The Organization of Financial Exchange Markets. This article presents theory and evidence regarding the organization of financial exchange markets. Specifically, if the identified conditions hold, low cost suppliers of financial services can form an exchange which is large enough to deter entry by competing exchanges but which is smaller than optimal. Furthermore, exchanges that offer a variety of products may allow some members to trade only a subset of these products in order to preserve member rents. The evidence is broadly consistent with these predictions.
Exchanges typically monopolize trade in a particular financial contract.
Exchanges limit the number of members, and frequently create membership classes with limited trading rights. The analysis has implications for the optimal regulation of financial exchanges. A Positive Theory of Financial Exchange Organization. Although there has been extensive research on the economic functions of financial exchanges and the properties of prices determined on exchanges, there has been little research on the organizational structure and governance of these exchanges. This article demonstrates that the heterogeneity of the suppliers of financial services who are members of financial exchanges explains salient features of exchange organization.