Economies of Scale and Scope in Financial Market Infrastructures
61 Pages Posted: 13 Jan 2017 Last revised: 14 Sep 2017
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
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