JPMorgan On BATS: 'We Expect BATS Will Continue To Take Market Share,' Initiates At Neutral

Cuddy elaborated, "Bats has grown to be a leader in US cash equities, European cash equities, US options and has begun to grow its recently acquired FX execution venue. We expect Bats will leverage its price and technology to win further market share as it continues to expand into different parts of the cash equity, options and FX market places."

The brokerage believes that BATS Global Markets' CEO Chris Concannon and the management team form a team that can become "aggressive competitors" within the broader market. The analyst sees the CEO as a skillful planner who can executive tactics to ensure growth "mainly by taking share from others." Cuddy expects his tenacity to play a key role in the company's long-term success.

Related Link: Jefferies Starts BATS At Hold, Looking For More Attractive Entry Point

The analyst said, "We see the macro backdrop as positive for Bats. Here, with the Federal Reserve possibly tightening later in 2016, we see potential for more elevated volatility levels. To the extent that volume accompanies volatility, the market environment could be a good one for Bats."

However, the brokerage has initiated BATS shares at Neutral and kept a December price target of $27. Cuddy explained, "While we believe the company is well positioned, Bats is currently trading in proximity to our price target, leading us to assign a Neutral rating." He said that Bats' model has proved to be successful, rising to the second highest market share in U.S. equities and the leading share in Pan-European equities. He added, "What makes Bats successful, in our view, is that it operates very efficiently compared with incumbent exchanges that operate with higher costs."

JPMorgan said that Bats was trading at ~18.9x its 2017 estimate, which is a healthy premium to other exchanges. The brokerage sees the premium valuation as appropriate due to its gain in market share and better capability to drop incremental revenue to the bottom line.

At time of writing, BATS was down 3.27 percent at $25.12.