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Interlinking securities settlement systems: A strategic commitment?

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  • Kauko, Karlo

Abstract

Central securities depositories (CSDs) have opened mutual links, but most of them are seldom used. Why are idle links established? By allowing a foreign CSD to offer services through the link the domestic CSD invites competition. The domestic CSD can determine the cost efficiency of the rival by charging suitable fees, and prevent it from becoming more competitive than the domestic CSD. By inviting the competitor the domestic CSD can commit itself not to charge monopoly fees for secondary market services. This enables the domestic CSD to charge high fees in the primary market without violating investors' participation constraints. JEL Classification: G29, L13
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  • Kauko, Karlo, 2007. "Interlinking securities settlement systems: A strategic commitment?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2962-2977, October.
    • Handle: RePEc:eee:jbfina:v:31:y:2007:i:10:p:2962-2977
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    1. Holthausen, Cornelia & Tapking, Jens, 2007. "Raising rival's costs in the securities settlement industry," Journal of Financial Intermediation, Elsevier, vol. 16(1), pages 91-116, January.
    2. Kauko, Karlo, 2007. "Interlinking securities settlement systems: A strategic commitment?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2962-2977, October.
    3. Martin, Antoine & McAndrews, James, 2010. "A study of competing designs for a liquidity-saving mechanism," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1818-1826, August.
    4. Li, Shaofang & Marinč, Matej, 2016. "Competition in the clearing and settlement industry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 40(C), pages 134-162.
    5. repec:zbw:bofrdp:2003_028 is not listed on IDEAS
    6. Droll, Thomas & Podlich, Natalia & Wedow, Michael, 2016. "Out of sight, out of mind? On the risk of sub-custodian structures," Journal of Banking & Finance, Elsevier, vol. 68(C), pages 47-56.
    7. Koppl, Thorsten V. & Monnet, Cyril, 2007. "Guess what: It's the settlements! Vertical integration as a barrier to efficient exchange consolidation," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3013-3033, October.
    8. Tapking, Jens & Yang, Jing, 2006. "Horizontal and Vertical Integration in Securities Trading and Settlement," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1765-1795, October.
    9. Ende, Bartholomäus & Lutat, Marco, 2010. "Trade-throughs in European cross-traded equities after transaction costs: Empirical evidence for the EURO STOXX 50," CFS Working Paper Series 2010/15, Center for Financial Studies (CFS).
    10. Gisèle Chanel-Reynaud & Dominique Chabert, 2006. "L’évolution des dépositaires centraux de titres en Europe : des fonctions stables dans un espace mouvant," Revue d'Économie Financière, Programme National Persée, vol. 82(1), pages 221-239.
    11. Monnet, Cyril & Koeppl, Thorsten Volker, 2004. "Guess what: it's the settlements!," Working Paper Series 375, European Central Bank.
    12. Steffen Juranek & Uwe Walz, 2020. "Organizational Design, Competition, and Financial Exchanges," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(1), pages 132-163, January.
    13. Li, Shaofang & Marinč, Matej, 2018. "Economies of scale and scope in financial market infrastructures," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 53(C), pages 17-49.
    14. Gisèle Chanel-Reynaud & Dominique Chabert, 2006. "The evolution of central securities depositaries in Europe : stable functions in a changing environment," Revue d'Économie Financière, Programme National Persée, vol. 82(1), pages 203-220.
    15. Tapking, Jens, 2007. "Pricing of settlement link services and mergers of central securities depositories," Working Paper Series 710, European Central Bank.
    16. Vauhkonen, Jukka, 2003. "Are adverse selection models of debt robust to changes in market structure?," Research Discussion Papers 28/2003, Bank of Finland.
    17. Sauer, Stephan & Mercier, Fabien, 2013. "Optimal CSD reshaping towards T2S," Working Paper Series 1549, European Central Bank.
    18. repec:zbw:bofrdp:2003_026 is not listed on IDEAS

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    More about this item

    JEL classification:

    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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