The Reform of European Securities Settlement Systems: Towards an Integrated Financial Market
Groupe d’Analyse et de Théorie Économique Lyon‐St Étienne (GATE) Working Paper No. 1129
21 Pages Posted: 10 Nov 2011
Date Written: November 1, 2011
Abstract
The European Central Bank (ECB) will offer to banks in 2013 an european shared platform for securities settlement, named TARGET 2 Securities (T2S), in order to open the national financial markets. The financial crisis did not change the ECB agenda. This paper develops a spatial competition model to understand the impact of this new organisation on european post-trading services. We analyse the incentives of the Central Securities Depositaries (CSD) to move to T2S when they become competitors in the market for settlement services and remain in a monopoly position for depository services. Settlement and depository services are complementary goods, because banks have to pay for these two services to buy or sell a security. We show that such a reform should induce a decrease in the settlement price and more generally in post-trading prices, but that prices depend strongly on market organisation. Under certain conditions, partial adhesion would make prices increase. This configuration appears as a Nash equilibrium. As CSDs are free to adhere to T2S, the ECB might be forced to regulate.
Keywords: Post-trading organisation, securities settlement, depositary services, compatibility
JEL Classification: D43, G15, G20
Suggested Citation: Suggested Citation
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