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

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Author Info

  • Heiko Schmiedel

    (European Central Bank Directorate General Payment Systems Security Settlement Systems Policy Division)

  • Markku Malkamäki
  • Juha Tarkka
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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://128.118.178.162/eps/mic/papers/0405/0405002.pdf
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    Bibliographic Info

    Paper provided by EconWPA in its series Microeconomics with number 0405002.

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    Date of creation: 12 May 2004
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    Handle: RePEc:wpa:wuwpmi:0405002

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    Web page: http://128.118.178.162

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

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    References

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    1. Schmiedel, Heiko, 2002. "Total factor productivity growth in European stock exchanges: A non-parametric frontier approach," Research Discussion Papers 11/2002, Bank of Finland.
    2. Ian Giddy & Anthony Saunders & Ingo Walter, 1996. "Alternative models for clearance and settlement: the case of the single European capital market," Proceedings, Board of Governors of the Federal Reserve System (U.S.), pages 986-1003.
    3. Pirrong, Craig, 1999. "The organization of financial exchange markets: Theory and evidence," Journal of Financial Markets, Elsevier, vol. 2(4), pages 329-357, November.
    4. Giddy, Ian & Saunders, Anthony & Walter, Ingo, 1996. "Alternative Models for Clearance and Settlement: The Case of the Single European Capital Market," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 28(4), pages 986-1000, November.
    5. 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.
    6. Robert E. Litan & Alice M. Rivlin, 2001. "Projecting the Economic Impact of the Internet," American Economic Review, American Economic Association, vol. 91(2), pages 313-317, May.
    7. repec:fth:bfdipa:21/2001 is not listed on IDEAS
    8. Schmiedel, Heiko, 2001. "Technological development and concentration of stock exchanges in Europe," Research Discussion Papers 21/2001, Bank of Finland.
    9. Gehrig, Thomas, 1998. "Competing markets," European Economic Review, Elsevier, vol. 42(2), pages 277-310, February.
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