ISEEE Presentation April 6, 2014 Agenda 1. In the News 2. Brief - - PowerPoint PPT Presentation

ISEEE Presentation – April 6, 2014

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• 1. In the News
• 2. Brief History of BATS
• 3. Direct Edge Merger
• 4. U.S. Equities
• 5. Europe Equities
• 6. Other Businesses
• 7. Regulation
• 8. Q&A

Agenda

Corporate Overview

BATS Global Markets Snapshot

• Headquartered in Lenexa, KS
• 296 Employees
• 100 in Kansas
• 58 in London
• 130 in New Jersey
• 6 in New York

7 Large Banks 2 Market Makers

BATS Global Markets Ownership

2 Private Equity 1 Prop Broker 1 Clearing Firm

Follow us on Twitter @BATSGlobal

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Building a Track Record of Success

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Launched as Direct Edge ECN under Knight Capital Spun off and added Goldman Sachs and Citadel as investors CEO William O’Brien joins the company Applied for exchange status Received SEC approval and launched exchanges with new technology and data center Announced intentions to launch in Brazil Developed Connectivity & Member Services Launched EdgeRisk Controls Introduced Retail Order Designation Market share growth accelerated Acquired ISE Stock Exchange

Direct Edge Key Events

Announced plans to merge with BATS Global Markets Released Direct Edge Order Type Guide Earned one point market share in first year trading BATS Trading, Inc. formed BATS processes 500 million shares for the first time, less than 18 months after launch BATS Global Markets ranks as world’s 3rd largest stock exchange

• perator by

notional value traded for the first time BATS Options and second U.S. equity exchange go live Acquires Chi-X Europe, becoming the largest pan- European trading center by value traded Launches U.S. primary listing venue with 9 new iShares ETFs Completes seamless Chi-X Europe integration Daily volume record

• f 1 billion

shares in January BATS Exchange and BATS Europe go live BATS Chi- X Europe earns exchange status and launches European ETF and trade reporting businesses BATS goes live in January Daily volume record of 100 million shares in November

BATS Key Events

BATS and Direct Edge complete merger, becoming top market for ETF and retail- driven liquidity BATS chooses Equinix NY5 for long term data center strategy, secures innovative customer pricing deal

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Market Positioning Synergy Opportunities Diversification

• f Revenue

Streams Shared Innovative Culture

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Creates the 1st or 2nd largest global equities exchange operator

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Jan 2014 U.S. Market Share: NYSE : 20.58%, BGM: 20.54%, NDAQ: 20.01%

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Expanded scale, market share and efficiencies of combined company will create greater ability to innovate and compete

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Dedicated Institutional Focus

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Broader competitive services for customers (e.g., market data competitive with that of NYSE and NASDAQ)

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All four U.S. equity exchanges – BZX, BYX, EDGX and EDGA – will remain in

• peration providing a stronger customer value proposition, with different

pricing models and functionality

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Potential for reduced long-term costs for customers by reducing capital expenditures, redundant systems, data costs, and operating costs

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Both BATS and Direct Edge were founded to challenge the U.S. exchange duopoly and increase efficiency for end-users

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Shared history of market innovation, service and competitive pricing

Direct Edge Merger Overview

Top Global Exchange Operator

($ in millions)

Global Cash Equities Exchanges by Monthly Notional Value Traded

____________________ Source: World Federation of Exchanges, BATS Global Markets. Note: Monthly notional value traded through January 2014.

6 1,391,861 1,306,737 1,285,522 542,978 362,540 225,369 193,570 134,200 115,606 101,494

200,000 400,000 600,000 800,000 1,000,000 1,200,000 1,400,000 1,600,000 NYSE Euronext BATS Global Markets NASDAQ OMX Tokyo SE Group Shenzhen SE Shanghai SE London SE Group Hong Kong SE TMX Group Korea Exchange

U.S. Equity Market Share by Venue

TRF, 37.43% NYSE, 20.58% 20.54% NASDAQ, 20.01% OTHER, 1.45%

Source: BATS Internal January 2014

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___________________ (1) BATS Data, February 2014 (2) As of February 2014, per 100 shares, parentheses represent rebate.

