Links between Securities Settlement Systems: An Oligopoly Theoretic Approach

Bank of Finland Working Paper No. 27/2002

34 Pages Posted: 6 Feb 2003

Date Written: October 22, 2002

Abstract

This paper presents a duopoly model of the securities settlement industry. Because pooling a large amount of payments can help in using liquidity efficiently, issuers prefer systems where a large number of securities are issued. If the central securities depositories establish a mutual link that enables investors to make transactions with foreign securities, cost savings can be achieved. However, these links may have unexpected effects on CSDs' pricing, and the issuers' share of the fee burden can increase substantially. It is not advisable to ban additional fees for using the link, as the CSDs might simply increase the fee for domestic transactions.

Keywords: oligopoly, securities settlement systems

JEL Classification: L13, G20

Suggested Citation

Kauko, Karlo, Links between Securities Settlement Systems: An Oligopoly Theoretic Approach (October 22, 2002). Bank of Finland Working Paper No. 27/2002, Available at SSRN: https://ssrn.com/abstract=355004 or http://dx.doi.org/10.2139/ssrn.355004

Karlo Kauko (Contact Author)

Bank of Finland ( email )

P.O. Box 160
FIN-00101 Helsinki
Finland

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