By Matt Jarzemsky
BATS Global Markets said Thursday it received Securities and
Exchange Commission approval to try to lure individual investors'
trades by offering better pricing for buying and selling shares in
Facebook Inc. (FB), General Electric Co. (GE) and other heavily
traded names.
Approval from the SEC clears BATS to offer a one-year pilot
program set to begin Dec. 17. The program will also apply to
trading in Apple Inc. (AAPL), Citigroup Inc. (C), the SPDR S&P
500 exchange-traded fund (SPY) and a handful of other popular
stocks and ETFs.
A BATS spokeswoman said the firm "selected the securities we
felt were of most interest to the retail customer" for initial
inclusion in the program, and that it will phase in all other
securities as time goes by.
The move follows the agency's July approval of a similar program
at NYSE Euronext's (NYX) New York Stock Exchange. Other exchanges
rushed to follow suit, because such offerings could help them
attract individual, or retail, investors' trades, a prized source
of commissions.
Such programs enable the exchanges to execute retail investors'
trades at increments of a tenth of a cent. That is smaller than the
penny "tick size" most exchanges can offer.
As a result, an investor trying to sell 10 shares of Citi for
$35 each might be able to find a buyer at $350.01, rather than
$350.
The plan "is designed to provide better executions for
individual investors," BATS President and Chief Executive Joe
Ratterman said in a statement.
The program comes as stock exchanges face stiff competition from
banks and electronic-trading firms that pay fees to retail brokers
for the chance to fill their stock orders. Those firms sometimes
execute trades at prices that beat the going market rate by less
than a cent, which most exchanges are typically barred from
doing.
The SEC's approval of the BATS pilot program reflects change in
the way stock exchanges are allowed to conduct business with their
customers. While previous regulation has required exchanges to
treat all customers equally, the new programs let them offer
special pricing plans for one class of customers: individual
investors.
In a newsletter to customers in July, BATS's Mr. Ratterman
called the SEC's approval of the NYSE program a "fundamental shift"
in "the doctrine by which exchanges interact" with customers and
competitors.
Some critics have questioned the wisdom of the change. The
Securities Industry and Financial Markets Association said in a
September letter to the SEC that BATS's program raises "issues of
fair access" to the market because it favors certain types of
customers.
A BATS representative wasn't immediately available to comment on
that critique.
Write to Matt Jarzemsky at matthew.jarzemsky@dowjones.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires