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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. 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.
  2. Kauko, Karlo, 2005. "Interlinking securities settlement systems: a strategic commitment?," Working Paper Series 0427, European Central Bank.
  3. Nicholas Economides, 1997. "The Economics of Networks," Industrial Organization 9701002, EconWPA.
  4. Vickers, John, 1995. "Competition and Regulation in Vertically Related Markets," Review of Economic Studies, Wiley Blackwell, vol. 62(1), pages 1-17, January.
  5. Thorsten Koeppl & Cyril Monnet, 2005. "Guess what: It's the Settlements!," Working Papers 1051, Queen's University, Department of Economics.
  6. Shy, Oz & Tarkka, Juha, 2001. "Stock exchange alliances, access fees and competition," Research Discussion Papers 22/2001, Bank of Finland.
  7. repec:fth:bfdipa:22/2001 is not listed on IDEAS
  8. 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.
  9. Nicholas Economides, 2004. "Competition Policy In Network Industries: An Introduction," Working Papers 04-24, NET Institute, revised Jun 2004.
  10. Nicholas Economides & Robert A. Schwartz, 1993. "Electronic Call Market Trading," Working Papers 93-19, New York University, Leonard N. Stern School of Business, Department of Economics.
  11. 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.
  12. 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.
  13. 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.
  14. repec:reg:rpubli:279 is not listed on IDEAS
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Cited by:
  1. James T. E. Chapman, 2008. "Policy Coordination in an International Payment System," Working Papers 08-17, Bank of Canada.
  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. 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.
  4. Holthausen, Cornelia & Tapking, Jens, 2004. "Raising rival's costs in the securities settlement industry," Working Paper Series 0376, European Central Bank.
  5. Alexandra Lai & Nikil Chande & Sean O'Conner, 2007. "Credit in a Tiered Payments System," DNB Working Papers 126, Netherlands Central Bank, Research Department.
  6. Thorsten Koeppl & Cyril Monnet, 2005. "Guess what: It's the Settlements!," Working Papers 1051, Queen's University, Department of Economics.
  7. 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.
  8. Milne, Alistair, 2007. "The industrial organization of post-trade clearing and settlement," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2945-2961, 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. Tapking, Jens, 2007. "Pricing of settlement link services and mergers of central securities depositories," Working Paper Series 0710, European Central Bank.
  11. 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.
  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. Mercier, Fabien & Sauer, Stephan, 2013. "Optimal CSD reshaping towards T2S," Working Paper Series 1549, European Central Bank.
  14. 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).
  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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