The industrial organization of execution, clearing and settlement in financial markets
The execution, clearing, and settlement of financial transactions are all subject to substantial scale and scope economies which make each of these complementary functions a natural monopoly. Integration of trade, execution, and settlement in an exchange improves efficiency by economizing on transactions costs. When scope economies in clearing are more extensive than those in execution, integration is more costly, and efficient organization involves a trade-off of scope economies and transactions costs. A properly organized clearing cooperative can eliminate double marginalization problems and exploit scope economies, but can result in opportunism and underinvestment. Moreover, a clearing cooperative may exercise market power. Vertical integration and tying can foreclose entry, but foreclosure can be efficient because market power rents attract excessive entry. Integration of trading and post-trade services is the modal form of organization in financial markets, which is consistent with the hypothesis that transactional efficiencies explain organizational arrangements in these markets.
|Date of creation:||2007|
|Contact details of provider:|| Postal: House of Finance, Grüneburgplatz 1, HPF H5, D-60323 Frankfurt am Main|
Phone: +49 (0)69 798-30050
Fax: +49 (0)69 798-30077
Web page: http://www.ifk-cfs.de/
More information through EDIRC
When requesting a correction, please mention this item's handle: RePEc:zbw:cfswop:200843. 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: (ZBW - German National Library of Economics)
If references are entirely missing, you can add them using this form.