Stock Exchange Mergers in the Aftermath of the Crisis: New Insights

Abstract

Securities exchanges play an important role in producing liquidity for securities and providing settings for efficient price discovery. Therefore, they fulfil a fundamental function in the flow of funds from savings to investments. Aside from this public function, demutualized exchanges (listed ones in particular) behave as profit-maximizing entities. Exchanges operate in an ever more competitive market in which it has become, particularly in the last 10 years, more difficult to retain the rents stemming from their traditional natural monopoly status. This was the main rationale for exchange demutualization (see, among others, Steil, 2002; Aggarwal, 2002). The incentive problem is also analysed in Serifsoy and Tyrell (2006) where it is shown how a mutual exchange, in the face of competition from a for-profit, outside-owned platform, can survive only by adopting a similar governance structure.