Antitrust & Competition Policy Blog

Editor: D. Daniel Sokol
University of Florida
Levin College of Law

Tuesday, July 10, 2012

Competition between Clearing Houses on the European Market

Posted by D. Daniel Sokol

Marie-Noelle Cales, University of Lyon 2 - Groupe d'Analyse et de Theorie Economique (GATE), Laurent Granier, affiliation not provided to SSRN Nadege Marchand, Groupe d' Analyse et de Theorie Economique (GATE) Competition between Clearing Houses on the European Market.

ABSTRACT: For several years, European financial markets have been the place of important mutations. These mutations have hit both stock markets themselves as well as the infrastructures including all necessary services for the transactions on financial securities. Among the market services to which the investors appeal, is the clearing of the orders, the service which allows reducing exchanged flows while guaranteeing their safety. The market of clearing became strongly competitive with the arrival of new Pan European clearing houses. Confronted with aggressive pricing policies, 'incumbent' clearing houses have to adopt new strategies: merger, simple or mutual links of interoperability. We develop a model of industrial organization to appreciate the consequences of these various strategies in terms of price and social welfare. The strategic incentives of clearing houses and their effects on their customers, i.e. investors, are observed by means of a sequential game. We show that the interoperability agreements are never reached at the equilibrium in spite of the fact that the 'European code of good practice' of postmarkets incites them to accept this type of agreements. On the other hand, a merger between incumbent clearing houses can occur under some conditions. The merger is beneficial to these last ones as well as to the investors, but it is unfavorable to the Pan European clearing houses.

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