orders they use. High speed traders traditionally try to avoid the automated routing that traditional orders go through to match and fill. A high speed trader would like to know the fees with certainty, and routing opens up the risk of unexpected fees. Therefore, many high speed traders mark their trades for no routing. This benefits the exchanges since the liquidity stays on their exchange and they will collect the fees when/if it fills.
jacquesm 17y ago
Stock exchanges the way they are right now have no real right to existence any more anyway. All the trading could be direct between buyers and sellers using a fairly simple web interface. No more people picking up on the 'buzz' and trading on their own account either that way. Of course that would remove all the fee structures that have been created over the years. I doubt it will happen though.
- byrneseyeview 17y ago
  Wait, you're saying that you know how to provide the same service BATS offers, at a lower price? Why are you whining about how evil they are when you could be making money competing with them?
  - jacquesm 17y ago
    I'm not whining about BATS, I'm saying - not whining - that the 'regular' exchanges really have no reason to exist any longer. Market making and such could be done algorithmically. I'm hoping - perhaps in vain - that BATS will take over the NYSE and with a little luck something similar will happen in other parts of the world. The stock exchange as we know it should really be retired.
    - bwhite 17y ago
      Exchanges provide anonymity. How volatile would the market be if every time Soros or Buffet made a trade, a horde of followers-on tried to do the same thing. They eliminate counterparty risk. If you sell some shares in exchange for $$, you get $$, period, even if the other party is broke. They are centralized points at which the market can be regulated. How else can you discover insider trading? They provide a market for every listed stock, whereas many thinly traded concerns would be essentially unpriceable for much of the day. Imagine what this would do to attempts to calculate risk, etc. Market making can be and in fact already is done algorithmically, even on the NYSE. That issue is orthogonal to whether a security trades on an exchange or not. Look to the FX or bond markets to see what happens without good, popular exchanges. These places are widely known to be rife with fraud, counterparty risk, and arbitrariness.
- gaius 17y ago
  How would buyers and sellers discover one another? Perhaps there could be some sort of thing that they all connect to? What would we call it?
- elecengin 17y ago
  I am not sure you understand - BATS is an ECN, not an exchange. In fact, most trading is on ECNs nowadays. An ECN is basically what you describe - typically a web application (usually using a protocol called FIX) that matches buyers with sellers. Of course they charge a fee - there is a cost to running the data centers and ensuring regulatory compliance. See: http://en.wikipedia.org/wiki/Electronic_Communication_Network http://en.wikipedia.org/wiki/Electronic_Communication_Networ...
  - joshu 17y ago
    FIX != Web
  - nowtown 17y ago
    BATS _is_ a Reg-NMS protected exchange on par with Nasdaq, Arca, NYSE and all the others.
- joshu 17y ago
  You are clueless. Where would people find counterparties in your system? In what way would price discovery work? Exchanges in the US are vastly overcomplicated, but that doesn't mean the concept is bad.
  - jacquesm 17y ago
    The way I think it could work is that a stock exchange is an ebay like environment (sorry for the analogy, but I can't think of a better one) where buyers and seller meet and declare what they have to offer or what they are looking for. A piece of software in the middle matches buyers and sellers according to some public algorithm and takes care of the escrow so that the buyer gets their stock and the seller his money or nothing at all happens.
    - joshu 17y ago
      So how is this different than a limit-order book? Some exchanges work exactly like this (esp European electronic markets.) This explains both the structure and the "algorithm." You would not have an Ebay-like system, because stock is fungible. One share of IBM is exactly like another share of IBM. You don't need reputation, etc, because of the way clearing works. I don't understand how you are able to think that this is not in some way an exchange.
      - jacquesm 17y ago
        I never said it would not in 'some way be an exchange', I wrote that 'the way they are right now' they are outdated. I figure buildings full of people and rooms full of traders are way past their expiry dates, if there is one thing that you could trade exclusively online it's stocks. Of course I understand that you do not need reputation and so on, I already made it clear that ebay is a very imperfect analogy. Currently there is much lack of transparency, stock market data is delayed from many exchanges to the general public, sometimes up to 15 minutes (for nasdaq, nyse and a whole bunch of others), people are riding in the slipstream of big traders because they have access to sensitive data. All that could go out the window (and the brokerage fees as well) by using a relatively simple in concept (but probably extremely complex in scope and execution) system that would take care of these functions automatically. Redefine the stock market in terms of an API and let users either run software, use a website or have big traders write their own. All the statistics would be live and available through the API. Again, I realize that I'm just dreaming here but I'm pretty sure that if the will were there it could be done. BATS is a (big) step in the right direction.
Flipparachi 17y ago
Base upon their job description, looks like their messaging platform is built on C++ and then they want some Python... http://www.batstrading.com/resources/employment/bats_trading_job_description_software_developer_kc.pdf http://www.batstrading.com/resources/employment/bats_trading...
- mildweed 17y ago
  Parts of it are in PHP too. Not sure which parts, I never got hired there, but they were hiring for PHP about a year ago.

103 points by danteembermage 17y ago

It's a fine example of B2B startup.

