IDEAS home Printed from https://ideas.repec.org/a/eee/jbfina/v31y2007i10p2962-2977.html
   My bibliography  Save this article

Interlinking securities settlement systems: A strategic commitment?

Author

Listed:
  • Kauko, Karlo

Abstract

Central securities depositories (CSDs) have opened mutual links, but most of them are seldom used. Why are idle links established? By allowing a foreign CSD to offer services through the link the domestic CSD invites competition. The domestic CSD can determine the cost efficiency of the rival by charging suitable fees, and prevent it from becoming more competitive than the domestic CSD. By inviting the competitor the domestic CSD can commit itself not to charge monopoly fees for secondary market services. This enables the domestic CSD to charge high fees in the primary market without violating investors' participation constraints. JEL Classification: G29, L13
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • Kauko, Karlo, 2007. "Interlinking securities settlement systems: A strategic commitment?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2962-2977, October.
  • Handle: RePEc:eee:jbfina:v:31:y:2007:i:10:p:2962-2977
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0378-4266(07)00083-0
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Peura, Samu & Jokivuolle, Esa, 2003. "Simulation-based stress testing of banks' regulatory capital adequacy," Research Discussion Papers 4/2003, Bank of Finland.
    2. Kauko, Karlo, 2007. "Interlinking securities settlement systems: A strategic commitment?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2962-2977, October.
    3. Laffont, Jean-Jacques & Tirole, Jean, 1994. "Access pricing and competition," European Economic Review, Elsevier, vol. 38(9), pages 1673-1710, December.
    4. 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.
    5. Xavier Freixas, 2004. "The Assessment: European Financial Integration," Oxford Review of Economic Policy, Oxford University Press, vol. 20(4), pages 475-489, Winter.
    6. Jean-Charles Rochet & Jean Tirole, 2014. "Platform Competition in Two-Sided Markets," CPI Journal, Competition Policy International, vol. 10.
    7. Schönenberger, Andreas & Schmiedel, Heiko, 2005. "Integration of securities market infrastructure in the euro area," Occasional Paper Series 33, European Central Bank.
    8. Armstrong, Mark, 1997. "Competition in Telecommunications," Oxford Review of Economic Policy, Oxford University Press, vol. 13(1), pages 64-82, Spring.
    9. George W. Evans & Seppo Honkapohja, 2003. "Friedman's Money Supply Rule vs. Optimal Interest Rate Policy," Scottish Journal of Political Economy, Scottish Economic Society, vol. 50(5), pages 550-566, November.
    10. 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.
    11. Heiko Schmiedel & Andreas Schönenberger, 2005. "Integration of securities market infrastructures in the euro area," Occasional Paper Series 33, European Central Bank.
    12. Halko, Marja-Liisa, 2003. "Buffer funding of unemployment insurance in a dynamic labour union model," Research Discussion Papers 24/2003, Bank of Finland.
    13. Claude Crampes & Jean-Jaques Laffont, 2001. "Transport Pricing in the Electricity Industry," Oxford Review of Economic Policy, Oxford University Press, vol. 17(3), pages 313-328.
    14. Schmiedel, Heiko & Malkamaki, Markku & Tarkka, Juha, 2006. "Economies of scale and technological development in securities depository and settlement systems," Journal of Banking & Finance, Elsevier, vol. 30(6), pages 1783-1806, June.
    15. Hyytinen, Ari & Takalo, Tuomas, 2001. "Preventing Systemic Crises through Bank Transparency," Discussion Papers 776, The Research Institute of the Finnish Economy.
    16. Shy,Oz, 2001. "The Economics of Network Industries," Cambridge Books, Cambridge University Press, number 9780521805001, January.
    17. Caillaud, Bernard & Jullien, Bruno, 2001. "Competing cybermediaries," European Economic Review, Elsevier, vol. 45(4-6), pages 797-808, May.
    18. Barclay, Michael J. & Kandel, Eugene & Marx, Leslie M., 1998. "The Effects of Transaction Costs on Stock Prices and Trading Volume," Journal of Financial Intermediation, Elsevier, vol. 7(2), pages 130-150, April.
    19. Yanelle, Marie-Odile, 1989. "The strategic analysis of intermediation," European Economic Review, Elsevier, vol. 33(2-3), pages 294-301, March.
    20. Park, Yong-Sam & Ahn, Byong-Hun, 1999. "Joint ownership and interconnection pricing in network industries," International Review of Economics & Finance, Elsevier, vol. 8(2), pages 183-198, June.
    21. Economides, Nicholas, 1996. "Network externalities, complementarities, and invitations to enter," European Journal of Political Economy, Elsevier, vol. 12(2), pages 211-233, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. 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.
    2. Kauko, Karlo, 2007. "Interlinking securities settlement systems: A strategic commitment?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2962-2977, October.
    3. Martin, Antoine & McAndrews, James, 2010. "A study of competing designs for a liquidity-saving mechanism," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1818-1826, August.
    4. Li, Shaofang & Marinč, Matej, 2016. "Competition in the clearing and settlement industry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 40(C), pages 134-162.
    5. Droll, Thomas & Podlich, Natalia & Wedow, Michael, 2016. "Out of sight, out of mind? On the risk of sub-custodian structures," Journal of Banking & Finance, Elsevier, vol. 68(C), pages 47-56.
