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Guess what: It's the Settlements!

Author

Listed:
  • Thorsten Koeppl

    () (Department of Economics, Queen's University)

  • Cyril Monnet

    () (DG Research, European Central Bank)

Abstract

Exchanges and other trading platforms are often vertically integrated to carry out trading and settlement as one operation. We show that these vertical silos can prevent the full realization of efficincy gains from horizontal consolidation of trading and settlement platforms. Independent of the gains from such consolidation, when costs of settlement are private information, a merger of vertical silos cannot be designed to always ensure efficient trading and settlement after the merger. Furthermore, we show that efficiency can nevertheless be guaranteed either by delegating the operation of settlement platforms to agents or by forcing competition across vertical silos through cross-listings.

Suggested Citation

  • Thorsten Koeppl & Cyril Monnet, 2005. "Guess what: It's the Settlements!," Working Papers 1051, Queen's University, Department of Economics.
  • Handle: RePEc:qed:wpaper:1051
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    File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1051.pdf
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    References listed on IDEAS

    as
    1. Tapking, Jens & Yang, Jing, 2004. "Horizontal and vertical integration and securities trading and settlement," Working Paper Series 387, European Central Bank.
    2. Kauko, Karlo, 2007. "Interlinking securities settlement systems: A strategic commitment?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2962-2977, October.
    3. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    4. Tano Santos & Jose A. Scheinkman, 2001. "Competition among Exchanges," The Quarterly Journal of Economics, Oxford University Press, vol. 116(3), pages 1027-1061.
    5. 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.
    6. 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.
    7. Shy, Oz & Tarkka, Juha, 2001. "Stock exchange alliances, access fees and competition," Research Discussion Papers 22/2001, Bank of Finland.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Holthausen, Cornelia & Tapking, Jens, 2004. "Raising rival's costs in the securities settlement industry," Working Paper Series 376, European Central Bank.
    2. 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.
    3. 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.
    4. 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.
    5. Serifsoy, Baris, 2007. "Stock exchange business models and their operative performance," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2978-3012, October.
    6. 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.

    More about this item

    Keywords

    Clearing and Settlement; Cross-listing; Vertical and Horizontal Integration; Mechanism Design;

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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