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The reform of European securities settlement systems : Towards an integrated financial market

Abstract : The European Central Bank (ECB) will offer to banks in 2013 an european shared platform for securities settlement, named TARGET 2 Securities (T2S), in order to open the national financial markets. The financial crisis did not change the ECB agenda. This paper develops a spatial competition model to understand the impact of this new organisation on european post-trading services. We analyse the incentives of the Central Securities Depositaries (CSD) to move to T2S when they become competitors in the market for settlement services and remain in a monopoly position for depository services. Settlement and depository services are complementary goods, because banks have to pay for these two services to buy or sell a security. We show that such a reform should induce a decrease in the settlement price and more generally in post-trading prices, but that prices depend strongly on market organisation. Under certain conditions, partial adhesion would make prices increase. This configuration appears as a Nash equilibrium. As CSDs are free to adhere to T2S, the ECB might be forced to regulate.
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Submitted on : Thursday, November 10, 2011 - 11:57:30 AM
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Marie-Noëlle Calès, Dominique Chabert, Walid Hichri, Nadège Marchand. The reform of European securities settlement systems : Towards an integrated financial market. 2011. ⟨halshs-00639957⟩

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