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Economies of scale and technological development in securities depository and settlement systems

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  • Schmiedel, Heiko
  • Malkamäki, Markku
  • Tarkka , Juha

    ()
    (Bank of Finland Research)

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    Abstract

    The paper investigates the existence and extent of economies of scale in depository and settlement systems. Evidence from 16 settlement institutions across different regions for the years 1993–2000 indicates the existence of significant economies of scale. The degree of such economies, however, differs by size of settlement institution and region. While smaller settlement service providers reveal high potential of economies of scale, larger institutions show an increasing trend of cost effectiveness. Clearing and settlement systems in countries in Europe and Asia report substantially larger economies of scale than those of the US system. European cross-border settlement seems to be more cost intensive than that on a domestic level, reflecting chiefly complexities of EU international securities settlement and differences in the scope of international settlement services providers. The evidence also reveals that investments in implementing new systems and upgrades of settlement technology continuously improved cost effectiveness over the sample period.

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    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0226.pdf
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    Bibliographic Info

    Paper provided by Bank of Finland in its series Research Discussion Papers with number 26/2002.

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    Length: 38 pages
    Date of creation: 13 Apr 2002
    Date of revision:
    Handle: RePEc:hhs:bofrdp:2002_026

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    Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/
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    Related research

    Keywords: securities settlement; economies of scale; technological progress;

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    References

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    1. Hasan, Iftekhar & Malkamaki, Markku, 2001. "Are expansions cost effective for stock exchanges? A global perspective," Journal of Banking & Finance, Elsevier, vol. 25(12), pages 2339-2366, December.
    2. Schmiedel, Heiko, 2002. "Total factor productivity growth in European stock exchanges: A non-parametric frontier approach," Research Discussion Papers 11/2002, Bank of Finland.
    3. Litan, Robert & Rivlin, Alice, 2001. "Projecting the economic impact of the Internet," Journal of Financial Transformation, Capco Institute, vol. 2, pages 35-41.
    4. Pirrong, Craig, 1999. "The organization of financial exchange markets: Theory and evidence," Journal of Financial Markets, Elsevier, vol. 2(4), pages 329-357, November.
    5. Schmiedel, Heiko, 2001. "Technological development and concentration of stock exchanges in Europe," Research Discussion Papers 21/2001, Bank of Finland.
    6. repec:fth:bfdipa:21/2001 is not listed on IDEAS
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    Citations

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    Cited by:
    1. Koeppl, Thorsten Volker & Monnet, Cyril, 2004. "Guess what: it's the settlements!," Working Paper Series 0375, European Central Bank.
    2. Kauko, Karlo, 2007. "Interlinking securities settlement systems: A strategic commitment?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2962-2977, October.
    3. Tapking, Jens & Yang, Jing, 2006. "Horizontal and Vertical Integration in Securities Trading and Settlement," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 38(7), pages 1765-1795, October.
    4. Felix Treptow & Stefan Wagner, 2005. "Stock Exchanges and Issuers: A Changing Relationship," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 74(4), pages 125-139.
    5. Nielsson, Ulf, 2009. "Stock exchange merger and liquidity: The case of Euronext," Journal of Financial Markets, Elsevier, vol. 12(2), pages 229-267, May.
    6. 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.
    7. Faten Ben Slimane, 2012. "Stock exchange consolidation and return volatility," Managerial Finance, Emerald Group Publishing, Emerald Group Publishing, vol. 38(6), pages 606-627, May.
    8. Ripatti, Kirsi, 2004. "Central counterparty clearing: constructing a framework for evaluation of risks and benefits," Research Discussion Papers 30/2004, Bank of Finland.
    9. Kirsi Ripatti, 2005. "Central counterparty clearing: constructing a framework for evaluation of risks and benefits," Finance, EconWPA 0508021, EconWPA.
    10. Tapking, Jens, 2007. "Pricing of settlement link services and mergers of central securities depositories," Working Paper Series 0710, European Central Bank.

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