Does inter-market competition lead to less regulation?

Arbeitspapier

This paper presents a model to analyze the consequences of competition in order-flow between a profit maximizing stock exchange and an alternative trading platform on the decisions concerning trading fees and listing requirements. Listing requirements, set by the exchange, provide public information on listed firms and contribute to a better liquidity on all trading venues. It is sometimes asserted that competition induces the exchange to lower its level of listing standards compared to a situation in which it is a monopolist, because the trading platform can free-ride on this regulatory activity and compete more aggressively on trading fees. The present analysis shows that this is not always true and depends on the existence and size of gains related to multi market trading. These gains relax competition on trading fees. The higher these gains are, the more the exchange can increase its revenue from listing and trading when it raises its listing standards. For large enough gains from multi-market trading, the exchange is not induced to lower the level of listing standards when a competing trading platform appears. As a second result, this analysis also reveals a cross - subsidization effect between the listing and the trading activity when listing is not competitive. This model yields implications about the fee structures on stock markets, the regulation of listings and the social optimality of competition for volume.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: CFS Working Paper ; No. 2010/13

Classification and Topics

• Classification: Wirtschaft ; General Financial Markets: General (includes Measurement and Data) ; General Financial Markets: Government Policy and Regulation ; Asset Pricing; Trading Volume; Bond Interest Rates
• Subject: Competition in Order Flow ; Fragmentation ; Listing Requirements ; Stock Exchanges ; Wertpapierbörse ; Wettbewerb ; Börsenumsatz ; Börsennotierung ; Börsenregulierung ; Börsenrecht ; Gebühr ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Draus, Sarah
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Center for Financial Studies (CFS)
• (where): Frankfurt a. M.
• (when): 2010

Further information

• Handle: http://hdl.handle.net/10419/43222
• URN: urn:nbn:de:hebis:30-78654
• Last update: 10.03.2025, 11:41 AM CET