Four U.S. Equity Exchanges

EDGA BYX EDGX BZX

Key Differentiators Routing, Low Cost Retail Price Improvement Retail, Attribution Hidden Price Improvement Statistics 40 unique strategies average 30+ mils

• f price

improvement 33% of orders are retail/wholesale; 9% attributed more than 7% of inbound executed

• rders receive PI

Recent Market Share1 2.75% 2.04% 7.53% 8.07% Pricing Model “Taker-Maker” with low fee and rebates “Taker-Maker” with low fee and rebates Traditional “Maker-Taker” model Traditional “Maker-Taker” model Pricing for Adding Liquidity2 5 to 6 0 to 3 (20) to (35) (20) to (32) Pricing for Removing Liquidity2 (2) (1) to (3) 29 to 30 30 Exchange Code J Y K Z

The merger of BATS and Direct Edge combines two highly complementary firms dedicated to customer-focused principles, products and pricing that have been the foundation for our individual success. Together, we have designed a market model that provides customer choice, low cost and technology compatibility.

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Complimentary Liquidity

Source: Percentages represent add and remove volume based on BATS and Direct Edge Internal Data for Q1 2014. BATS categorizes its members into segments on a best efforts basis according to its view of each Member's business model. For definitions of each segment, please click here.

9 Agency 15% Automated Market Maker 34% Bulge Bracket 31% Other 3% Proprietary 15% Retail/ Wholesale 3%

EDGA/BYX/BZX

Agency 9% Automated Market Maker 11% Bulge Bracket 27% Other 4% Proprietary 20% Retail/Wholesale 29%

EDGX

BATS BYX Retail Price Improvement Program

– ~3.5 million shares per day executed in RPI program – $.0030 of price improvement on average (35 in Feb so far)

Top Retail Destination

Broker NYSE- Listed NASDAQ- Listed

#1 #1 #1 #1 #1 #1 #1 #1

EDGX Retail Broker Limit Order Routing

Q3 Rule 606 Reports – EDGX Rank Among Exchanges

____________________ Source: Direct Edge, SEC Rule 606 Public Disclosures

Other 1% Market Maker 10% Proprietary 11% Agency 13% Retail 18% Wholesaler 19% Bulge Bracket 28%

Limit Orders on EDGX Exchange

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ETF Volume Leader BATS leads all other exchanges in ETF volume.

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TRF 33% 26% NYSE Arca 22% NASDAQ 17% Other 2%

Source: ETF Data Provided by ArcaVision / BATS data as of Y/E 2013

European Equity Market Share

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BATS, 22.10% LSE, 19.97% NYSE, 14.70% DB, 11.40% Other Lit, 7.80% Turquoise, 7.25% SWISS SIX, 6.42% NASDAQ, 5.82% Other Dark, 1.56% UBS Dark, 1.40% ITG Dark, 0.84% SIGMA X Dark, 0.69%

Source: BATS Internal Jan 2014

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Listings Market Data & Connectivity Services U.S. Options

Other Business Units

§ Approximately 20 listings, currently focused on exchange traded products § Unique market structure with complimentary competitive liquidity provider programs, which provides more consistent market quality than other exchanges § Launched February 2010 § Maker/Taker pricing structure § Approximately 3 – 5% market share § No fees for individual consumption of market data § Connectivity to multiple liquidity centers for inbound and outbound order routing § Consolidating data centers 1H 2015 to lower member costs and provide greater cost certainty

Our Market Structure Principles

• Monopolies are not the answer

– But exchanges need to communicate and coordinate better

• All market participants should focus on reducing IT and
• perational risks
• Regulators must have info they need to deter bad conduct
• Investors should know where their orders are routed

– This is in addition to knowing where they are executed

• Market structure should be re-visited for small caps
• A national “depth of book” feed should be created

– The importance of depth-of-book information – The concern about informational advantages – This should be worked on while strengthening the current SIP

All reforms should be targeted, with the objective of improving investor confidence

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Our Views on the Issues

• Internalization/Maker-Taker/Payment for order flow

– An exchange is not always the best place to execute a trade – Restrictions on payment will disadvantage retail & institutions

• Pennies, Nickels, etc.

