مدل های کسب و کار بورس اوراق بهادار و عملکرد عمل آنها

In recent years stock exchanges have been increasingly diversifying their operations into related business areas such as derivatives trading, post-trading services and software sales. This trend can be observed most notably among profit-oriented trading venues. While the pursuit for diversification is likely to be driven by the attractiveness of these investment opportunities, it is yet an open question whether certain integration activities are also efficient, both from a social welfare and from the exchanges’ perspective. Academic contributions so far analyzed different business models primarily from the former perspective, whereas there is only little literature considering their impact on the exchange itself. By employing a panel data set of 28 stock exchanges for the years 1999–2003, we seek to shed light on this topic by comparing the technical efficiency and factor productivity of exchanges with different business models. Our findings suggest that exchanges that diversify into related activities are mostly less efficient than exchanges that remain focused on the cash market. In particular, we find no evidence that vertically integrated exchanges are more efficient. However, they seem to possess a substantially stronger factor productivity growth than other business models. We presume that integration activity comes at the cost of increased operational complexity which outweigh potential synergies between related activities and therefore leads to technical inefficiencies. Our findings contribute to the ongoing discussion about the drawbacks and merits of vertical integration.

In recent years, stock exchanges have increasingly diversified1 their operations into related business areas such as derivatives trading, post-trading services and software sales. Considering the world’s 50 largest stock exchanges according to the World Federation of Exchanges (FIBV), the number of exchanges that added post-trading services to their business portfolio rose from 22 to 30, while the number of venues that operate a derivatives trading platform marked up from 25 to 31. Despite the strongest relative increase, providers of software solutions remained rather scarce, with three exchanges offering this service in 1999 and seven in 2003.2 1.1. Integration activity and governance Interestingly, the great majority of exchanges that contributed to this rise were trading venues that have migrated from a mutual towards a shareholder-based, for-profit organizational form, a process, which is usually denoted as demutualization.3 In fact, stock exchanges that diversified into post-trading or software sales activities were exclusively profit-oriented, while the same group accounted for half of the increase in derivatives trading during the considered time span.4 There are at least two reasons why predominantly profit-oriented exchanges pursued the integration of related activities: First, these areas possessed a stronger growth potential than the traditional cash market, an aspect which is particularly relevant for exchanges that strive for profit-maximization and relatively unimportant for non-profit entities such as mutual exchanges. Second, demutualized exchanges also have presumably more leeway to pursue attractive business opportunities due to a different control structure: Traditional mutual exchanges are usually owned and dominated by their customers,5 which not only seek to maximize the value of the trading venue, but also take into account their own business interest as customers of the exchange. Therefore, as they ultimately control the activities of the exchange, they can e.g. prevent investment decisions that threaten their own business interests, even though they would increase the value of the trading franchise.6 In contrast, profit-oriented exchanges, particularly those that are publicly listed, are mostly dominated by outside owners, which merely have a financial interest in the entity.7 Therefore, as the vested interests of customer-owners are replaced by the outside owners’ common goal of maximizing the value of their company, an exchange’s management can more freely pursue value-enhancing projects such as diversifying into related business fields. To demonstrate how integration activity varies among different governance structures, we present the two graphs in Fig. 1. The graph on the left side groups the exchanges according to their governance type (mutual, demutualized, publicly listed)8 and displays the five-year average portion that is diversified into the considered activities for each group. It can be seen that diversification into related activities is most pronounced for the group of publicly listed exchanges (light grey bars) as 71% of them provide post-trading services, 84% offer a derivatives trading platform and 50% are active in the field of software sales compared to only 47%, 41% and 2%, respectively, for the group of mutual exchanges (dark grey bars). The graph on the right side provides a slightly different perspective on the same issue. Here, the average number of activities provided by mutuals, demutualized and publicly listed exchanges are shown for the considered time period. Mutual exchanges have on average two business activities, i.e. one additional besides the traditional cash market operation, whereas listed exchanges are engaged on average in approximately three activities. Demutualized exchanges that are not listed lie in between these extremes. In order to assess the different degrees of importance of related activities for profit-oriented as opposed to non-profit stock exchanges, Fig. 2 displays the average revenue breakdowns of publicly listed and mutual entities for a sample of 28 exchanges during the years 1999 and 2003.9 The revenues from derivatives trading, post-trading services and software sales were substantial for the listed exchanges, since they represented roughly half of their total operating revenues (left panel). For mutual exchanges, related activities played a subordinate role and the lion share of their revenues was generated on the traditional cash market (right panel). 