One of the most profitable parts of the stock exchange business is about to become more competitive.
BATS Global Markets said Tuesday it plans to launch a new listings service for U.S. stocks, opening the door for companies to go public in a venue other than the New York Stock Exchange or Nasdaq OMX Group.
The Kansas City, Mo.-based electronic exchange operator has submitted paperwork to the Securities and Exchange Commission and hopes to start listing stocks by the end of the year.
BATS already competes with established exchanges in its stock-trading business. Since it was founded six years ago, the privately-owned company has captured about 10 percent of all U.S. stock trading by offering lower fees and faster electronic trading than its competitors.
The new listing service could siphon away lucrative listing fees from the NYSE and Nasdaq as well. NYSE made approximately $300 million in U.S. stock listings in 2010, while Nasdaq made approximately $170 million, according to Morningstar.
"We feel like we can provide a very competitive offering to the NYSE and Nasdaq, with very competitive pricing and tools that can attract some of the 7,000 plus companies that are listed today," said Ken Conklin, a BATS executive who is in charge of the listings business.
Conklin said the company will target both companies planning initial public offerings of stock and those that are currently listed on rival U.S. exchanges. Like at the NYSE and Nasdaq, companies that will be listed on BATS will have to meet basic tests of profitability, corporate governance and submit audited financial information regularly.
Company officials said that BATS had previously received approval to operate a listings market, and that the paperwork it filed is a formality. It expects to begin listings in the last quarter of 2011.
The threat the company poses to established exchanges is mixed, financial analysts say.
"This move targets one of the most profitable parts of the NYSE and Nasdaq franchises," said Michael Wong, an analyst at Morningstar who covers both companies. "That said, there are definitely factors that could prevent BATS from making its material goal of being competitive."
While BATS may offer lower listings fees, investors may remain more comfortable with stocks that meet the listings requirements of the New York Stock Exchange or Nasdaq, he said. The company may also not have the ability to cross-list shares in Europe as well, he said.
"The NYSE has so many business lines, from cash trading to data revenue to investor events," Wong said. "Right now, BATS is competing with two or three legs of an eight-legged octopus."
Stock exchange owners have been combining as competition from electronic trading operators like BATS increases. NYSE Euronext Inc. recently agreed to be acquired by a German exchange operator. If approved, the deal would create the largest exchange operator in the world.