BATS Out of the Cave

BATS Trading is no fly-by-night operation.

CEO Dave Cummings says BATS, whose full name is Better Alternative Trading System, is the third-largest U.S. stock market behind the New York Stock Exchange and the Nasdaq. But the year-old Kansas City, Mo., electronic communication network has bigger ambitions.

Eventually, BATS believes it could be "possibly the second largest," says Cummings.

BATS began trading in January 2006. Cummings started the company, with backing from big investors like Credit Suisse(CS), Lehman(LEH) and Morgan Stanley(MS) after consolidation left the NYSE and Nasdaq with few big competitors.

The ECN has been cutting prices to gain market share. While BATS recorded a loss last month, it did get more volume. BATS currently trades more than 300 million shares a day, giving it 13% of the market for Nasdaq-listed stocks. That's up from to 4% to 6% before the reduced pricing. Now BATS is aiming for a billion shares a day.

"That's a significant market," Cummings said in an interview with TheStreet.com. There is a "movement among broker-dealers to push exchanges off their turf."

While the alternative trading platforms provide competition to the bigger U.S. exchanges, they also provide a place where stakeholders like big brokerage firms can trade large blocks for less.

So not only are the brokers providing themselves a cheap place to trade orders, they also make a nice profit off of the overall investment -- particularly in the case of BATS, which has taken the equity market by storm.