Settlement internalization: the production and distribution of services in the (clearing and) settlement industry
AbstractThe aim of this paper is to clarify the likely consequences of settlement internalisation by custodian banks with respect to the competitive nature of the (clearing and) settlement industry, regardless of the extent of internalisation that is actually carried out. The intuition of the model presented in this paper is based on the assumption that the CSD knows the investors' final demand of (clearing and) settlement services, even though it is only faced with a fraction of such demand, i.e. the investors' final demand that is not internalised by custodians. As a consequence, the CSD's monopoly power is not constrained by the possibility of custodian banks internalising part of the (clearing and) settlement activity. The model structurally differentiates the (clearing and) settlement activity of the CSD from that of custodians. The difference between the (clearing and) settlement activity of the CSD and that of custodians refers to the fact that the (clearing and) settlement activity of the CSD is the highest or primary level where settlement can be achieved. To the extent that the probability of settlement internalisation is less than one, not all settlements are internalised. As a consequence of this, the CSD can adjust its price to take into consideration the level of settlement internalisation, making it irrelevant from the point of view of its profits. As regards the appropriate market definitions, the paper proposes to apply to the settlement industry the classical distinction between “production” and “distribution” of services. It then tests such a distinction against the Commission Communication on clearing and settlement of April 2004, the industry Code of Conduct – to clarify the extent to which they can be interpreted as promoting competition in the sector – and against the Commission decision on Clearstream.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Capco Institute in its journal Journal of Financial Transformation.
Volume (Year): 20 (2007)
Issue (Month): ()
Contact details of provider:
Postal: 120 Broadway, 29th Floor New York, NY 10271
Phone: +1 212 284 8600
Web page: http://www.capco.com/
Clearing and settlement; settlement internalisation; central securities depositories; monopoly; competition;
Find related papers by JEL classification:
- L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
- L12 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Monopoly; Monopolization Strategies
- L41 - Industrial Organization - - Antitrust Issues and Policies - - - Monopolization; Horizontal Anticompetitive Practices
- L99 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Other
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Peter Springett).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.