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I was told that BATS Chi-X Europe is not a stock exchange, that rather it is an equity market. The Wikipedia article states that it is an

alternative to exchange traded equities and exchange-traded funds (ETFs) that are listed on primary exchanges such as the London Stock Exchange

1) Does this mean that BATS Chi-X Europe only trades "third party" equities listed elsewhere?

2) If I buy stock through BATS Chi-X Europe for an equity listed on the London Stock Exchange, does my order eventually reach the London Stock Exchange matching engine, or are there two completely separate matching exchanges?

3) If there are two separate matching engines, why isn't BATS Chi-X Europe a stock exchange, also?

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I work at BATS Chi-X Europe and wanted to provide some clarity/answers to these questions. BATS Chi-X Europe is a Recognised Investment Exchange, so it is indeed a stock exchange. Sometimes the term “equity market” could be used when explaining our business, but essentially we are a stock exchange.

As some background, BATS Chi-X Europe was formed by the acquisition of Chi-X Europe by BATS Trading in November 2011. At the time of the acquisition, each company operated as a Multilateral Trading Facility (MTF) for the trading of pan-European equities via a single trading platform. The category of MTF was introduced by MIFID (markets in Financial Instrument Directive) in 2007, which introduced competition in equities trading and allowed European stocks, to be traded on any European platform. Until 2007, many European stocks had to be traded only their local exchanges due to so-called “Concentration Rules”.

Following the acquisition, BATS Chi-X Europe became the largest MTF in Europe, offering trading in more than 2,000 securities (2,700 securities by September 2013) across 15 major European markets, on a single trading platform.

In May 2013, BATS Chi-X Europe received Recognised Investment Exchange status from the UK Financial Conduct Authority, meaning that BATS Chi-X Europe has changed from an MTF status to full exchange status.

In response to question 1: The equities traded on BATS Chi-X Europe are listed on stock exchanges such as the LSE but also listed on the other European Exchanges. The term “third party” equities is not particularly useful as all stock trading in Europe is generally a “second hand” business referred to as “secondary market” trading. At the time of listing a firm issues shares; trading in these shares after the listing exercise is generally what happens in equity markets and these shares can be bought and sold on stock exchanges across Europe. Secondary market trading describes all trading on all exchanges or MTFs that takes place after the listing.

In response to question 2: BATS Chi-X Europe trades over 2,700 stocks on its own trading platform. When trading on BATS Chi-X Europe, orders are executed on their own platform and will not end up of the LSE order books or platform. The fact that a stock was first listed on the LSE, does not mean that all trading in this stock happens via the LSE. However settlement process ensures that stocks end up being logged in a single depository. This means that a stock bought on BATS Chi-X Europe can be offset against the same stock sold on the LSE.

In response to question 3: As noted above, BATS Chi-X Europe received Recognised Investment Exchange (RIE) status from the UK Financial Conduct Authority in May 2013, meaning that BATS Chi-X Europe has changed from an MTF status to full stock exchange status. As an exchange / RIE, BATS Chi-X Europe is authorised to offer primary and secondary listings alongside its existing business.

According to the Federations of European Securities Exchanges (FESE), BATS Chi-X Europe has been the largest equity exchange in Europe by value traded in every month so far in 2013. In August, 24.1% of European equities trading in the 15 markets covered were traded on BATS Chi-X Europe. In July and August, the average notional value traded on BATS Chi-X Europe was around €7.2 billion per day.

Hope this information is helpful.

  • Thank you for this great answer. Could you provide more detail on the centralised "settlement process" and associated "depository"? Is the settlement done at the end of each trading day? Is the depository owned by the "local exchange"? – Randomblue Oct 1 '13 at 20:31
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Yes, it would be incorrect to refer to BATS Chi-X Europe as a market maker. Market makers make markets on BATS Chi-X Europe, which is a stock exchange.

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BATS CHi-X Europe is a market maker. They provide liquidity to the order books of different kinds of equities on certain exchanges. So the London Stock Exchange lists equities and the order books show the orders of different market participants. Most of those market participants are market makers. They allow others to complete a trade of an equity closer to the price that persons wants, in a faster time period and in larger amounts, than if there were no market makers providing liquidity.

  • Why is this downvoted? Is it incorrect? – im so confused Sep 30 '13 at 14:07
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    @imsoconfused: Based on user11368's answer, yes, this is complete bull. – Randomblue Oct 1 '13 at 20:32
  • @Randomblue ah i see, that clears things up a lot, and is a much better answer. However, would it be wrong to say that BATS Chi-X E is a market maker? From what I understood from user11368's answer, until May 2013, they were only allowed to provide secondhand market liquidity, correct? Trading a security can be done via market maker, if i am not mistaken, so the only difference is the ability to list, for all practical purposes. I suppose it boils down to whether they make a profit on the spread or not. I'm just curious, not trying to argue. – im so confused Oct 1 '13 at 20:46
  • @imsoconfused user11368's answer is more complete, your objective analysis of my answer is welcome though – CQM Oct 2 '13 at 2:06

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