The Effects of Competition on the Fee Structures of the Major Stock Exchanges

Giuseppina Chesini

This paper investigates whether, as a result of competition, certain explicit transaction costs (execution fees) paid by broker-dealers to execute client orders on trading platforms are effectively decreasing, and considers the implications for stock exchanges and equity markets. It aims to integrate the literature on trading costs in equity markets by focusing on qualitative aspects and their specific relevance to the assessment of securities market quality, considering that in a high quality market, transaction costs are low. Changes in the price lists of the major European stock exchanges and multilateral trading facilities (MTFs) are examined to highlight the main pricing policy trends. In line with the prevailing literature, trading fees paid by brokers on these platforms are compared. The decrease in execution fees has coincided with a fall in trading revenues; lower revenues may undermine the profitability and long term stability of stock exchanges, and have a negative impact on equity market quality. It emerges that stock exchanges are progressively diversifying their business, increasing other sources of income to compensate for the loss of trading revenues.The findings relate largely to the period 2008 – first half 2012.