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Horizontal and Vertical Integration in Securities Trading and Settlement

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  • Tapking, Jens
  • Yang, Jing

Abstract

This paper addresses a very European issue, the consolidation of securities trading and settlement infrastructures. In a two-country model, we analyze welfare implications of different types of consolidation. We find that in our model, full technical horizontal integration of settlement systems is better than vertical integration of exchanges and settlement systems, but vertical integration is still better than no consolidation. These findings have clear policy implications with regards to the highly fragmented European securities infrastructure.

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File URL: http://dx.doi.org/10.1353/mcb.2006.0096
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Bibliographic Info

Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 38 (2006)
Issue (Month): 7 (October)
Pages: 1765-1795

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Handle: RePEc:mcb:jmoncb:v:38:y:2006:i:7:p:1765-1795

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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References

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  1. Nicholas Economides, 1997. "The Economics of Networks," Industrial Organization 9701002, EconWPA.
  2. Holthausen, Cornelia & Tapking, Jens, 2004. "Raising rival's costs in the securities settlement industry," Working Paper Series 0376, European Central Bank.
  3. Economides, Nicholas, 2003. "Competition Policy in Network Industries: An Introduction," Working paper 279, Regulation2point0.
  4. Nicholas Economides & Robert Schwartz,, . "Electronic Call Market Trading," Financial Networks _001, Economics of Networks.
  5. Shy, Oz & Tarkka, Juha, 2001. "Stock exchange alliances, access fees and competition," Research Discussion Papers 22/2001, Bank of Finland.
  6. Carmine di Noia, 1998. "Competition and Integration among Stock Exchanges in Europe: Network Effects, Implicit Mergers and Remote Access," Center for Financial Institutions Working Papers 98-03, Wharton School Center for Financial Institutions, University of Pennsylvania.
  7. Schmiedel, Heiko & Malkamäki, Markku & Tarkka , Juha, 2002. "Economies of scale and technological development in securities depository and settlement systems," Research Discussion Papers 26/2002, Bank of Finland.
  8. Vickers, John, 1995. "Competition and Regulation in Vertically Related Markets," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 1-17, January.
  9. Koeppl, Thorsten Volker & Monnet, Cyril, 2004. "Guess what: it's the settlements!," Working Paper Series 0375, European Central Bank.
  10. Kauko, Karlo, 2003. "Interlinking securities settlement systems: A strategic commitment?," Research Discussion Papers 26/2003, Bank of Finland.
  11. repec:fth:bfdipa:22/2001 is not listed on IDEAS
  12. repec:reg:rpubli:279 is not listed on IDEAS
  13. Laffont, Jean-Jacques & Tirole, Jean, 1996. "Creating Competition through Interconnection: Theory and Practice," Journal of Regulatory Economics, Springer, vol. 10(3), pages 227-56, November.
  14. Domowitz, Ian, 1995. "Electronic derivatives exchanges: Implicit mergers, network externalities, and standardization," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(2), pages 163-175.
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Citations

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Cited by:
  1. Serifsoy, Baris, 2007. "Stock exchange business models and their operative performance," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2978-3012, October.
  2. Degryse, H.A. & Achter, M. van & Wuyts, G., 2012. "Internalization, Clearing and Settlement, and Liquidity," Discussion Paper 2012-002, Tilburg University, Center for Economic Research.
  3. Milne, Alistair, 2007. "The industrial organization of post-trade clearing and settlement," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2945-2961, October.
  4. James T. E. Chapman, 2008. "Policy Coordination in an International Payment System," Working Papers 08-17, Bank of Canada.
  5. Séverine Vandelanoite & Frédéric Cherbonnier, 2007. "Enjeux économiques liés à l’intégration des industries du post-marché en Europe," Revue d'Économie Financière, Programme National Persée, vol. 89(3), pages 123-142.
  6. Koeppl, Thorsten Volker & Monnet, Cyril, 2004. "Guess what: it's the settlements!," Working Paper Series 0375, European Central Bank.
  7. Alexandra Lai & Nikil Chande & Sean O'Conner, 2007. "Credit in a Tiered Payments System," DNB Working Papers 126, Netherlands Central Bank, Research Department.
  8. Holthausen, Cornelia & Tapking, Jens, 2004. "Raising rival's costs in the securities settlement industry," Working Paper Series 0376, European Central Bank.
  9. 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.
  10. Mercier, Fabien & Sauer, Stephan, 2013. "Optimal CSD reshaping towards T2S," Working Paper Series 1549, European Central Bank.
  11. Juranek, Steffen & Walz, Uwe, 2010. "Vertical integration, competition, and financial exchanges: Is there grain in the silo?," CFS Working Paper Series 2010/22, Center for Financial Studies (CFS).
  12. Tapking, Jens, 2007. "Pricing of settlement link services and mergers of central securities depositories," Working Paper Series 0710, European Central Bank.
  13. John P Jackson & Mark J Manning, 2007. "Comparing the pre-settlement risk implications of alternative clearing arrangements," Bank of England working papers 321, Bank of England.
  14. Baris Serifsoy & Marco Weiß, 2007. "Settling for Efficiency - A Framework for the European Securities Transactions Industry," Working Paper Series: Finance and Accounting 151, Department of Finance, Goethe University Frankfurt am Main.
  15. Jonathan Chiu & Alexandra Lai, 2007. "Modelling Payments Systems: A Review of the Literature," Working Papers 07-28, Bank of Canada.

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