Economies of Scale and Scope in Financial Market Infrastructures

61 Pages Posted: 13 Jan 2017 Last revised: 14 Sep 2017

See all articles by Shaofang Li

Shaofang Li

Southeast University - School of Economics and Management

Matej Marinc

University of Ljubljana - Faculty of Economics

Date Written: Spetember 13, 2017

Abstract

This article confirms the existence of substantial economies of scale in trading and post-trading financial market infrastructures (FMI), using the panel data of thirty stock exchanges, twenty-nine clearing houses, and twenty-three central securities depositories from thirty-six countries. We show that economies of scale are positively related to size and vertical and horizontal integration of FMI providers. Economies of scale are significantly higher in North America than in other regions. When analyzing economies of scope, we show that the efficiency of FMI providers increases with vertical (but not horizontal) integration and with a focus on a narrow range of asset classes. We also analyze implications for systemic risk.

Keywords: clearing houses, central securities depositories, stock exchanges, economies of scale, economies of scope, vertical integration, horizontal integration, systemic risk

JEL Classification: G10, G15, G18, G20, G23, G28

Suggested Citation

Li, Shaofang and Marinc, Matej, Economies of Scale and Scope in Financial Market Infrastructures (Spetember 13, 2017). Journal of International Financial Markets, Institutions and Money, Forthcoming, Available at SSRN: https://ssrn.com/abstract=2898075 or http://dx.doi.org/10.2139/ssrn.2898075

Shaofang Li

Southeast University - School of Economics and Management ( email )

Sipailou 2#
Nanjing, Jiangsu Province 210096
China

Matej Marinc (Contact Author)

University of Ljubljana - Faculty of Economics ( email )

Kardeljeva ploscad 17
Ljubljana, 1000
Slovenia

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