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TESS VIGELAND: Everything's up to date in Kansas City. So the song says. That's certainly true as far as electronic trading networks are concerned. You've heard of the big boys -- the NASDAQ and the New York Stock Exchange. But in Kansas City, an upstart network equipped with even more up-to-date technology is gaining ground on the big players. In just a year it's become the third-largest market center in the U.S. This week, Deutsche Bank and JP Morgan said they're both buying in. From KCUR in Kansas City, Sylvia Maria Gross reports.

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SYLVIA MARIA GROSS: Mention the words electronic trading system and most people think of the first, and the biggest: NASDAQ. The exchange opened in 1971, and it's stayed on top ever since. But there's a problem with being a frontrunner: complacency can set in.

JOE RATTERMAN: The Street was looking for alternatives and so we filled that gap.

That's Joe Ratterman. He's CEO of a small exchange called the Better Alternative Trading System, or BATS. BATS is based in Kansas City, a thousand miles from Manhattan. But in just one year it's managed to poach 9 percent of the market. Today it's the third-biggest stock exchange in the U.S., after NASDAQ and the New York Stock Exchange.

Ratterman says the BATS system is newer that its competitors'. And it's faster. He says the exchange can execute a trade in as fast as 500 microseconds.

RATTERMAN: It's not a time that the human brain can even comprehend.

But even more than technology, exchanges need shares. Lots of them. Matthew Simon's an analyst at Tabb Group, which tracks electronic exchanges.

MATTHEW SIMON: Success is measured by the number of shares and the volume that you can attract to your venue. And in that sense BATS has been able to reach near double-digit figures in terms of their matched market share.

BATS did it by launching what it called the January Special -- paying brokers more to sell their shares than it charged to buy. Most exchanges do the reverse. The special discount cost BATS millions of dollars. But Simon says it opened the floodgates, and the shares flowed in.

SIMON: It was at the time a very extreme, radical way to get liquidity to their venue. And it seemed to have panned out well for them since their volume increased by nearly twofold by the end of the month.

At first, the big exchanges laughed at BATS tactics, recalls CEO Joe Ratterman.

RATTERMAN: A lot of people thought going into it that it was a crazy idea. And what'll happen is at the end of the month, the volumes won't stick so you'll have given away a lot of money and not really gained anything.

But before long, NASDAQ and the NYSE were scrambling to lower their prices, too. They couldn't hold BATS back. Trading volume at the exchange powered higher over most of 2007. It eventually hit 840 million shares a day. And BATS employees ate a lot of ice cream.

RATTERMAN: We like to buy ice cream as frequently as possible whenever we hit new volume milestones.

And the money poured in. From big investors like Citigroup, Credit Suisse and Merrill Lynch. In November, BATS applied to the Securities and Exchange Commission to become the 11th official stock exchange in the U.S. Matthew Simon at TABB Group says that could slow the company down a little.

SIMON: By being a major U.S. exchange, you obviously have more expenses in order to run your operations. And you also then would probably have a little bit less flexibility in your pricing.

It could take between two and five years before the SEC gives BATS the greenlight, CEO Joe Ratterman says. But rather than cooling his heels in Kansas City, he says he's thinking about making a move on Europe.

In Kansas City, I'm Sylvia Maria Gross for Marketplace.