Recent Development in the Structure of Securities Markets

THE PAST TEN years witnessed a dramatic evolution of financial markets, as documented in the last two editions of the Brookings-Wharton Papers on Financial Services. This paper assesses the outlook for consolidation in securities exchanges. Whereas the press continues to report news of agreements between exchanges, the track record of completed versus announced deals historically has been very poor, and the prospects for consolidation are uncertain. Our paper is essentially empirical. We collect and analyze some novel empirical evidence on the consolidation of exchanges within the European Union (EU) and the United States in the past decade. Given the structural differences among the two systems, we analyze them separately with a particular emphasis on the European case, where many more deals have been made, presumably in response to the implementation of the European Monetary Union (EMU). We pursue four research questions: (1) What explains the announced alliances among exchanges? (2) Why should we believe that recently announced alliances will be more successful than past deals? (3) What can be learned about the future path of the industry, given the experience