Back in the '80s and early '90s, there was a saying in real estate that said, “Location! Location! Location!” The folks behind privately-held, electronic trading network BATS ? Better Alternative Trading System ? are headquartered in a Kansas City strip mall and have no plans to move. But lack of Wall Street digs (OK, a New York office was opened in April, but it's on Broadway) hasn't stopped this newcomer from seriously challenging America's two leading exchanges, the NYSE and the Nasdaq. Just two years old, BATS is already No. 3 in volume with over 300 million shares traded daily and is, according to the company, “close to profitability.” With a software engineering and economics background, Ken Conklin is part of the team shepherding the small company's meteoric rise to national prominence. BATS recently received a minority investment from Merrill Lynch and previously received investment from organizations including Credit Suisse, Morgan Stanley and Lehman Brothers.
• What is the greatest challenge currently facing BATS and what are you doing about it?
We have a couple of things that are a challenge for us right now. One is our tremendous amount of subscriber growth [and] being able to provide the high level of service that we expect to all of [them]. ? The other is it's no secret that we have decided to go after becoming an exchange. We feel like the efficiencies that are gained by being an exchange can be realized at the scale that we're at right now.
• Who else ? person or company ? do you feel is doing innovative work and in what way?
There are a lot of people out there within our industry that are really taking market making to that next level. Today [automated market making] is so fast and ? companies are able to make markets which in the end tighten up spreads and provide liquidity for people who really want to buy and sell.
• How would you describe your leadership approach/style?
We typically try to hire people here that are A-plus players. One of the metrics we look at is if somebody is able to manage themselves. In my leadership style I take a macro approach to it where I allow people to kind of run and do the things they do best ? so fairly hands off.
• The popularity of electronic trading is booming, but there have been some rumblings of concern over security such as susceptibility to data failure, terrorist/hacker attack, etc. Is that concern warranted and what has to be done to guard against such problems?
You have to be very conscious on a daily basis of how your systems are running. You definitely have to hire top notch networking people to understand the security space. We do have those people. We monitor our systems continuously and I think it is a big deal. There's a lot of very intelligent people out there that really get a thrill from breaking into systems. So for us we absolutely place a premium on security and compliance within our system. Everybody should take that very seriously.
• Of late, there has been a wave of consolidation or attempted consolidation in the exchanges industry. Is this good or bad for investors and the markets in general?
With the way that the marketplace is going, more efficiencies are being built. BATS came in to create efficiencies in the execution cost area and philosophically we believe that things like market data should probably be given out for free. ? And with the consolidation that's probably just the nature of keeping things a little bit more efficient. There's an awful lot of exchanges out there today which do very little volume, so maybe there's too many at the moment. Maybe a few would run a little bit better if they merged in with another exchange. So I see it probably as doing a little bit of good.
• You're tasked with writing one of those self-help books for Dummies on any topic you choose. What subject do you write about and why?
Liquidity for Dummies. Because I think liquidity is kind of a grey area where the people who provide liquidity are actually putting limit orders out there [just] sit there, and what they want is liquidity from the other side, which is the “remove flow.” Liquidity is a fascinating topic and that's what our market centre is built for ? to attract liquidity.