Organising Equity Exchanges

Posted: 24 Nov 2008 Last revised: 4 Dec 2008

Date Written: November 24, 2008


In the last years equity exchanges have been diversifying their operations into related business areas such as derivatives trading, post-trading services, and software sales. Securities trading, clearing, and settlement are all subject to economies of scale and scope. The integration of these functions in one institution improves efficiency by economising on transactions costs.

Using balanced panel data from all major exchanges over the period 2005-07, the paper empirically examine the presence of economies of scale and the impact of vertical integration, size, and diversification on the net profit ratio. The evidence shows that a large number of transactions leads to low costs per trade. The evidence also shows that the profitability is highest for vertically integrated exchanges and that diversification and size have a negative impact on the efficiency.

Keywords: Financial Intermediation, Securities Trading, Clearing and Settlement, Vertical Integration, Economies of Scale, Network Industries

JEL Classification: F30, G15, N20

Suggested Citation

Schaper, Torsten, Organising Equity Exchanges (November 24, 2008). Available at SSRN:

Torsten Schaper (Contact Author)

Deutsche Börse Group ( email )

Frankfurt, 60485

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