BATS' own stock was to be its first listing. But the initial public offering ended up a disaster after a software bug briefly sent the price of the shares down from $16 to less than a penny, before trading was halted. Later in the day, BATS took the extremely rare step of withdrawing the IPO altogether.

The company's founder, Dave Cummings, also advocated suspending all bonus plans at BATS, writing in an open letter emailed to industry insiders on Sunday: "In this business, mistakes cost money."

BATS is an electronic exchange owned by many of the world's largest banks and trading firms. In the last decade it has taken on the New York Stock Exchange and Nasdaq in the trading of stocks and, recently, also wanted to challenge them in listings.

"This was a freak one-time event," wrote Cummings, also the outspoken chairman of Tradebot Systems, an electronic trading firm that like BATS is based in Kansas City, MO.

"BATS management should develop a plan to go public in the second quarter, if possible," he said. "This might seem tough, but I believe it is the only way to move past the issue."

Cummings, who remains a BATS investor after stepping down as its CEO in 2007, said the deal would need to be re-priced. But he defended BATS' technological record and argued that the "botched IPO" does not have much long-term impact on earnings because the exchange has "solid fundamentals."

Late on Friday, BATS outlined how the bug set off a series of fast-paced glitches through the trading day, including a halt in the trading of Apple Inc shares and the cancellation of erroneous trades in both Apple and BATS stock.

The software code used for the IPO was new and lab-tested, Cummings said, but "bugs do occur" in the real world. "BATS just happened to discover a bug at the most embarrassing time possible."

Cummings, a trailblazer and fierce defender of electronic trading, occasionally sends such emails to finance executives, traders, regulators and journalists. The letter on Sunday morning was titled "What should BATS do now?"

PAINFUL UNWINDING

The episode is sure to draw scrutiny from the Securities and Exchange Commission, which since the 2010 "flash crash" has pledged to crack down on problems in the high-speed electronic marketplace that regulators worry has grown unstable and perhaps unfair for investors.

The BATS breakdown could trip up, once again, the march over the last decade toward increasingly automated markets in the North America, Europe and elsewhere. And it could land BATS in legal trouble for withdrawing its IPO after trades were executed in the public marketplace.

IPO underwriters included Citigroup Inc, Morgan Stanley and Credit Suisse Group, which along with trading firm Getco LLC and others are major BATS stakeholders.

Unwinding the IPO would mean that the banks and other owners would have to return to investors about $100 million that they gained by selling their stakes in BATS. Also in play are millions of dollars in fees the banks would have received for doing the underwriting.

It remains unclear just how damaging the foul-up could prove to BATS' reputation for running a sound market.

Cummings founded BATS, an acronym for "Better Alternative Trading System," in 2005 with 13 employees. It now handles about 11 percent of all U.S. stock trading, runs an options market, and recently completed the cross-Atlantic takeover of alternative trading venue Chi-X Europe.

BATS, now headed by 45-year-old Joe Ratterman, is the third-largest exchange group in the United States after NYSE Euronext and Nasdaq OMX Group, and helped force those incumbents to modernize their systems over the years. It did likewise in Europe, where electronic markets and high-frequency trading have also taken hold.

Friday's market debut would have marked a major next step in the company's evolution.

(Reporting by Jonathan Spicer; editing by Sofina Mirza-Reid)

• A Permanent Economic Emergency