Organising Equity Exchanges

17 Pages Posted: 12 Feb 2009

Date Written: February 12, 2009


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

Using balanced panel data from major equity exchanges over the period 2005-2007, we examine empirically the presence of economies of scale in securities trading. Moreover, we analyse the impact of vertical integration of trading, clearing, and settlement, the impact of the size of an exchange, and the impact of diversification on the profitability of exchanges. The evidence confirms that a large number of transactions leads to low costs per trade. The evidence shows that the profitability of equity exchanges is highest for vertically integrated exchanges and that diversification and size have a negative impact on the profitability.

Keywords: Trading, Post-Trading, Economies of Scale, Integration of Securities Trading, Diversification

JEL Classification: G15, G20, L16

Suggested Citation

Schaper, Torsten, Organising Equity Exchanges (February 12, 2009). Available at SSRN: or

Torsten Schaper (Contact Author)

Deutsche Börse Group ( email )

Frankfurt, 60485

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