Vertical integration, competition, and financial exchanges: Is there grain in the silo?
AbstractWe investigate the incentives for vertical or horizontal integration in the financial security service industry, consisting of trading, clearing and settlement. We thereby focus on firms' decisions but also look on the implications of these decisions on competition and welfare. Our analysis shows that the incentives for vertical integration crucially depend on industry as well as market characteristics. A more pronounced demand for liquidity clearly favors vertical integration whereas deeper financial integration increases the incentives to undertake vertical integration only if the efficiency gains associated with vertical integration are sufficiently large. Furthermore, we show that market forces can suffer from a coordination problem that end in vertically integrated structures that are not in the best interest of the firms. We believe this problem can be addressed by policy measures such as the TARGET2-Securities program. Furthermore, we use our framework to discuss major industry trends and policy initiatives. --
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 Center for Financial Studies (CFS) in its series CFS Working Paper Series with number 2010/22.
Date of creation: 2010
Date of revision:
Contact details of provider:
Postal: House of Finance, Grüneburgplatz 1, HPF H5, D-60323 Frankfurt am Main
Phone: +49 (0)69 798-30050
Fax: +49 (0)69 798-30077
Web page: http://www.ifk-cfs.de/
More information through EDIRC
Vertical Integration; Horizontal Integration; Competition; Trading; Settlement;
Find related papers by JEL classification:
- G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
- L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Jens Tapking & Jing Yang, 2004.
"Horizontal and vertical integration in securities trading and settlement,"
Bank of England working papers
245, Bank of England.
- Tapking, Jens & Yang, Jing, 2006. "Horizontal and Vertical Integration in Securities Trading and Settlement," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(7), pages 1765-1795, October.
- Tapking, Jens & Yang, Jing, 2004. "Horizontal and vertical integration and securities trading and settlement," Working Paper Series 0387, European Central Bank.
- Terrence Hendershott & Charles M. Jones & Albert J. Menkveld, 2011.
"Does Algorithmic Trading Improve Liquidity?,"
Journal of Finance,
American Finance Association, vol. 66(1), pages 1-33, 02.
- Thierry Foucault & Christine a Parlour, .
"Competition for Listings,"
GSIA Working Papers
2000-E11, Carnegie Mellon University, Tepper School of Business.
- Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, December.
- Kauko, Karlo, 2004. "The links between securities settlement systems: An oligopoly theoretic approach," International Review of Financial Analysis, Elsevier, vol. 13(5), pages 585-600.
- 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.
- Holthausen, Cornelia & Tapking, Jens, 2004. "Raising rival's costs in the securities settlement industry," Working Paper Series 0376, European Central Bank.
- 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.
- Bulow, Jeremy I & Geanakoplos, John D & Klemperer, Paul D, 1985. "Multimarket Oligopoly: Strategic Substitutes and Complements," Journal of Political Economy, University of Chicago Press, vol. 93(3), pages 488-511, June.
- Michael Halling & Marco Pagano & Otto Randl & Josef Zechner, 2008. "Where Is the Market? Evidence from Cross-Listings in the United States," Review of Financial Studies, Society for Financial Studies, vol. 21(2), pages 725-761, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (ZBW - German National Library of Economics).
If references are entirely missing, you can add them using this form.