Strategic Challenges for Exchanges and Securities Settlement
A common feature of major trends in securities and derivative markets is that they facilitate cross-border competition between financial institutions and markets. These trends include financial deregulation, technological developments that increase network externalities and the introduction of the single currency in Europe. This paper discusses future prospects for stock and derivative exchanges and securities settlement systems globally in the light of this analytical framework. The increased contestability of the financial markets opens the way for a completely new situation where economies of scale and network effects enable new systems to challenge existing exchanges and settlement systems. This has already led towards more integrated trading and settlement infrastructure via mergers, alliances, links, agreements and other forms of cooperation between existing infrastructure companies. At the same time new electronic communication networks and electronic exchanges operated by members of exchanges or off-exchange companies and Internet brokers have emerged. We expect that economies of scale and scope and network effects will foster global competition. The business conducted by brokers and exchanges will tend to converge, thus posing a major challenge for the management of these businesses. Trading and settlement services for the most liquid global trading products will, we believe, be provided by limited liability companies that employ efficient governance practices. We anticipate that US stock and derivative exchanges will have to adopt fully electronic trading systems. This might lead to intense competition between exchanges in the US and globally. We also anticipate that European alliances will be based on a more efficient operational model than the models proposed so far. An increase in Internet-routed equity and derivative trades will lead to partial fragmentation of liquidity. As technology advances, we expect pooling of liquidity in one of the networks.
|Date of creation:||31 Dec 1999|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.suomenpankki.fi/en/
More information through EDIRC
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.:
- Bessembinder, Hendrik & Kaufman, Herbert M., 1997. "A cross-exchange comparison of execution costs and information flow for NYSE-listed stocks," Journal of Financial Economics, Elsevier, vol. 46(3), pages 293-319, December.
- Andrew W. Lo, 1996. "The Industrial Organization and Regulation of the Securities Industry," NBER Books, National Bureau of Economic Research, Inc, number lo__96-1, August.
- Pagano, Marco, 1986.
"Trading Volume and Asset Liquidity,"
CEPR Discussion Papers
142, C.E.P.R. Discussion Papers.
- Pirrong, Craig, 1999. "The organization of financial exchange markets: Theory and evidence," Journal of Financial Markets, Elsevier, vol. 2(4), pages 329-357, November.
- Matthew J. Clayton & Bjorn N. Jorgensen & Kenneth A. Kavajecz, 1999.
"On the Formation and Structure of International Exchanges,"
New York University, Leonard N. Stern School Finance Department Working Paper Seires
99-057, New York University, Leonard N. Stern School of Business-.
- Matthew J. Clayton & Bjorn N. Jorgensen & Kenneth A. Kavajecz, . "On the Formation and Structure of International Exchanges," Rodney L. White Center for Financial Research Working Papers 22-99, Wharton School Rodney L. White Center for Financial Research.
- Jess Gaspar & Edward L. Glaeser, 1996.
"Information Technology and the Future of Cities,"
Harvard Institute of Economic Research Working Papers
1756, Harvard - Institute of Economic Research.
- Brennan, Michael J & Cao, H Henry, 1997.
" International Portfolio Investment Flows,"
Journal of Finance,
American Finance Association, vol. 52(5), pages 1851-80, December.
- Economides, Nicholas & Siow, Aloysius, 1988. "The Division of Markets is Limited by the Extent of Liquidity (Spatial Competition with Externalities)," American Economic Review, American Economic Association, vol. 78(1), pages 108-21, March.
- 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.
- Oliver Hart & John Moore, 1996.
"The Governance of Exchanges: Members' Co-operatives Versus Outside Ownership,"
STICERD - Theoretical Economics Paper Series
/1996/292, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
- Hart, Oliver & Moore, John, 1996. "The Governance of Exchanges: Members' Cooperatives versus Outside Ownership," Oxford Review of Economic Policy, Oxford University Press, vol. 12(4), pages 53-69, Winter.
- Robert N. McCauley & William R. White, 1997. "The Euro and European financial markets," BIS Working Papers 41, Bank for International Settlements.
- 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.
- Dermine, Jean & Hillion, Pierre (ed.), 1999. "European Capital Markets with a Single Currency," OUP Catalogue, Oxford University Press, number 9780198295396, March.
- Paul W. Bauer & Diana Hancock, 1995. "Scale economies and technological change in Federal Reserve ACH payment processing," Economic Review, Federal Reserve Bank of Cleveland, issue Q III, pages 14-29.
- Su, Han Chan & Kensinger, John W. & Keown, Arthur J. & Martin, John D., 1997. "Do strategic alliances create value?," Journal of Financial Economics, Elsevier, vol. 46(2), pages 199-221, November.
- Garry J. Schinasi & Alessandro Prati, 1997. "European Monetary Union and International Capital Markets; Structural Implications and Risks," IMF Working Papers 97/62, International Monetary Fund.
- Domowitz, Ian, 1995. "Electronic derivatives exchanges: Implicit mergers, network externalities, and standardization," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(2), pages 163-175.
- Gehrig, Thomas, 1998. "Competing markets," European Economic Review, Elsevier, vol. 42(2), pages 277-310, February.
- Nicholas Economides, . "Network Economics with Application to Finance," Financial Networks _004, Economics of Networks.
- Malkamäki, Markku, 1999. "Are there Economies of Scale in Stock Exchange Activities?," Research Discussion Papers 4/1999, Bank of Finland.
When requesting a correction, please mention this item's handle: RePEc:hhs:bofrdp:1999_021. 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: (Minna Nyman)
If references are entirely missing, you can add them using this form.