1.2. Integration activity and efficiency While diversification seems to be an attractive way to boost revenue and profit of an exchange, industry participants, politicians and academics point to the possibility that some business combinations could have detrimental effects on social welfare. They claim that particularly vertical integration, i.e. the combination of cash trading and post-trading activities, could lead to anti-competitive foreclosure strategies by (profit-oriented) exchanges resulting in higher entry barriers for potential competitors and therefore higher transaction fees.10 However, there are also proponents of vertical integration claiming that the combination of trading and post-trading activities enables the exchanges to handle transactions faster, more safely and less costly by using straight-through-processing applications, which would ultimately result in lower prices for customers.11 We believe that this discussion touches multiple – potentially intertwined – dimensions that need separate analysis beforehand in order to be able to assess the overall effects on welfare in a second step. In particular, we want to disentangle aspects of (1) proper corporate governance regimes from those that are related to (2) efficient business models in this industry. (1) The governance regime of the entities is certainly a highly relevant aspect that needs to be analyzed from a social welfare perspective. Special attention should be devoted to the impact of ownership structure and objective function of an exchange on the price and quality of its services. While outsider-owned, for-profit entities will seek to earn rents and therefore may charge prices that are above marginal costs, these rents may also induce the necessary incentives to invest in quality-enhancing technologies which may not exist if non-profit firms provide these services.12 (2) Irrespective of the governance regime, however, it needs to be clarified whether the combination of certain business activities makes sense from an operational efficiency perspective. Generally, integration of related business fields could lead to difficulties in managing the firm efficiently, since it adds to the complexity of existing business processes. However, certain business combinations may also enable the exchange’s management to utilize inherent synergies between activities. An efficiency analysis that seeks to answer this question can be conducted in two different ways. The first approach would be to compare the relative efficiency of exchanges with differing degrees of diversification. If the results indicate that diversified exchanges are more efficient and productive than cash market-only exchanges, then this would be a clear case to support the former business models from a social welfare perspective, provided that an optimal governance regime can be implemented. However, if diversified firms do not exhibit a higher operative efficiency than firms focusing on the cash market, then the reverse conclusion cannot be drawn from this method.13 Instead, a second approach would be necessary that compares the efficiency of a diversified entity combining certain activities under one roof with the efficiency of multiple firms providing these activities separately. Hence, the efficiency of e.g. vertical integration would necessitate the comparison of an exchange that combines trading and post-trading activities with a setting where these services are provided by three independent entities, namely an exchange, a clearing house and a settlement institution. Evidence for the superiority of combined entities over separate entities would then lead to the conclusion that such an integration of activities is preferable, and vice versa. 1.3. Related literature To date, there exists only a small number of studies on how diversification may affect the operative performance of exchanges. We are aware of two contributions which analyze the performance of exchanges and take different business models into account. The author of both papers is Schmiedel. He analyzes stock exchange performance by employing two frontier efficiency methods. While Schmiedel (2001) employs a parametric stochastic frontier model to evaluate the cost efficiency of European stock exchanges during 1985 and 1999, Schmiedel (2002) applies a non-parametric method for the 1993–1999 period.14 In Schmiedel’s first paper, which controls within the regression for exchanges that possess both derivatives trading and post-trading services, he finds a positive impact of integration on cost efficiency.15 His second paper indicates that the mean of factor productivity gains, i.e. the annual change in technical efficiency, is higher for exchanges that focus on cash market operations.16 1.4. Contribution of the paper The primary focus of Schmiedel’s papers is not to elaborate on differences in business models, but to apply the methodology on the stock exchange sector in general. Our paper is different insofar as it conducts an efficiency analysis that devotes particular attention to business models and analyzes the causes for differences in greater detail. Additionally, our sample is more recent (1999–2003). As in Schmiedel (2002), we will also employ a non-parametric approach to calculate relative efficiency scores, albeit using a broader set of output variables in order to better capture the various activities that stock exchanges are engaged in. Furthermore, in contrast to his proceeding, we will go a step further by regressing the derived estimations of efficiency and productivity on a set of factors mapping the framework in which the respective exchanges are embedded. This procedure will then highlight whether there is a significant impact of