BATS does not only compete on price and speed. It offers many unique order types tailored to it's main market - high speed traders. Targeting high speed traders gave BATS an advantage because those are the customers that make exchanges money - both because of volume, and the specific types of orders they use. High speed traders traditionally try to avoid the automated routing that traditional orders go through to match and fill. A high speed trader would like to know the fees with certainty, and routing opens up the risk of unexpected fees. Therefore, many high speed traders mark their trades for no routing. This benefits the exchanges since the liquidity stays on their exchange and they will collect the fees when/if it fills.

jacquesm 17y ago

Stock exchanges the way they are right now have no real right to existence any more anyway. All the trading could be direct between buyers and sellers using a fairly simple web interface. No more people picking up on the 'buzz' and trading on their own account either that way. Of course that would remove all the fee structures that have been created over the years. I doubt it will happen though.

byrneseyeview 17y ago
Wait, you're saying that you know how to provide the same service BATS offers, at a lower price? Why are you whining about how evil they are when you could be making money competing with them?
- jacquesm 17y ago
  I'm not whining about BATS, I'm saying - not whining - that the 'regular' exchanges really have no reason to exist any longer. Market making and such could be done algorithmically. I'm hoping - perhaps in vain - that BATS will take over the NYSE and with a little luck something similar will happen in other parts of the world. The stock exchange as we know it should really be retired.
  - bwhite 17y ago
    Exchanges provide anonymity. How volatile would the market be if every time Soros or Buffet made a trade, a horde of followers-on tried to do the same thing. They eliminate counterparty risk. If you sell some shares in exchange for $$, you get $$, period, even if the other party is broke. They are centralized points at which the market can be regulated. How else can you discover insider trading? They provide a market for every listed stock, whereas many thinly traded concerns would be essentially unpriceable for much of the day. Imagine what this would do to attempts to calculate risk, etc. Market making can be and in fact already is done algorithmically, even on the NYSE. That issue is orthogonal to whether a security trades on an exchange or not. Look to the FX or bond markets to see what happens without good, popular exchanges. These places are widely known to be rife with fraud, counterparty risk, and arbitrariness.
gaius 17y ago
How would buyers and sellers discover one another? Perhaps there could be some sort of thing that they all connect to? What would we call it?
elecengin 17y ago
I am not sure you understand - BATS is an ECN, not an exchange. In fact, most trading is on ECNs nowadays. An ECN is basically what you describe - typically a web application (usually using a protocol called FIX) that matches buyers with sellers. Of course they charge a fee - there is a cost to running the data centers and ensuring regulatory compliance. See: http://en.wikipedia.org/wiki/Electronic_Communication_Network http://en.wikipedia.org/wiki/Electronic_Communication_Networ...
- joshu 17y ago
  FIX != Web
- nowtown 17y ago
  BATS _is_ a Reg-NMS protected exchange on par with Nasdaq, Arca, NYSE and all the others.
joshu 17y ago
You are clueless. Where would people find counterparties in your system? In what way would price discovery work? Exchanges in the US are vastly overcomplicated, but that doesn't mean the concept is bad.
- jacquesm 17y ago
  The way I think it could work is that a stock exchange is an ebay like environment (sorry for the analogy, but I can't think of a better one) where buyers and seller meet and declare what they have to offer or what they are looking for. A piece of software in the middle matches buyers and sellers according to some public algorithm and takes care of the escrow so that the buyer gets their stock and the seller his money or nothing at all happens.
  - joshu 17y ago
    So how is this different than a limit-order book? Some exchanges work exactly like this (esp European electronic markets.) This explains both the structure and the "algorithm." You would not have an Ebay-like system, because stock is fungible. One share of IBM is exactly like another share of IBM. You don't need reputation, etc, because of the way clearing works. I don't understand how you are able to think that this is not in some way an exchange.
    - jacquesm 17y ago
      I never said it would not in 'some way be an exchange', I wrote that 'the way they are right now' they are outdated. I figure buildings full of people and rooms full of traders are way past their expiry dates, if there is one thing that you could trade exclusively online it's stocks. Of course I understand that you do not need reputation and so on, I already made it clear that ebay is a very imperfect analogy. Currently there is much lack of transparency, stock market data is delayed from many exchanges to the general public, sometimes up to 15 minutes (for nasdaq, nyse and a whole bunch of others), people are riding in the slipstream of big traders because they have access to sensitive data. All that could go out the window (and the brokerage fees as well) by using a relatively simple in concept (but probably extremely complex in scope and execution) system that would take care of these functions automatically. Redefine the stock market in terms of an API and let users either run software, use a website or have big traders write their own. All the statistics would be live and available through the API. Again, I realize that I'm just dreaming here but I'm pretty sure that if the will were there it could be done. BATS is a (big) step in the right direction.

Flipparachi 17y ago

Base upon their job description, looks like their messaging platform is built on C++ and then they want some Python... http://www.batstrading.com/resources/employment/bats_trading_job_description_software_developer_kc.pdf http://www.batstrading.com/resources/employment/bats_trading...

mildweed 17y ago
Parts of it are in PHP too. Not sure which parts, I never got hired there, but they were hiring for PHP about a year ago.