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Horizontal and vertical integration and 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 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. JEL Classification: G21, G15, L13

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0387.

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Date of creation: Aug 2004
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Handle: RePEc:ecb:ecbwps:20040387

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Keywords: Securities trading and settlement; substitutes and complements; vertical and horizontal integration;

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References

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  1. Holthausen, Cornelia & Tapking, Jens, 2004. "Raising rival's costs in the securities settlement industry," Working Paper Series 0376, European Central Bank.
  2. 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.
  3. Nicholas Economides, 1997. "The Economics of Networks," Brazilian Electronic Journal of Economics, Department of Economics, Universidade Federal de Pernambuco, vol. 1(0), December.
  4. Nicholas Economides & Robert Schwartz,, . "Electronic Call Market Trading," Financial Networks _001, Economics of Networks.
  5. Vickers, John, 1995. "Competition and Regulation in Vertically Related Markets," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 1-17, January.
  6. 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.
  7. repec:reg:rpubli:279 is not listed on IDEAS
  8. repec:fth:bfdipa:22/2001 is not listed on IDEAS
  9. 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.
  10. Thorsten Koeppl & Cyril Monnet, 2005. "Guess what: It's the Settlements!," Working Papers 1051, Queen's University, Department of Economics.
  11. Shy, Oz & Tarkka, Juha, 2001. "Stock exchange alliances, access fees and competition," Research Discussion Papers 22/2001, Bank of Finland.
  12. Kauko, Karlo, 2003. "Interlinking securities settlement systems: A strategic commitment?," Research Discussion Papers 26/2003, Bank of Finland.
  13. Jean-Jacques Laffont & Patrick Rey & Jean Tirole, 1998. "Network Competition: II. Price Discrimination," RAND Journal of Economics, The RAND Corporation, vol. 29(1), pages 38-56, Spring.
  14. repec:reg:wpaper:279 is not listed on IDEAS
  15. 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.
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Citations

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Cited by:
  1. Tapking, Jens, 2007. "Pricing of settlement link services and mergers of central securities depositories," Working Paper Series 0710, European Central Bank.
  2. Jonathan Chiu & Alexandra Lai, 2007. "Modelling Payments Systems: A Review of the Literature," Working Papers 07-28, Bank of Canada.
  3. 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).
  4. 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.
  5. James T. E. Chapman, 2008. "Policy Coordination in an International Payment System," Working Papers 08-17, Bank of Canada.
  6. Mercier, Fabien & Sauer, Stephan, 2013. "Optimal CSD reshaping towards T2S," Working Paper Series 1549, European Central Bank.
  7. Koeppl, Thorsten Volker & Monnet, Cyril, 2004. "Guess what: it's the settlements!," Working Paper Series 0375, European Central Bank.
  8. 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.
  9. Serifsoy, Baris, 2007. "Stock exchange business models and their operative performance," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2978-3012, October.
  10. 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.
  11. 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.
  12. 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.
  13. Alexandra Lai & Nikil Chande & Sean O'Connor, 2006. "Credit in a Tiered Payments System," Working Papers 06-36, Bank of Canada.
  14. 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.
  15. Milne, Alistair, 2007. "The industrial organization of post-trade clearing and settlement," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2945-2961, October.

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