CS Credit Suisse Group

After a flubbed stock-market debut in 2012, Bats is set to head back to the public market this week in one of the most highly anticipated IPOs so far this year.

There is a lot at stake for both the company and IPOs in general. The first quarter was the slowest quarter for U.S. listings since the financial crisis, and a successful Bats debut could help revive the lethargic IPO market.

For the exchange operator, it is a shot at redemption. Four years ago Bats was forced to cancel its IPO after it said a software bug disrupted trading shortly after its stock listed on its own exchange. It was the farthest the company got with an IPO.

Bats says it is ready to go this time. Bats is touting itself more as a technology company than a financial company, according to investors and analysts who have attended the company's roadshow, when executives meet with fund managers who may be interested in buying shares. It is also highlighting its competitive edge in the growing exchange-traded fund business, those people say. And recent market volatility could work in Bats's favor.

"IPOs have been starved, and financial IPOs aren't always the most lucrative relative to other industries, but it seems like the timing and the story is more correct now for Bats," said Gene Novak, a research analyst at Nuveen Asset Management who is considering purchasing the shares.

On Thursday morning, Bats increased the number of shares it plans to offer in the deal, according to a regulatory filing. Bats now plans to sell 13.3 million shares at $17 to $19 apiece late Thursday, according to people familiar with the offering. That would value the company at $1.63 billion to $1.82 billion, according to regulatory filings. Previously Bats planned to offer 11.2 million shares, according to regulatory filings.

While few analysts expect Bats on its own to reinvigorate the IPO market, if other planned IPOs such as American Renal Associates Holdings and SecureWorks go well, the combined success could be an encouraging sign for new offerings.

Bats faces challenges. Some potential investors cited upstart competitor IEX Group Inc., which was featured in Michael Lewis' " Flash Boys" as a firm trying to shake up traditional exchanges.

Investors considering the IPO are also concerned about the potential for technology-related disruptions on exchanges, and the sustainability of Bats's growth and market share, people familiar with the offering say.

One such potential growth area for Bats is its ETF business. According to Bats's prospectus, it is the largest exchange operator of ETFs and other exchange-traded products by market share. From the start of 2016 through March 23, ETFs accounted for about a quarter of total stock-market trading volume, up from close to 17% in the same period of 2014 and roughly a fifth of trading volume in 2015, according to data from Credit Suisse.

"You cannot deny the ETF has become more and more popular among the investor community," said Lei "Rocky" Wang, a portfolio manager on the $8.7 billion Thornburg International Value Fund, which invests in exchanges. "Bats has a competitive advantage in ETFs, and the investment community will continue to look for new growth in the ETF product. That's their strength."

While coming off a period of market volatility is typically a negative for companies going public, it can be beneficial for stock-trading venues, which earn more money when more shares change hands. Heightened trading activity in the first three months of the year—when stocks fell sharply before rebounding—drove the quarterly average trading volume to its highest since the U.S. credit downgrade in the third quarter of 2011.

The stock price of rival Nasdaq Inc. hit a record high in March. Nasdaq has since declined 4.6% through Wednesday's close, but it remains up nearly 10% so far this year, better than the S&P 500's 1.9% rise.

To be sure, those market conditions can be fleeting.

"One drawback [when investing in exchanges] is that revenues are very dependent on volumes, which tend to be a function of the market environment," said Chris Lee, manager of the Fidelity Select Financial Services Portfolio. "Quarter to quarter [exchanges] can exhibit seasonality or volatility."

The roadshow highlights Bats's proprietary trading technology and says the company is ahead of some tech giants in workers' productivity, investors and analysts who have attended the roadshow say. Technology is a major driver of Bats's ability to win market share and charge low transaction fees, executives say, according to these people.

"If you list or portray yourself as a tech company, you are implying your multiple should be more stable and your topline should be more stable," said Mr. Novak.

At the same time, other investors say the barrier to entry for cost-efficient trading technology is fairly low, and with so many stock-exchange destinations in the U.S., competition runs high.

Bats is set to start trading on its own Bats BZX Exchange on Friday morning under the symbol "BATS." Its offering is being led by Morgan Stanley and Citigroup.

Maureen Farrell contributed to this article.

Write to Corrie Driebusch at corrie.driebusch@wsj.com

(END) Dow Jones Newswires

April 14, 2016 14:45 ET (18:45 GMT)

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