Bernhard Friess, Sean Greenaway, Apr 01, 2006
The structure of trading service markets is a fundamental determinant of the cost of capital for business. Competition has an important role to play in delivering efficiencies, particularly in the context of inherited fragmentation that characterizes the European Union, and to this end regulation and competition policy need to go hand in hand. Despite the complexity of the sector, competition authorities need to be alert to the problems that it poses. The authors argue that competition between trading platforms is welfare-enhancing but often foreclosed, both by private and state measures. In clearing, the authors take the view that compatibility is needed but unlikely to arise endogenously. In settlement, finally, the authors tentatively conclude that agency does not influence rents available to central securities depositories (CSDs), but may add value by keeping custody markets contestable.