– BGM is working with the SEC around a potential industry wide tick pilot – To work best, any pilot should be simple and respect existing business models

• Dark Pool Regulation

– Dark pools serve a purpose but some have gone too far – Greater transparency of order routing and business practices

• “Complexity”

– A simpler market is not the answer, but we must act responsibly – Rules/order types should be right-sized and easy to understand

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Order Types Demystified

• How many are there?

– All exchanges have basic order types, with “options” on top – These alternatives help brokers customize their trading strategy based

• n the needs of their traders and/or their customers
• Market session (pre, post, regular session, all)
• Time (IOC, Day, GTT, GTC) and price (Market, Limit)
• Order Control (Full routing, partial routing, “Book Only”)
• Cost & Risk Control (“Post Only”, minimum quantity)
• Compliance (“Hide Not Slide”)
• Does this present risks?

– Greater choice does increase the need to “do your homework” – “Queue jumping” is not a risk – price-time priority prevails

• How can we do better?

– More “plain English” marketing to broadly advertise your choices – Greater clarity in the SEC rule filing process

Direct Edge Order Type Guide now available on the Direct Edge website; BATS Order Type Guide coming soon.

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Topic (Geography) Description Technology Risks Consolidated Audit Trail (U.S.) Tick Size Regulation

Key Regulatory Topics

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SEC proposed Regulation SCI in response to exchange technology failures

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HFT generates regulatory scrutiny due to the perceived unfairness and misunderstood trading

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Puts the burden on U.S. SROs to develop and fund the establishment of the CAT

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Increased tick size for small cap issuers providing incentive for market makers

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Bill introduced in the House, vote expected in early 2014

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Regulation would require OTC derivatives to be centrally cleared and create favorable margin/ collateral requirements for on-exchange traded

• vs. OTC

MiFID Review (MiFID 2) Financial Transaction Tax (FTT) European Markets Infrastructure Regulation (EMIR)

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Tax on individual securities transactions

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Previously proposed in the U.S.; enacted in France, Italy, Germany and several other countries

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The United Kingdom and 16 other EU states

• bjected to it

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Relates to the opening up of vertical silos, the licensing of indices and a review of HFT practices

High Frequency Trading

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• Closely regulates activities of two

exchanges and its affiliated broker-dealer for compliance with the federal securities laws and BATS’ own rules

• Governs equities and options market

structure; particularly active since recent financial crisis and “flash crash” in 2010

• Regulates all broker-dealers doing

business with the public

• Exercises regulatory oversight through

exams; separately performs market regulation under contract on behalf of U.S. exchanges

• Under contract to perform certain regulatory

functions for DE and prior to 2011 for BATS

FCA ESMA U.S. Regulators European Regulators SEC FINRA BATS management engages in frequent dialogues with the various regulatory organizations as it navigates this multi-faceted regulatory framework

Key Regulators

• Primary regulator, responsible for oversight
• f compliance with relevant aspects of U.K.

securities laws

• Operational objectives include consumer

protection, market integrity and enhanced market competition

• In response to global financial crisis, U.K.

government abolished FSA in April 2013 and transferred prudential supervision to the Bank of England and conduct of business supervision to FCA

• European Securities and Markets Authority

is one of several new European supervisory authorities established at beginning of 2011

• Responsible for ensuring integrity,

transparency, efficiency and orderly functioning of securities markets. Fosters supervisory co-operation and convergence amongst regulators

• Granted broad powers to draft technical

standards (legally binding in EU member states), resolve disagreements between national authorities and monitor systemic risk of cross border financial institutions

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Questions?

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