Vertical Integration and Regulation in the Securities Settlement Industry
AbstractThe European Securities Trading and Post-trading (Clearing and Settlement) Industries have recently experienced a vast movement of consolidation. This was encouraged by the European Commission, seeking to establish a single market for the trade of financialsecurities across the European Union, and reduce the cost of cross-border transactions. For the regulator, the issue as a whole hinges on the need to allow for the achievement of economies of scale, while avoiding the possibility that an upstream monopolistic position might thwart competition in the downstream market, i.e. banking activities or securities trading activities. After long discussions with the industry, the European Commission considered that there was no need for regulation, provided that platforms adopted and implemented a "Code of Conduct". The present article challenges this view by showing that such a "Code of Conduct" may not be enough. We consider a model where custodians are competing to provide both custody services and banking services to investors. There is only one Central Security Deposit (CSD) where all the net orders must be in the end settled. Custodians have omnibus accounts in the CSD, for which they pay a fixed fee, and must pay an additional fee for each transaction. The CSD is directly competing with other custodians for the provision of custody and banking services. A key assumption is that because of economies of scale it would be socially inefficient to let several CSDs compete for the provision of depository and settlement services for a given security. Different types of regulator may be considered, such as the European commission, or those in place in other industries (telecom, energy). While the former may only impose external constraints on actors such as non-discriminatory access pricing or forbidding of integration, the latter may resort to a combination of monitoring and incentive regulation in order to extract information and impose a cost-based regulation.
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 InfoPaper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 663.
Date of creation: 30 May 2010
Date of revision:
Contact details of provider:
Postal: Manufacture des Tabacs, Aile Jean-Jacques Laffont, 21 Allée de Brienne, 31000 TOULOUSE
Phone: +33 (0)5 61 12 85 89
Fax: + 33 (0)5 61 12 86 37
Web page: http://www.idei.fr/
More information through EDIRC
Other versions of this item:
- Cherbonnier, Frédéric & Rochet, Jean-Charles, 2010. "Vertical Integration and Regulation in the Securities Settlement Industry," TSE Working Papers 10-239, Toulouse School of Economics (TSE).
- NEP-ALL-2011-05-14 (All new papers)
- NEP-COM-2011-05-14 (Industrial Competition)
- NEP-REG-2011-05-14 (Regulation)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Mercier, Fabien & Sauer, Stephan, 2013. "Optimal CSD reshaping towards T2S," Working Paper Series 1549, European Central Bank.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().
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.