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

Author

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

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. Key words: securities settlement, economies of scale, technological progress JEL classification numbers: D4, G20, F36, L22, O33

Suggested Citation

  • 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.
  • Handle: RePEc:bof:bofrdp:2002_026
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    References listed on IDEAS

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    1. 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.
    2. Schmiedel, Heiko, 2001. "Technological development and concentration of stock exchanges in Europe," Research Discussion Papers 21/2001, Bank of Finland.
    3. Rene M. Stulz, 1999. "Globalization of Equity Markets and the Cost of Capital," NBER Working Papers 7021, National Bureau of Economic Research, Inc.
    4. Schmiedel, Heiko, 2002. "Total factor productivity growth in European stock exchanges : A non-parametric frontier approach," Research Discussion Papers 11/2002, Bank of Finland.
    5. Pirrong, Craig, 1999. "The organization of financial exchange markets: Theory and evidence," Journal of Financial Markets, Elsevier, vol. 2(4), pages 329-357, November.
    6. 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.
    7. Gehrig, Thomas, 1998. "Competing markets," European Economic Review, Elsevier, vol. 42(2), pages 277-310, February.
    8. Tom Arnold & Philip Hersch & J. Harold Mulherin & Jeffry Netter, 1999. "Merging Markets," Journal of Finance, American Finance Association, vol. 54(3), pages 1083-1107, June.
    9. 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.
    10. 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.
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    Citations

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    Cited by:

    1. Köhler, Matthias & Westerheide, Peter, 2006. "Impact assessment of clearing and settlement regulations: Final report," ZEW Expertises, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research, number 111448.
    2. Holthausen, Cornelia & Tapking, Jens, 2004. "Raising rival's costs in the securities settlement industry," Working Paper Series 376, European Central Bank.
    3. Tapking, Jens, 2007. "Pricing of settlement link services and mergers of central securities depositories," Working Paper Series 710, European Central Bank.
    4. 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.
    5. Steven Van Cauwenberge, 2003. "New Structure for Clearing and Settlement Systems in the EU," Financial Stability Review, National Bank of Belgium, vol. 1(1), pages 83-103, June.
    6. Nielsson, Ulf, 2009. "Stock exchange merger and liquidity: The case of Euronext," Journal of Financial Markets, Elsevier, vol. 12(2), pages 229-267, May.
    7. Kauko, Karlo, 2007. "Interlinking securities settlement systems: A strategic commitment?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2962-2977, October.
    8. Monnet, Cyril & Koeppl, Thorsten Volker, 2004. "Guess what: it's the settlements!," Working Paper Series 375, European Central Bank.
    9. 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.
    10. 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.
    11. Ripatti, Kirsi, 2004. "Central counterparty clearing : constructing a framework for evaluation of risks and benefits," Research Discussion Papers 30/2004, Bank of Finland.
    12. Chryssa Papathanassiou, 2012. "Central Counterparties and Derivatives," Chapters,in: Research Handbook on International Financial Regulation, chapter 11 Edward Elgar Publishing.
    13. Kirsi Ripatti, 2005. "Central counterparty clearing: constructing a framework for evaluation of risks and benefits," Finance 0508021, EconWPA.
    14. Martin Gisiger & Werner Weber, 2005. "Switzerland's Financial Infrastructure: Today and Tomorrow," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 74(4), pages 51-62.
    15. Faten Ben Slimane, 2012. "Stock exchange consolidation and return volatility," Managerial Finance, Emerald Group Publishing, vol. 38(6), pages 606-627, May.

    More about this item

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
    • O33 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes

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