The recently aborted initial public offering of Bats Global Markets Inc. gave the electronic exchange company a serious black eye. But one local firm could be left with a few bruises as well.

Wedbush Inc., an original investor in Bats and one of its largest stakeholders, could lose out on millions of dollars in prospective investment gains as a result of the canceled IPO. The downtown L.A. investment banking firm will also forfeit the fee income it had been slated to receive as a co-manager of the offering.

Analysts said the debacle could have longer-term consequences as well if it turns clients off of high-frequency trading, which Bats is best known for. Wedbush is one of the largest brokers for high-frequency traders.

“If (the recent) events decrease confidence among traders in the platform and the exchange, and they end up migrating volume off the exchange, then that’s definitely a negative,” said Nick Einhorn, an analyst with Renaissance Capital in Greenwich, Conn.

Wedbush co-founder Edward Wedbush downplayed the impact of the bungled offering, saying that it will not have any long-term repercussions for his firm. He also expressed his support for Bats, calling the canceled IPO merely a hiccup in a long track record of successful operations for the exchange.

“Their business will be fine,” he said. “I think they will go through a very quick rebuilding of confidence. And I believe the exchange, which is now operating worldwide, will come out of it very positive.”

‘Software bug’

Bats killed its IPO within seconds of its March 23 debut. The Lenexa, Kan.-based company, which operates the nation’s third largest stock exchange – the New York Stock Exchange and Nasdaq are bigger – blamed a “software bug” that affected the price of both Apple Inc. stock and Bats’ shares.

The company halted trading for two-and-a-half hours while it fixed the technical issue and decided to cancel the IPO to minimize the damage.

In a letter to investors posted on the company’s website, Joe Ratterman, Bats chief executive, said: “We determined that this was a material event that had eroded investor confidence in our own stock and made the timely resumption of fair and orderly trading unlikely.”

Analysts said the debacle could have made the company vulnerable to lawsuits if it had not pulled the offering. Bats, which did not return calls requesting additional comment, has said it has no immediate plans to revive the IPO.

Founded in 2005, Bats, which stands for Better Alternative Trading System, offers a platform for fast and inexpensive electronic stock trades. The business has grown quickly, now accounting for between 10 percent and 12 percent of all stock trades in the United States on most days. The exchange is used largely by institutional investors that buy and sell large volumes of shares, sometimes minute by minute, to take advantage of price fluctuations.

But questions remain as to whether the recent events will shake investor confidence. According to an analysis by Bloomberg News, trade volume fell to among its lowest levels of the year after the failed offering. On March 26, Bats handled less than 10.3 percent of all U.S. stock trades, compared with about 11 percent the previous week.

Wedbush saw the falloff as a modest dip, not “a major withdrawal,” and he does not anticipate any long-term declines. He said that he told Ratterman as much in a phone call last week.

“He called me to thank me for my support,” Wedbush said. “I said, ‘Joe, onward and upward.’”

Large stake

Still, Wedbush’s firm lost out on a potentially large payday.

One of the original investors in Bats, Wedbush Inc. owns 1.5 million shares, or about 4 percent, of the company. The IPO priced shares at $16, which would have valued the stake at about $24 million, though the firm did not plan to sell shares in the offering.

Not only will Wedbush’s holdings remain illiquid, but the value may decline significantly.

“If they decide to go public in the near future, the valuation will have to adjust downward,” said Diego Perfumo, an analyst with Equity Research Desk, a hedge fund adviser in Greenwich, Conn.

As a co-manager of the offering, Wedbush will also miss out on fee income. The firms handling the offering – including lead underwriters Morgan Stanley, Credit Suisse Group AG and Citigroup Inc. – were slated to split roughly $7 million in fees.

“We would have earned fees from the offering, but since it’s not going forward, those fees are all canceled,” said Wedbush, who did not specify how much the firm would have been paid.

Renaissance’s Einhorn said the canceled IPO won’t necessarily translate to losses for Wedbush, but does represent a lost opportunity.

“I doubt they’re going to have to write down their investments as a result of (the) events, but they’re not going to reap that gain,” he said.