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Guess What: It's The Settlements!

Author

Listed:
  • Cyril Monnet

    (DG Research, European Central Bank)

  • Thorsten V. Koeppl

Abstract

Exchanges and other trading platforms are often vertically integrated to carry out trading and settlement as oneoperation. 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 fromsuch 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 settlementplatforms to agents or by forcing competition across vertical silos through cross-listings.

Suggested Citation

  • Cyril Monnet & Thorsten V. Koeppl, 2005. "Guess What: It's The Settlements!," Working Paper 1051, Economics Department, Queen's University.
    • Handle: RePEc:qed:wpaper:1051
    as

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    File URL: https://www.econ.queensu.ca/sites/econ.queensu.ca/files/qed_wp_1051.pdf
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    References listed on IDEAS

    as
    1. 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.
    2. Myerson, Roger B. & Satterthwaite, Mark A., 1983. "Efficient mechanisms for bilateral trading," Journal of Economic Theory, Elsevier, vol. 29(2), pages 265-281, April.
    3. repec:zbw:bofrdp:2002_026 is not listed on IDEAS
    4. Tano Santos & Jose A. Scheinkman, 2001. "Competition among Exchanges," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 116(3), pages 1027-1061.
    5. Kauko, Karlo, 2007. "Interlinking securities settlement systems: A strategic commitment?," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 2962-2977, October.
    6. repec:zbw:bofrdp:2003_026 is not listed on IDEAS
    7. repec:zbw:bofrdp:2001_022 is not listed on IDEAS
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. 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.
    2. Tapking, Jens, 2007. "Pricing of settlement link services and mergers of central securities depositories," Working Paper Series 710, European Central Bank.
    3. 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.
    4. 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.
    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.

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    More about this item

    Keywords

    Clearing and Settlement; Cross-listing; Vertical and Horizontal Integration; Mechanism Design;
    All these keywords.

    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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