Merger discussions for BATS and Direct Edge

Merger discussions for BATS and Direct EdgeA merge is in the talks for BATS Global Markets Inc., the electronic-exchange group, and Direct Edge Holdings LLC, its rival stock exchange company. The merge would unseat NASDAQ OMX Group Inc. as the second largest U.S. stock exchange operator as it comes to volume. The two companies built by banks and trading firms, would form a combination to challenge the dominance of the New York Stock Exchange and NASDAQ Stock Market.

The new combination would use technology that is geared toward electronic trading that is rapid. Sources close to the matter have told media outlets that the deal could be announced publicly within a few days. Each company currently operates two U.S. stock exchanges and combining the two would be able to form a larger and more diverse exchange company as others have been formed around the world. If the current deal is completed, it would create the second largest U.S. stock market operator behind the NYSE Euronext in regards to the volume of shares traded.

Direct Edge and BATS currently rank third and fourth as far as trading volume. If the deal is completed, the companies have the intent to continue operating all four U.S. stock exchange platforms currently operated by the two companies, BATS and Direct Edge. However, some believe that eventually all platforms could be moved into a single data center, reports indicate.

Direct Edge is currently owned by a consortium of banks and brokers, including KCG Holdings Inc., Goldman Sachs Group Inc., and Citadel LLC as well as International Securities Exchange. BATS is owned by a group of financial firms, including KCG, Tradebot Systems Inc., Wedbush Inc., Bank of America, Merrill Lynch, Citigroup Inc., Credit Suisse Group AG, Deutsche Bank AG, JPMorgan Chase & Co., and Morgan Stanley. Lehman Brothers’ stake in BATS was been acquired by Spectrum Equity and TA Associates just last week.

Direct Edge dates back to 1998 with the launch of an electronic trading platform launch called Attain. Founded in 2005, BATS was a product of Tradebot a high-frequency trading firm that is based in Kansas City, Mo.

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About the author

Rob is a analyst and reporter covering stocks and business news.