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: Suggested Citation