BATS wants to remove illiquid stocks from its exchanges

BATS Global Markets, the second-largest US stock exchange operator by volume, wants to turn away illiquid stocks from its own market to help solve the longstanding problem of improving liquidity in thinly traded shares.

In an email to BATS customers and the trading community, Chris Concannon, the exchange's recently appointed chief executive, said the group will file a rule about the matter with the Securities and Exchange Commission this month.

The rare move is meant to help concentrate liquidity for thinly traded shares at their home exchange, which would be either the New York Stock Exchange, or Nasdaq, and Mr Concannon said he hoped that other markets would "follow their lead."

"We believe that concentrating displayed liquidity in thinly traded stocks at a single venue will enable market participants to more efficiently form prices, and that one venue also will be better able to innovate their markets specifically for thinly traded stocks," Mr Concannon said.

The SEC has already directed the industry to work on a pilot scheme aimed at improving the liquidity of small-cap stocks as part of a broader reform of the rules governing equity trading. The plan could increase the minimum one-penny increment between buy and sell orders, or "tick", for a selected group of US stocks.

Critics have argued decimalisation of tick sizes, which used to be fractions of a dollar but were narrowed to a penny in 2001, reduced brokers' interest in trading certain less active stocks.

One test group will include a controversial "trade at" rule, in which off-exchange venues such as dark pools would be required to offer more competitive prices than those available on public exchanges.

Mr Concannon said that "most importantly" BATS was not advocating for a "trade-at" rule as part of its proposal, arguing that it would be disruptive to the market.

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