Direct Edge

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Direct Edge
DirectEdgelogo.jpg
Founded 2005
Headquarters Jersey City, NJ
Key People William O'Brien, CEO
Products Equities trading
Twitter @DirectEdge
LinkedIn Profile
Website www.directedge.com
Releases Company News

Direct Edge is a U.S.-based stock exchange operating dual equity trading platforms, EDGX and EDGA. It is owned by BATS, which acquired it on January 31, 2014. (It was previously owned by a consortium that included the International Securities Exchange, Knight Capital Group, Inc., Citadel Derivatives Group, The Goldman Sachs Group, and J.P. Morgan.) At the time of the merger, Direct Edge ranked as the third or fourth largest stock market in the United States[1] and traded approximately 1 billion to 2 billion shares per day, fluctuating with the overall market volume.[2]

Originally launched as an ECN, Direct Edge received approval from the SEC to convert from an ECN to a licensed stock exchange in March 2010.

Direct Edge first announced the merger with BATS Global Markets in August 2013.[3] The SEC approved the merger in January 2014.[4] BATS Chief Executive Joe Ratterman is the CEO of the combined company, and William O'Brien is president.

History

The firm began in 1998 as Attain ECN. It was purchased by Knight Capital Group in 2005 and re-branded as Direct Edge ECN. In 2007, Knight spun Direct Edge off as an independent company and brought on Citadel Securities and Goldman Sachs as partners. William O'Brien was brought in at that time to lead the new management.[5] [6]

The privately-owned company merged with the stock exchange arm of the International Securities Exchange in August 2008, retaining its brand and management as well as plans to secure exchange status.[7] On Dec. 23, 2008, ISE Stock Exchange became a wholly owned subsidiary of Direct Edge Holdings and gained a significant equity stake in Direct Edge.[8]

In late October of 2009, DirectEdge introduced a maker-taker fee structure on its EDGA platform from Nov. 1, mirroring the pricing model used by rival venue Nasdaq OMX BX.[9] [10]

O'Brien continued to lead the business after the deal with the ISE. In July 2010, when Direct Edge received exchange status, the ISE Stock Exchange was decommissioned and both the EDGA and EDGX ECN platforms began operation as independent stock exchanges.[11] [12] The conversion gave Direct Edge the same regulatory status as NYSE Euronext, Nasdaq OMX Group Inc. and Bats Global Markets.[13]

In November 2011, the company announced its intention to launch Direct Edge Brazil,[14] an all-electronic trading platform for Brazilian equities that will be headquartered in Rio de Janeiro. The exchange was tentatively scheduled to launch in the fourth quarter of 2012, pending regulatory approval.[15] DirectEdge now expects Direct Edge Brazil will be operational by 2014 after BM&FBovespa completes upgrades to its clearinghouse that would also be used by Direct Edge to clear its trades.[16]

Products and Services: Dual Platforms: EDGX and EDGA

One distinction Direct Edge has is its dual platform model.[17] Each platform has its own Market Participant ID and its own pricing schedule. EDGX offers the classic maker-taker rebate pricing model, giving liquidity suppliers high rebates. EDGA takes the opposite approach, charging liquidity providers and offering rebates to the buyside for removing liquidity.

While any subscriber can use either platform, depending upon the order, there are certain kinds of firms that use one platform over the other because of the kind of trading they do. Here is the kind of order flow each platform tends to attract:

EDGX

  • Passive black boxes
  • Retail limit orders
  • Agency Flow
  • Agency Algo Flow

EDGA

  • Pro-active black boxes
  • Retail Market Orders
  • Stat Arb Flow
  • Active Agency Algo Flow

Key People

External links

References

  1. About DirectEdge. DirectEdge.
  2. Direct Edge Plans to Turn Stock Markets into Exchanges in May. Bloomberg.
  3. BATS Global Markets and Direct Edge Agree to Merge. BATS and Direct Edge.
  4. U.S. regulator approves merger of BATS and Direct Edge exchanges. Reuters.
  5. New Home for Direct Edge. Securities Industry News.
  6. Knight Capital Lands Citadel Derivatives as Direct Investor in Direct Edge ECN, Seeks to Grow Consortium. Advanced Trading Magazine.
  7. ISE Joins Direct Edge to Gain U.S. Share. WSJ.
  8. Direct Edge and International Securities Exchange Complete Partnership Transaction. DirectEdge.
  9. Press Release. The Trade News.
  10. New Home for Direct Edge. Securities Industry News.
  11. ECNS Encroaching on Exchange Turf. Traders Magazine.
  12. FAQ. Direct Edge.
  13. Direct Edge Says IPO Possible After Exchange Status. Bloomberg.
  14. DirectEdgeBrazil. DirectEdge.
  15. Direct Edge Brazil FAQ. Direct Edge.
  16. Direct Edge Talks With TMX Fizzle. Wall Street Journal.
  17. Direct Edge readies bid to become an exchange. Financial News.
  18. management. Direct Edge.