Economies of Scale and Technological Development in Securities Depository and Settlement Systems

Bank of Finland Discussion Paper No. 26/2002

38 Pages Posted: 28 Oct 2003

See all articles by Heiko Schmiedel

Heiko Schmiedel

European Central Bank - Securities Settlement Systems Policy Division

Markku Malkamäki

Evli Bank Plc

Juha Tarkka

Bank of Finland - Research

Date Written: October 1, 2002

Abstract

The paper investigates the existence and extent of economies of scale in depository and settlement systems. Evidence from 16 settlement institutions across different regions for the years 1993-2000 indicates the existence of significant economies of scale. The degree of such economies, however, differs by size of settlement institution and region. While smaller settlement service providers reveal high potential of economies of scale, larger institutions show an increasing trend of cost effectiveness. Clearing and settlement systems in countries in Europe and Asia report substantially larger economies of scale than those of the US system. European cross-border settlement seems to be more cost intensive than that on a domestic level, reflecting chiefly complexities of EU international securities settlement and differences in the scope of international settlement services providers. The evidence also reveals that investments in implementing new systems and upgrades of settlement technology continuously improved cost effectiveness over the sample period.

Keywords: securities settlement, economies of scale, technological progress

JEL Classification: D4, G20, F36, L22, O33

Suggested Citation

Schmiedel, Heiko and Malkamäki, Markku and Tarkka, Juha, Economies of Scale and Technological Development in Securities Depository and Settlement Systems (October 1, 2002). Bank of Finland Discussion Paper No. 26/2002. Available at SSRN: https://ssrn.com/abstract=355003 or http://dx.doi.org/10.2139/ssrn.355003

Heiko Schmiedel (Contact Author)

European Central Bank - Securities Settlement Systems Policy Division ( email )

Directorate General Payment Systems
Kaiserstrasse 29
D-60311 Frankfurt am Main
Germany
+49-69 13 44 70 59 (Phone)
+49-69 13 44 60 00 (Fax)

Markku Malkamäki

Evli Bank Plc ( email )

Aleksanterinkatu 19 A
FIN-00100 Helsinki
Finland

Juha Tarkka

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland
+358-9-1831 (Phone)

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