Direct Edge’s market share began to inch higher, and last month its two exchanges accounted for more than 10 percent of all U.S. stock volume. The Bats venues claimed another 10 percent. Combined, the two will jockey for the top spot among U.S. exchanges with the three platforms run by NYSE and the three venues at Nasdaq.
At the time of its purchase by IntercontinentalExchange Group Inc. in November, NYSE had more than 3,000 staff across its operations, including its listings business, technology units and Liffe, the operator of commodities and derivatives exchanges. Bats operates with about 160 employees while Direct Edge has about 135, according to O’Brien.
Direct Edge’s owners included some of Wall Street’s largest broker-dealers, while ICE and Nasdaq are publicly traded. Direct Edge stayed away from a meeting with the SEC last year at which executives from NYSE, Nasdaq and Bats highlighted the increase of trading in dark venues and presented a case about why that hurts the markets.
“Bill is extremely bright and very passionate about market structure issues, but the question is: To what degree is he swayed in his opinion by his ownership?” said Christopher Nagy, president of KOR Trading LLC. “Will this be the path taken by the new entity?”
KCG Holdings Inc., which was formed when Getco LLC bought Knight, as well as Goldman Sachs and Citadel each owned almost 20 percent of Direct Edge and JPMorgan Chase & Co. held 4.9 percent before the merger. All the firms operate at least one alternative trading system.
“The value proposition of exchanges and broker dealers overlap but only overlap a little,” O’Brien said. “We’re really not in the same business. We shouldn’t act like we are and we shouldn’t try to advocate for policy on the basis that we are.”
O’Brien said he will eventually pack up his office -- his dad’s picture, the autographed Notre Dame football, the Direct Edge-branded rugby ball and various industry totems that line a shelf behind his desk. Many of his team won’t be making the move with him across the Hudson River to the new offices in Manhattan, he said. He didn’t provide more details on the number of positions that will be eliminated.
Direct Edge’s exchanges, which run on Microsoft Corp.’s Windows operating system, will be moved to Bats’s Linux-run technology. The merged company will be headquartered in Bats’s home of Kansas.
“I go back to what I came here to do, which is build something that can endure,” O’Brien said. “And this transaction guarantees that. I feel like the combined company is really just getting started.”
O’Brien’s father died in 1996 at age 60, just as computers started competing with the exchange floor. The younger O’Brien said he believes his dad would have been in favor of the changes. He recalled him spending Saturdays on the porch of their Long Island home, crunching data by hand on legal pads in search of technical stock-chart patterns like Kondratiev and Elliott waves. Today, trading programs execute statistical-based strategies that, if written out, would fill the house with legal pads every day.
“I always viewed him to be a futurist,” O’Brien said.