| By: |
Estelle Cantillon (FNRS, ECARES and CEPR, Université Libre de Bruxelles, CP 114, 50, Avenue F.D. Roosevelt, 1050 Brussels, Belgium.);
Pai-Ling Yin (Harvard Business School, Soldiers Field Boston, Massachusetts 02163, USA.) |
| Abstract: |
In a famous episode of financial history which lasted over eight years, the
market for the future on the Bund moved entirely from LIFFE, a London-based
derivatives exchange, to DTB, a Frankfurt-based exchange. This paper studies
the determinants of the observed dynamics, using a novel panel dataset that
contains individual trading firms'membership status at each exchange together
with other firms characteristics, and pricing, marketing and product portfolio
strategies by each exchange. Our data allows us to distinguish between
different explanations for the observed phenomenon. Our results indicate that
the main driver was a "market coverage" effect: thanks to the combination its
electronic market structure and EU-wide access deregulation, DTB increased the
relevant size of the market for exchange members and disproportionately
attracted those firms who originally did not exist or used to submit their
orders through a broker. Differential liquidity and product portfolio
strategies by the exchanges played a secondary role. JEL Classification: G21,
G28, L13, L43. |
| Keywords: |
Exchange competition, tipping, electronic trading, open outcry, network effect, Bund, adoption cost. |
| Date: |
2007–06 |
| URL: |
http://d.repec.org/n?u=RePEc:ecb:ecbwps:20070766&r=mst |