different business models on the performance of the stock exchanges. This limits our analysis to the first approach outlined above. We consider this as a first step to gain insights whether a horizontal and/or vertical integration strategy promises efficiency gains compared to staying focused on cash market operations. Although some papers exist for the second method, such as from Pulley and Humphrey (1993) who measure scope economies of banks with different activities, we refrain from using a similar method in this paper, since we do not possess the appropriate data from entities that solely provide one of the related activities, i.e. independent derivatives exchanges, clearing houses, settlement providers or software companies.17 Another drawback of their approach is that we would have to estimate a parametric production function in a very specific way in order to deal with the fact that some exchanges possess an output of zero for certain activities. As we will later also argue against the employment of stochastic frontier analysis, we prefer not to impose a certain structure on the production functions of exchanges, as we do not know how they look like in reality. 1.5. Hypotheses The purpose of this paper is therefore to determine whether stock exchanges that pursue certain integration strategies operate more efficiently. As will be explained in detail in Section 2, we approximate the operative performance of exchanges by relative technical efficiency and factor productivity scores. Furthermore, as will be presented in Section 3.2.2, we consider four integration strategies that can be compared to a cash market-only business model, allowing us to formulate the following four hypotheses: H1: Stock exchanges that diversify into derivatives trading possess a higher technical efficiency and factor productivity than cash market-only exchanges. H2: Stock exchanges that diversify into post-trading services possess a higher technical efficiency and factor productivity than cash market-only exchanges. H3: Stock exchanges that diversify into derivatives trading and post-trading services possess a higher technical efficiency and factor productivity than cash market-only exchanges. H4: Stock exchanges that diversify into derivatives trading, post-trading services, and software development and sales activities possess a higher technical efficiency and factor productivity than cash market-only exchanges. The papers is organized as follows. Section 2 describes the methodology used in our paper. Section 3 presents the employed data and our results. An interpretation as well as the robustness of our findings are also discussed here. Section 4 concludes.

This paper discussed the ongoing trend of business diversification within the stock exchange industry for the years 1999–2003 and sought to measure potential differences in technical efficiency and factor productivity growth that are attributable to differing business models. We noticed that most of the integration activity in these years was conducted by profit-oriented, demutualized exchanges, whereas mutual exchanges largely focused on their existing operations, save for a few entities that diversified into derivatives trading activities. We presume that the reason for these different patterns lie in the diverging ownership structures and the resulting objective functions of the exchanges. While profit-oriented, particularly publicly listed stock exchanges, substantially rely on revenues from related business activities such as post-trading services, derivatives trading or software sales, we find only little evidence that the integration of these activities also leads to better results in efficiency and factor productivity growth compared to exchanges that focus on cash market operations. Although some potential for efficiency improvements should be possible due to synergies between certain activities, this cannot be observed. Counterproductive effects such as increased business process complexity seem to dominate the overall effect on efficiency leading to a worse performance as opposed to cash market-only operators. It seems that the diversification strategy of profit-oriented exchanges was not driven by efficiency-enhancement motives. However, this does not imply that these exchanges should not diversify into related businesses. We deliberately considered only technical efficiency in order to ensure a better comparability between for-profit and not-for-profit entities. Hence, the analysis of economic efficiency, a measure which is more relevant for for-profit firms, may produce different results. Therefore, the integration of related activities may still prove to be a profitable investment as long as positive excess rents can be earned in these fields. In fact, stock exchanges that diversified into derivatives and post-trading seem to have increased their profitability substantially, as can be seen in the case of the Deutsche Börse, which increased its operating profits by more than 16-fold from 1999 to 2003. Furthermore, diversification may also be used to reduce business risks.51 Finally, our analysis also touches the much discussed topic, whether vertical integration is beneficial or detrimental to social welfare. As indicated in the introduction, a significant outperformance of a vertically integrated business model for our considered measures would offer proponents of this business model a plausible justification. Our findings, however, provide only partial support at best. On the one hand, technical efficiency seems to be actually lower for exchanges with a vertical business model. On the other hand, we find some evidence that vertically integrated exchanges have a stronger factor productivity growth than focused exchanges. However, it still remains to be analyzed how these exchanges perform relative to two entities providing cash trading and post-trading, separately, in order to be more conclusive in this respect.