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Hungry for ETF Listings, Bats Pokes at Foes in Investor Pitch

(Bloomberg) -- Bats Global Markets Inc. is telling prospective investors that it’s trying to gobble up a piece of NYSE Group Inc.’s $2 trillion ETF listing pie.

Chris Concannon, chief executive officer of Bats, has called out the company’s older, market-leading competitor in his initial public offering pitch to potential shareholders. U.S. market operators are locked in an ongoing fight to be the most attractive spot to list the increasingly popular exchange-traded funds. So far this year, there have been four times the number of ETF debuts as corporate listings.

Even as it pursues its own public offering, Bats has made it known that it’s focused on winning listings of ETFs, not companies. In grabbing for more ETFs, the Lenexa, Kansas-based exchange operator is up against a formidable foe: NYSE Arca is by far the largest venue for the products, with its listed funds totaling 92 percent of the market value of all U.S. ETFs, according to data compiled by Bloomberg. To promote its own business, Bats is paying firms to list their ETFs on its exchange.

“This has our competitors frozen, given the potential cost of responding to this threat and the damage it could do to their corporate listings business,” Concannon said in a recorded presentation. “Can you imagine NYSE paying GE or Bank of America to list on its market?”

The growth potential for ETF listings is central to Bats’s investor pitch. Bats launched ETF Marketplace last year, charging no fees to issuers and offering to pay them up to $400,000 per year for their listings, based on average daily volume. The company doesn’t have any corporate listings like NYSE and Nasdaq do. Its own stock will be the first company to list on its trading venue, under the ticker BATS. The company is planning its IPO for the end of next week, Bloomberg News reported.

NYSE Arca has captured most of this year’s 42 ETF launches, with a 45 percent share, according to Bloomberg data. Bats has claimed about 31 percent and Nasdaq about 24 percent. NYSE Arca’s empire hasn’t been without its setbacks, however. A record 23 ETFs left the exchange last year.

“We have captured the majority of new ETPs launched this year and maintain a significant pipeline,” said Doug Yones, NYSE’s head of exchange-traded products, said in an e-mailed statement. “This is reflective of NYSE Arca’s superior market quality,” as well as its support to issuers and liquidity, he said.

Some NYSE executives that focused on ETFs have moved on recently. Steve Crutchfield, the exchange group’s head of ETFs, bonds and options, is leaving the company for Chicago Trading Co., and last year Bats poached another executive from NYSE’s ETF division, Laura Morrison.

Nasdaq, also gunning to bulk up its share of the ETF-listing market, has other ideas for wooing issuers. The exchange operator asked for regulators’ permission to drum up volume in thinly-traded ETFs with an incentive program for market makers, filed in February.

“I’m not discounting the attractiveness some may see in getting a cash rebate to choose a listing venue, but what Bats has done appeals only to the largest products,” Jeff McCarthy, Nasdaq’s head of exchange-traded product listings and services, said in a phone interview. “Issuers would rather see programs that are aimed at increasing trading.”

--With assistance from James Seyffart and Eric Balchunas. To contact the reporters on this story: Annie Massa in New York at [email protected] ;Alex Barinka in New York at [email protected] To contact the editors responsible for this story: Nick Baker at [email protected] ;Elizabeth Fournier at [email protected] Paula Schaap

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