Organizing Equity Exchanges

In the last years equity exchanges have diversified their operations into business areas such as derivatives trading, posttrading services, and software sales. Securities trading and post-trading are subject to economies of scale and scope. The integration of these functions into one institution ensures efficiency by economizing on transactions costs. Using balanced panel data from major equity exchanges over the period 2005-2007, we examine empirically the presence of economies of scale in securities trading. Moreover, we analyze the impact of vertical integration of trading, clearing, and settlement, the impact of the size of an exchange, and the impact of diversification on the profitability of exchanges. The evidence confirms that a large number of transactions leads to low costs per trade. The evidence shows that the profitability of equity exchanges is highest for vertically integrated exchanges and that diversification and size have a negative impact on their profitability

Growth Strategies and Value Creation: What Works Best for Stock Exchanges?

In recent years, demutualized stock exchanges have been increasingly engaging in M&A and alliance activities. To examine the effect of these growth strategies on exchange shareholders’ value creation, we focus on 14 public stock exchanges and investigate their short-run share price responses to the formation of 110 M&As and alliances all over the world spanning the period 2000-2008. Our findings show that the average stock price responses for M&As and alliances are positive. M&As create more value than alliances. For alliances, joint ventures generate more value than non-equity alliances. More value accrues when the integration is horizontal (cross-border) than when it is vertical (domestic). Additionally, there is evidence of learning-by-doing effects in stock exchange integration activities. Finally, we find that the better the shareholder protection, accounting standards and capital market development in the partner exchange’s country, the higher the merger and alliance premium for our sample exchange. These patterns are consistent when we examine the exchanges’ long-run performance

Islamic and Conventional Exchanges: A Performance Analysis and Governance Perspectives

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