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Business Standard – Letters: Breaking the monopoly

Business Standard / New Delhi January 28, 2011, 0:23 IST


Anyone who thinks a securities exchange is a “natural monopoly” is so out of touch with recent history and the reality of capital markets as to be certifiable.


Instead of focusing on liquidity, one should focus on the reasons for liquidity – cost of speed.


The natural monopoly of the New York Stock Exchange (NYSE) went from a market share in cash equity trading of approximately 85 per cent to roughly 30 per cent in a matter of a few years. The reason for this rested on their mutual ownership seeing the NYSE as a “natural monopoly” and failing to innovate.


The instant the new entrants came upon the scene, speed of execution and reduced costs obliterated NYSE’s dominant position. This was also the case with London and all across Europe.


The dominant exchanges failed to provide a better product, become more efficient or even attract the talent required to compete. Despite being the dominant market, liquidity simply moved to other venues.


This scenario was a direct result of the NYSE’s mutual ownership structure. I know, I was there.


Competition in the exchange space is brutal but has never resulted in reduced costs for investors. “Natural monopolies” only exist when governments will them into existence, often under the influence of those wishing to curtail competition.


Thomas S. Caldwell, CM Chairman Caldwell Securities Ltd.

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