Better Alternative Trading System (BATS)

What Was the Better Alternative Trading System?

Better Alternative Trading System was the original meaning of BATS, the electronic trading venue that grew into Bats Global Markets. Bats began as an alternative trading system in the U.S. equities market and later became a registered exchange operator before being acquired by Cboe Global Markets.

Bats matters in market history because it represented the shift toward faster electronic trading, lower-cost exchange competition, and a more fragmented U.S. equity market structure. It was not just a venue name; it was part of the competitive pressure that reshaped exchange economics.

How Bats Fit Into Market Structure

Traditional exchanges once dominated listed equity trading. Electronic communication networks and alternative trading systems introduced new competition by matching orders electronically outside the old exchange model. Bats entered that environment with a technology-driven approach and aggressive pricing.

As it grew, Bats moved from being an alternative venue to operating exchanges. That path shows how market structure can evolve: a non-exchange competitor can become part of the exchange ecosystem if it meets regulatory requirements and attracts liquidity.

BATS Versus ATS

BATS is a specific historical company and brand. ATS is a regulatory category for alternative trading systems. Bats began as an ATS, but the two terms are not interchangeable. Many ATSs are dark pools or broker-dealer-operated systems, while Bats became a visible exchange competitor.

This distinction matters because investors may see the acronym BATS and assume it describes any alternative trading system. In practice, Bats became part of Cboe's exchange and market infrastructure business.

Investor Relevance

Most retail investors did not choose Bats directly. Their brokers routed orders across venues. But venues like Bats affected spreads, liquidity, exchange fees, rebates, routing decisions, and execution competition. Market structure is invisible to many investors until it affects fill quality and trading costs.

The Bats story also helps explain why the U.S. market has multiple exchanges trading the same securities. Competition can improve technology and pricing, but fragmentation can make routing, market data, and best execution more complex.

What It Teaches

The most useful lesson is that trading venues are businesses as well as infrastructure. They compete for order flow, listings, data revenue, connectivity, and market-maker participation. A better trading system is not only a technical claim; it is an economic claim about cost, speed, reliability, and fairness.

Bats' growth showed that market participants would shift liquidity when a venue offered practical advantages. Its acquisition by Cboe also showed that exchange competition can later consolidate.

What Changed After Bats

Bats helped normalize the idea that exchange services could be rebuilt around software performance, connectivity, transparent pricing, and competition for liquidity. Its rise encouraged incumbent exchanges to modernize and pushed brokers, market makers, and institutional traders to think more carefully about routing economics and venue quality.

The legacy is mixed in a useful way. Competition among venues can tighten spreads and improve technology, but it can also fragment liquidity and make market data more expensive and complex. Bats is therefore best understood as both a success story in exchange competition and a case study in the tradeoffs of highly electronic, multi-venue markets.

The Bottom Line

Better Alternative Trading System was the original BATS concept: a technology-driven alternative venue that grew into a major exchange operator. Its importance is the way it captures the move from traditional floor-centered markets toward electronic, competitive, and fragmented trading infrastructure.