CBOE Holdings Inc.'s agreement to acquire Bats Global Markets Inc. could ultimately lead to savings on trading and data costs for institutional investors, sources said.
The Sept. 26 deal will bring Lenexa, Kan.-based Bats' trading technology, including its advanced order matching system, to CBOE's Chicago Board Options Exchange, “which will be a benefit for investors,” said Valerie Bogard, equity analyst at TABB Group LLC, New York. “Bats has the strongest technology out there, and CBOE's acquisition of that will lead to growth across the spectrum of their exchanges.”
Ms. Bogard said Bats' technology, applied and expanded under Chicago-based CBOE, could lead to lower trading costs, better transaction cost analysis, better execution of trades and increased liquidity.
The four U.S.-based Bats equity exchanges as well as Bats Europe and Hotspot FX Inc., its foreign-exchange venue, will continue to run as separate exchanges, Ms. Bogard added. But it will provide economies of scale through merged operational components, she said, which has the potential of leading to further lower costs for investors.
Ms. Bogard said “it's hard to quantify” the overall cost saving for institutional investors because the merger details have not been finalized.
Another benefit could be lower costs for third parties to access market data, a big driver of business not only for Bats and CBOE but other exchanges as well, such as the New York Stock Exchange and Nasdaq Inc., said Kevin McPartland, principal, market structure and technology, at Greenwich Associates, Stamford, Conn.
“Market data has become a huge business for exchanges — as well as a huge cost for the end investor,” Mr. McPartland said. “The fewer the exchange owners, the fewer the sources of data from one company.”
While some might say more data concentrated in the hands of the fewer sources could drive up costs, Mr. McPartland said the opposite could happen. “I'd hope data will become more standardized as a result and will then be less expensive,” he said.
Mr. McPartland added that there's the cost-savings benefit of having more data to measure best execution. “That data fuels trading decisions,” he said.
Officials at CBOE and Bats would not comment.
Not everyone sees benefits for institutional investors from the CBOE-Bats tie-up. From a client or asset-owner standpoint, said Ryan Larson, Chicago-based head of U.S. equity trading at RBC Global Asset Management (U.S.), “it's hard to say yet if there are any advantages from the already completed or proposed deals/mergers,” including the proposed London Stock Exchange-Deutsche Bourse deal.
Mr. Larson said drivers of the deals are structural “and not directly related to client benefits. That's an important distinction to make — from a strategic standpoint, are these deals being driven to benefit the shareholder or the end user? Two very different things with likely very different end results.”
While Mr. Larson said there could be benefits for exchange clients, “my guess is many remain skeptical.” He cited the 2014 Bats acquisition of Direct Edge Holdings as an example. “Many thought that merger would ultimately lead to welcomed defragmentation and more meaningful liquidity in fewer venues, yet the operator continues to maintain all four exchanges (BZX Exchange, BYX Exchange, EDGA Exchange, and EDGX Exchange). On the contrary, if we saw some of these combined entities take a more forward-thinking, client-benefit approach, similar to IEX (Group)'s recent launch as the 13th U.S. exchange, then I think you will see real advantages from the asset owner standpoint. To that point, the IEX exchange launch has been the first meaningful differentiation in the equity markets in quite some time.”
