Vertical integration, competition, and financial exchanges: is there grain in the silo?

We investigate the incentives for vertical or horizontal integration in the financial security service industry, consisting of trading, clearing and settlement. We thereby focus on firms’ decisions but also look on the i
We investigate the incentives for vertical or horizontal integration in the financial security service industry, consisting of trading, clearing and settlement. We thereby focus on firms’ decisions but also look on the implications of these decisions on competition and welfare. Our analysis shows that the incentives for vertical integration crucially depend on industry as well as market characteristics. A more pronounced demand for liquidity clearly favors vertical integration whereas deeper financial integration increases the incentives to undertake vertical integration only if the efficiency gains associated with vertical integration are sufficiently large. Furthermore, we show that market forces can suffer from a coordination problem that end in vertically integrated structures that are not in the best interest of the firms. We believe this problem can be addressed by policy measures such as the TARGET2-Securities program. Furthermore, we use our framework to discuss major industry trends and policy initiatives. Keywords: Vertical Integration , Horizontal Integration , Competition , Trading , Settlement JEL Classification: G15, L13, L22
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Metadaten
Author:Steffen Juranek, Uwe Walz
URN:urn:nbn:de:hebis:30-87109
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2010,22
Series (Serial Number):CFS working paper series (2010, 22)
Document Type:Working Paper
Language:English
Year of Completion:2010
Year of first Publication:2010
Publishing Institution:Univ.-Bibliothek Frankfurt am Main
Release Date:2010/12/14
Tag:Competition; Horizontal Integration; Settlement; Trading; Vertical Integration
Issue:This version: December 2010
Pagenumber:42
HeBIS PPN:230600360
Institutes:Center for Financial Studies (CFS)
Dewey Decimal Classification:330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License Logo Veröffentlichungsvertrag für Publikationen

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