Competition Among Securities Markets: A Path Dependent Perspective

Abstract:     
Today, there are an estimated 150 securities exchanges trading stocks around the world. Tomorrow (or at least within the reasonably foreseeable future), this number is likely to shrink radically. The two great forces reshaping the contemporary world - globalization and technology - impact the world of securities markets in a similar and mutually reinforcing fashion:

(1) they force local and regional markets into more direct competition with distant international markets;

(2) they increase overall market capitalization and lower the cost of equity capital, as issuers are enabled to access multiple markets; and

(3) they permit order flow and liquidity to migrate quickly from local markets to international "super-markets," sometimes with adverse consequences for smaller domestic markets.

In overview, these consequences follow because globalization has lowered the barriers to cross-border capital flows, including in particular traditional restrictions on foreign investments in domestic stocks, while technology has made instantaneous information flows feasible, thereby enabling electronic securities markets to link dealers and markets participants around the world in continuous world-wide trading.

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