Advantages and disadvantages of an integrated market compared ...

COMMISSION OF THE EUROPEAN COMMUNITIES

studies

Advantages and disadvantages of an integrated market compared

with a fragmented market

COMPETITION -

APPROXIMATION OF LEGISLATION SERIES 1977

30

European Communities -- Commission

Report of study "Advantages and disadvantages of an integrated market compared with a fragmented market"

Dr. Hartmut Schmidt Professor of Finance University of Hamburg

Luxembourg: Office des publications officielles des Communautes europeennes

1977 - 488 p. - 17,6 x 25,0 cm

Collection Studies, Competition -- Approximation of Legislation Series

EN

ISBN 92-825-0233-3

Catalogue number: CB-NP-77-030-EN-C

BFR300 LIT 7150

DKR 49,50 HFL 20,50

DM19 UKL4.90

FF 40,50 USD 8.50

This study was made by Dr Hartmut Schmidt, Professor in the University of Hamburg, at the request of the Commission of the European Communities.

The purpose of the study is to set out a comparative analysis of secondary markets and to assess the respective advantages and disadvantages of integrated and fragmented markets, particularly from the point of view of the efficient operation of these markets, the development of domestic and international dealings in securities, and the protection of savers.

The first part of the study deals w i t h the criteria used in assessing the various ways in which securities markets are organised.

In the second part, the different systems of organisation and operation of markets in the nine Member States and in Japan and the United States are reviewed. The aim of this investigation is to determine for each count r y , whether the secondary market in the broad sense is integrated or fragmented i.e. whether there are one or more markets and what different kinds of securities are traded on t h e m .

The third part of the study compares, both from a practical and theoretical point of view, the respective merits of integrated secondary markets and fragmented markets. This part also draws certain conclusions about the Community's future policy with regard to stock markets.

The Commission believes that this study will play a significant part in determining certain specific objectives for its work in this field. It would emphasise, however, that the opinions expressed in the study are those of the author alone.

COMMISSION OF THE EUROPEAN COMMUNITIES

Report of Study

Advantages and disadvantages of an integrated market compared with a fragmented market

by Dr. Hartmut Schmidt Professor of Finance University of Hamburg

COLLECTION STUDIES Competition -- Approximation of legislation Series no. 30 Brussels, March 1977

?Copyright ECSC - EEC - EAEC, Brussels-Luxembourg, 1977 Printed in Belgium

Catalogue number: CB-NP-77-030-EN-C

- Ill -

TABLE OF CONTENTS

Table of contents List of tables and diagrams List of abbreviations Summary Preface

III XI XV

XVII XXI

Introduction

1

Part 1 Criteria for the assessment of different

structures of stock markets

7

A. Criteria for the assessment of stock markets

7

I. Using the participants in the market

as the starting-point

7

II. Criteria from the point of view of

investors and issuers

10

III. Criteria of market quality from the point

of view of the providers of relevant

financial services

17

IV. Elements of procedural efficiency

21

V. The criterion of procedural efficiency

and other criteria for assessing the

quality of secondary stock markets

32

B. Integrated and fragmented (segmented)

secondary stock markets

41

Part 2

Segments of the secondary market in the Member

States of the European Communities, in Japan and

in the United States

46

A. Segments of the secondary market in the

United Kingdom and the Republic of Ireland

46

I. Participants and issues traded

46

- IV -

II. Stock exchange segments of the secondary

market in the United Kingdom and the

Republic of Ireland

54

1. Jobbing system

55

a) The normal dealing procedure

55

b) Modifications for block trans-

actions and in other circumstances

where spreads are wide

62

c) The jobber as broker

66

2. Trading without jobbers

66

a) The "callover" system

67

b) Other methods of trading without

jobbers

6 8

III. Off-exchange segments of the secondary

market in the United Kingdom and the

Republic of Ireland

69

1. Automated Real-Time Investments

Exchange Limited (Ariel)

69

2. Other off-exchange segments

73

The segments of the secondary market in Denmark

76

I. Participants and issues traded

76

II. Exchange segments of the secondary market

in Denmark

79

1. Hovedb^rsen

79

a) Dealings in "A List" shares and

bonds

80

b) Dealings in "B List" bonds

81

2. Efterb?Srsen

83

III. Off-exchange segments of the secondary

market in Denmark

84

1. Execution of small orders

85

2. Block transactions

86

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