    6. 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.
    7. 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.
    8. Ende, Bartholomäus & Lutat, Marco, 2010. "Trade-throughs in European cross-traded equities after transaction costs: Empirical evidence for the EURO STOXX 50," CFS Working Paper Series 2010/15, Center for Financial Studies (CFS).
    9. Gisèle Chanel-Reynaud & Dominique Chabert, 2006. "L’évolution des dépositaires centraux de titres en Europe : des fonctions stables dans un espace mouvant," Revue d'Économie Financière, Programme National Persée, vol. 82(1), pages 221-239.
    10. Monnet, Cyril & Koeppl, Thorsten Volker, 2004. "Guess what: it's the settlements!," Working Paper Series 375, European Central Bank.
    11. Steffen Juranek & Uwe Walz, 2020. "Organizational Design, Competition, and Financial Exchanges," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(1), pages 132-163, January.
    12. Li, Shaofang & Marinč, Matej, 2018. "Economies of scale and scope in financial market infrastructures," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 53(C), pages 17-49.
    13. Gisèle Chanel-Reynaud & Dominique Chabert, 2006. "The evolution of central securities depositaries in Europe : stable functions in a changing environment," Revue d'Économie Financière, Programme National Persée, vol. 82(1), pages 203-220.
    14. Tapking, Jens, 2007. "Pricing of settlement link services and mergers of central securities depositories," Working Paper Series 710, European Central Bank.
    15. Vauhkonen, Jukka, 2003. "Are adverse selection models of debt robust to changes in market structure?," Research Discussion Papers 28/2003, Bank of Finland.
    16. Sauer, Stephan & Mercier, Fabien, 2013. "Optimal CSD reshaping towards T2S," Working Paper Series 1549, European Central Bank.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Li, Shaofang & Marinč, Matej, 2018. "Economies of scale and scope in financial market infrastructures," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 53(C), pages 17-49.
    2. Tapking, Jens, 2007. "Pricing of settlement link services and mergers of central securities depositories," Working Paper Series 710, European Central Bank.
    3. Vauhkonen, Jukka, 2003. "Are adverse selection models of debt robust to changes in market structure?," Research Discussion Papers 28/2003, Bank of Finland.
    4. Droll, Thomas & Podlich, Natalia & Wedow, Michael, 2016. "Out of sight, out of mind? On the risk of sub-custodian structures," Journal of Banking & Finance, Elsevier, vol. 68(C), pages 47-56.
    5. Ming Chung Chang & Hsiao‐Ping Peng, 2009. "Structure Regulation, Price Structure, Cross‐Subsidization And Marginal Cost Of Public Funds," Manchester School, University of Manchester, vol. 77(6), pages 675-698, December.
    6. Gisèle Chanel-Reynaud & Dominique Chabert, 2006. "The evolution of central securities depositaries in Europe : stable functions in a changing environment," Revue d'Économie Financière, Programme National Persée, vol. 82(1), pages 203-220.
    7. Panourgias, Nikiforos S., 2015. "Capital markets integration: A sociotechnical study of the development of a cross-border securities settlement system," Technological Forecasting and Social Change, Elsevier, vol. 99(C), pages 317-338.
    8. 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.
    9. Marie-Noëlle Calès & Dominique Chabert & Walid Hichri & Nadège Marchand, 2011. "The reform of European securities settlement systems : Towards an integrated financial market," Post-Print halshs-00639957, HAL.
    10. 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.
    11. Simon Loertscher, 2008. "Market Making Oligopoly," Journal of Industrial Economics, Wiley Blackwell, vol. 56(2), pages 263-289, June.
    12. Kotakorpi, Kaisa, 2002. "Access Pricing and Competition in Telecommunications," Discussion Papers 283, VATT Institute for Economic Research.
    13. Li, Shaofang & Marinč, Matej, 2016. "Competition in the clearing and settlement industry," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 40(C), pages 134-162.
    14. 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.
    15. 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.
    16. Frédéric Cherbonnier & Séverine Vandelanoite, 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.
    17. Davide Consoli & Pier Paolo Patrucco, 2011. "Complexity and the Coordination of Technological Knowledge: The Case of Innovation Platforms," Chapters, in: Handbook on the Economic Complexity of Technological Change, chapter 8 Edward Elgar Publishing.
    18. Renato Gomes & Alessandro Pavan, 2013. "Cross-Subsidization and Matching Design," Discussion Papers 1559, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
    19. Claude Crampes & Carole Haritchabalet & Bruno Jullien, 2009. "Advertising, Competition And Entry In Media Industries," Journal of Industrial Economics, Wiley Blackwell, vol. 57(1), pages 7-31, March.
    20. Johannes M. Bauer & Michael Latzer, 2016. "The economics of the Internet: an overview," Chapters, in: Johannes M. Bauer & Michael Latzer (ed.), Handbook on the Economics of the Internet, chapter 1, pages 3-20, Edward Elgar Publishing.

    More about this item

    JEL classification:

    • G29 - Financial Economics - - Financial Institutions and Services - - - Other
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:jbfina:v:31:y:2007:i:10:p:2962-2977. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Nithya Sathishkumar). General contact details of provider: http://www.elsevier.com/locate/jbf .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.