BATS Global Markets is considering adding market data products and connectivity fees to its Hotspot FX foreign exchange trading platform to boost revenues, according to a regulatory filing. Hotspot, which institutional investors use to trade one currency against another at an agreed upon price, with the currencies exchanged following the spot settlement date, also plans to introduce non-spot FX instruments such as forwards, swaps and options, according to the filing from Wednesday.
Non-spot transactions make up the majority of the more than $5 trillion market in daily notional value traded. BATS, based just outside of Kansas City, on Wednesday filed for the second time with regulators to go public on its own exchange. The company attempted to take its stock public in 2012, but a computer glitch caused it to take the extremely rare step of withdrawing the initial public offering shortly after its launch. BATS bought Hotspot for $365 million in cash and additional payments under a tax sharing arrangement of around $63 million from KCG Holdings Inc.
The purchase helped BATS expand beyond equities, where it has become the No 2 US exchange operator by volume, ahead of Nasdaq Inc and just behind Intercontinental Exchange Inc's New York Stock Exchange. The company has been aggressively trying to win market share in FX from larger competitors Thomson Reuters, which owns Reuters News, and ICAP PLC-owned EBS.
BATS opened a London-based matching center for Hotspot in August, offering free trading on the platform until the end of 2015. In April, it said it would begin offering free trading for gold and silver against the dollar through at least the end of the year. Adding data and connectivity fees to Hotspot would help BATS boost revenues while remaining competitive on trading costs, the company said in the filing.
The largely unregulated FX market came under intense scrutiny this year, with several global banks pleading guilty and paying billions in fines for trying to manipulate FX rates. The regulatory pressures could cause more banks to shift their big voice-based orders at the center of the scandal to more transparent electronic systems. "As regulatory and other structural changes continue to evolve in the FX industry, we intend to enhance our offering to support additional automation and algorithmic trading, enhance client workflow and execution quality and increase penetration into new customer segments," BATS said in the IPO filing.
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