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Guess what: It's the Settlements!

  • Thorsten Koeppl

    ()

    (Department of Economics, Queen's University)

  • Cyril Monnet

    ()

    (DG Research, European Central Bank)

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.

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File URL: http://qed.econ.queensu.ca/working_papers/papers/qed_wp_1051.pdf
File Function: First version 2005
Download Restriction: no

Paper provided by Queen's University, Department of Economics in its series Working Papers with number 1051.

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Length: 30 pages
Date of creation: Aug 2005
Date of revision:
Handle: RePEc:qed:wpaper:1051
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  1. Roger B. Myerson & Mark A. Satterthwaite, 1981. "Efficient Mechanisms for Bilateral Trading," Discussion Papers 469S, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Kauko, Karlo, 2007. "Interlinking securities settlement systems: A strategic commitment?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2962-2977, October.
  3. Tano Santos & Joséa. Scheinkman, 2001. "Competition Among Exchanges," The Quarterly Journal of Economics, MIT Press, vol. 116(3), pages 1027-1061, August.
  4. Tapking, Jens & Yang, Jing, 2004. "Horizontal and vertical integration and securities trading and settlement," Working Paper Series 0387, European Central Bank.
  5. 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.
  6. Shy, Oz & Tarkka, Juha, 2001. "Stock exchange alliances, access fees and competition," Research Discussion Papers 22/2001, Bank of Finland.
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