NEW YORK (Reuters) - No. 2 U.S. exchange operator Bats said on Monday it plans to offer a cheaper alternative to the closing auctions for New York Stock Exchange- and Nasdaq-listed securities, taking aim at one of the busiest and most-lucrative trading periods of the day.
Bats, owned by CBOE Holdings (CBOE.O), said its end-of-day matching process for non-Bats listed securities was in response to frustration voiced by industry participants toward rising closing auction trading fees on other exchanges.
Closing auctions attract massive volume from fund managers that price their assets to the closing prices of listing exchanges and execute the bulk of their orders at that time.
Daily volume in closing auctions has risen more than 70 percent, to almost 350 million shares, in the past five years, Bats said. Fees for closing auctions have increased from 16 percent to 60 percent at the NYSE and Nasdaq respectively, in that period, the exchange said.
A bigger share of end-of-day volume could help Bats overtake NYSE as the No. 1 exchange operator and extend its lead on Nasdaq. Bats has an 18.4 percent market share, compared with 21.7 percent for NYSE and 18.1 percent for Nasdaq, according to Bats data.
NYSE said the move by Bats, which needs regulatory approval, would harm the market.
"Bats' proposal would fragment the closing auction and impair price discovery, while increasing the cost-of-capital for listed companies, and increasing trading costs for investors," said Stacey Cunningham, NYSE's chief operating officer.
Nasdaq declined to comment.
Bats said its end-of-day matching process will not distort price formation because it will not apply to price-setting limit-on-close orders.
The Bats offering will let market participants route Market-On-Close (MOC) orders to Bats, where they will be pre-matched with other MOC orders 25 minutes before the 4 p.m. market close.
The pre-matched trades will be executed when the primary exchanges' closing prices are published, giving participants closing prices for a fraction of the cost, Bats said.
Unmatched orders could be sent to the primary exchanges' closing auctions for execution.
Some brokers already offer MOC prices for investors, but Bats would be the first exchange to do so.
Reporting by John McCrank; Editing by Dan Grebler