About a week after a "connectivity issue" halted trading on the nation's second-largest stock exchange, two Am Law 100 firms have landed lead roles on a merger of smaller trading platforms seeking to challenge market leaders The Nasdaq OMX Group and NYSE Euronext, the latter the largest stock market in the United States and operator of the New York Stock Exchange.

BATS Global Markets, the nation’s third-largest stock exchange, confirmed Monday that it intends to merge with Direct Edge Holdings LLC by acquiring its smaller rival for an undisclosed sum.
The New York Times’s DealBook reports that a combined BATS/Direct Edge will vault past Nasdaq to become the nation’s second-largest stock exchange, while Bloomberg notes that the union between the two exchanges comes amid a four-year decline in U.S. trading volume following the 2008–09 financial crisis.
Both BATS and Direct Edge, which are privately owned by consortiums of key players in the financial services industry, utilize high-speed trading technology to keep trading fees low. (In a feature story in Vanity Fair's September issue, noted financial journalist Michael Lewis explores the increased prevalence of high-speed electronic trading by examining Goldman Sachs’s effort to break into the lucrative business.)
Stephanie Evans, vice chair of the corporate practice at Wilmer Cutler Pickering Hale and Dorr, is leading a team from the firm advising Direct Edge on its proposed merger with BATS. Direct Edge, whose roots extend to the 1998 launch of an electronic trading network called Attain, is a longtime Wilmer client. The firm has previously done work for some of the exchange's owners—a group that includes Goldman, JPMorgan Chase, International Securities Exchange Holdings, and high-frequency trading firms Citadel Derivatives Group and KCG Holdings.
Thomas McManus, a former Morgan, Lewis & Bockius partner, serves as chief compliance and regulatory officer for Jersey City, New Jersey–based Direct Edge. McManus previously worked as an associate at Orrick, Herrington & Sutcliffe in the late 1990s along with William O’Brien, the current CEO of Direct Edge, which has been busy this year expanding into Brazil.
BATS, whose owners include Bank of America Merrill Lynch, Citigroup, Credit Suisse, Deutsche Bank, and Morgan Stanley, is being represented by Davis Polk & Wardwell in connection with its effort to acquire Direct Edge. The would-be acquiror’s name stands for Better Alternative Trading System.
Davis Polk corporate partner Leonard Kreynin is leading a team from the firm counseling BATS that includes corporate partner Jean McLoughlin, tax partners Kathleen Ferrell and Neil Barr, financial institutions partner Annette Nazareth, antitrust partners Michael Sohn and Ronan Harty, and associates Andrew Blau, Michael Grossman, and Lee Hochbaum. (Nazareth, a former SEC commissioner who joined Davis Polk in 2008, spoke with sibling publication The Blog of Legal Times earlier this year about the firm's growing presence in Washington, D.C., and her own work helping craft the Dodd-Frank Act.)
Founded in 2005, suburban Kansas City, Missouri–based BATS turned to British firm Macfarlanes and Davis Polk for counsel on its $300 million acquisition in 2011 of Chi-X, the largest pan-European stock exchange.
McLoughin and Davis Polk corporate partner Deanne Kirkpatrick advised BATS last year on its planned $107 million initial public offering. BATS subsequently scrapped the IPO when a technical glitch delayed the listing—a move that lent credence to criticism of electronic trading systems.
Skadden, Arps, Slate, Meagher & Flom corporate finance partners Gregory Fernicola and Phyllis Korff represented underwriters led by Citigroup, Credit Suisse, and Morgan Stanley on the aborted IPO for BATS, which could have generated an estimated $2 million in legal fees and expenses, according to an SEC filing at the time.
Consolidation in the exchange space in recent years through high-profile M&A deals has been a boon to The Am Law 100 and global firms fielding teams of lawyers specializing in the corporate, antitrust, regulatory, tax, and litigation work often required to close such transactions.
Allen & Overy, Paul, Weiss, Rifkind, Wharton & Garrison, Weil, Gotshal & Manges, and more than a half-dozen Canadian firms also advised on the $3.8 billion sale of Canadian exchange operator TMX Group that closed last year to a consortium of financial services firms and pension funds called the Maple Group.
The Am Law Daily reported in early 2011 on the seven firms seeking to push through a $10 billion all-stock merger between NYSE Euronext and the Deutsche Boerse that collapsed a year later in the face of objections on the part of European antitrust regulators.
Late last year, Sullivan & Cromwell and Wachtell, Lipton, Rosen & Katz took the lead advising on the proposed $8.2 billion cash-and-stock merger of NYSE Euronext and the IntercontinentalExchange (ICE), as well as the $1.4 billion merger between high-speed trading shops Getco LLC and Knight Capital Group, according to our previous reports.
The merger between Getco and Knight Capital closed with the formation of KCG Holdings on July 1—Wachtell advised KCG later that month on the $80 million sale of its reverse mortgage unit—and the SEC approved ICE’s planned takeover of NYSE Euronext earlier this month.
BATS itself is no stranger to regulatory scrutiny. The company hired former SEC attorney Eric Swanson as its general counsel in 2008 to help win exchange status from the regulator. Swanson was later part of an internal investigation by the SEC into its failure to heed warnings about Bernard Madoff, whose niece Shana Madoff was married to Swanson when she served as an in-house lawyer and compliance director for the massive Ponzi scheme concealed as Bernard L. Madoff Investment Securities.
An SEC report released in 2009 found no link between its failure to uncover the Madoff fraud and Swanson’s marriage to Shana Madoff, although it did release emails documenting their relationship. Peter Madoff, father of Shana Madoff and brother of Bernard Madoff, began serving a 10-year prison sentence in South Carolina earlier this year. (Sidley Austin enforcement and regulatory compliance partner Michael Wolk represented Swanson in the SEC probe.)
U.S. Senate records show that Bryan Cave and the Daly Consulting Group have handled lobbying work for BATS, with Washington, D.C.–based Daly getting $52,500 for its efforts so far this year, and Bryan Cave earning $210,000 since signing on to represent the exchange in January 2012.
For its part, Direct Edge has turned to Williams & Jensen to fill its lobbying needs. The Washington, D.C.–based firm has received $540,000 from the company since early 2009 for its advocacy work on market structure issues and implementation of the Dodd-Frank Act, according to Senate filings.
Direct Edge expects its sale to BATS to close by the first quarter of next year, pending the necessary regulatory approvals. The two companies plan to continue running each of the four electronic exchanges they currently operate, although Reuters reports they will all shift to BATS's technology platform as a cost-cutting measure.