Today the BATS Exchange, based in Kansas City (i think this is in Kansas?) listed 7 ETFs. I am probably the only person I know who got excited about that (please leave a comment if you too were excited!!).
There are two primary costs to investors buying stock: Commission and the Bid-Ask spread. Commission is obvious, your broker will tell you exactly how much that is when you make a trade, often a fixed rate below $10 for online trades. The Bid-Ask spread is a little trickier. Basically, the Bid is the price a dealer will buy a stock from you and the Ask is the price they will sell to you at. For heavily traded stocks, this is generally a tiny spread, a few pennies of less. For more lightly traded stocks, and importantly, many newer ETFs, this spread can be much wider. A wide spread means the investor gets a worse price weather buying or selling.
The primary beneficiaries of this will be large traders and dealers with access to the exchange. Lower listing and trading costs increase the appeal of the exchange to market makers and other dealers. BATS also tries to offer faster trade matching and filling. Attracting more participants to an exchange should lower prices on that exchange.
Benefits are not limited to the big players though. Innovation and competition in financial markets has been bringing down costs for individual retail investors and traders since the first exchanges opened. NASDAQ’s all electronic trading lowered costs for dealers, who could pass on some savings to customers to gain business. Tighter Bid-Ask spreads and decimal trade denomination made trading more efficient for mutual funds and now ETFs used by retail investors, reducing some of the ‘hidden costs’ to fund investing. Adding primary listings to a third exchange in the US will ultimately be good for the retail investor.
I think we should all be excited about this.
Posted by jrtaff 
