Future of Securities Markets: Competition or Consolidation?

Abstract

Although considerable consolidation has recently occurred among securities exchanges, the forces of competition remain strong because they have an ally in technology. Technology evens the playing field and makes the entry of new trading venues easier. Economies of scale and network externalities still have a centralizing tendency, but that tendency is weakened. Networks now extend beyond a single market, which allows venues to compete, and economies of scale can more readily be overcome by a technologically sophisticated competitor. Empirical evidence indicates that as markets become integrated, trading becomes dispersed.

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