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Delphine Lahet and Anne-Gaël Vaubourg
''Banks' shareholding in multilateral trading facilities: A two-sided market perspective''
( 2015, Vol. 35 No.3 )
This paper aims to account for the observation that banks are both owners and clients of Multilateral Trading Facilities (MTFs) which were created in Europe after the implementation of the Markets in Financial Instruments Directive (MiFID). Using a duopoly model of two-sided markets, we demonstrate that banks' participation in MTFs crucially affects their objective function shape, pricing policy and profit. We establish that when brokerage and trading activities are particularly important for banks' revenue compared to their profit as MTF operators, some market outcomes may emerge, whereby both MTFs include banks' interest as clients in their objective function. In these situations, although they earn negative profit as shareholders, banks benefit from lower fees as MTF's clients. This situation eventually results in larger global revenue. This effect may explain why banks are behind the creation of MTFs and why they maintain their stake despite negative profit.
Keywords: multilateral trading facilities, two-sided markets, banks
JEL: L1 - Market Structure, Firm Strategy, and Market Performance: General
G2 - Financial Institutions and Services: General
Manuscript Received : Oct 07 2014 Manuscript Accepted : Sep 07 2015

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