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

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.

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