While some are wary that the combined efforts of the two firms could create increased risks or stability issues in the financial system, Bats believes the merger could enhance efficiency.
“Having a robust and liquid derivatives market is critically important to the underlying security itself. People fail to realize how important the derivatives market supports the underlying market,” Concannon told FT.
Bats controls about a quarter of ETFs’ total trading volume in the U.S., which provides CBOE a significant foothold in the ETF business. Bats is one of three exchanges that provide coverage for the $2.4 trillion U.S.-listed ETF market, competing against the dominant NYSE Arca exchange, which lists ETFs worth $2.23 trillion, and Nasdaq Inc.
Bats has aggressively expanded into ETF trading with fast trading technology as regulatory and technology changes diminished profits in other areas. CBOE, on the other hand, mainly trades options linked to the funds. With the Bats acquisition, CBOE is passing over its trading software for Bats’ technology.
CBOE Holdings plans to purchase Bats Global Markets for $3.2 billion. The two are preparing to put their deal agreed in September before shareholders in January, 2017 after passing the U.S. antitrust approval process last month. The two executives contend that the merged company could attract new investors from retail and institutional sides to each other’s products.
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