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COMMISSION OF THE EUROPEAN COMMUNITIES
studies
Advantages and disadvantages
of an integrated market compared
with a fragmented market
COMPETITION -
APPROXIMATION OF LEGISLATION SERIES 1977 30 European Communities — Commission
Report of study
"Advantages and disadvantages of an integrated market compared with
a fragmented market"
Dr. Hartmut Schmidt
Professor of Finance University of Hamburg
Luxembourg: Office des publications officielles des Communautes euro-
peennes
1977 - 488 p. - 17,6 x 25,0 cm
Collection Studies, Competition — Approximation of Legislation Series
EN
ISBN 92-825-0233-3
Catalogue number: CB-NP-77-030-EN-C
BFR300 DKR 49,50 DM19 FF 40,50
LIT 7150 HFL 20,50 UKL4.90 USD 8.50
This study was made by Dr Hartmut Schmidt, Professor in the University
of Hamburg, at the request of the Commission of the European Commu­
nities.
The purpose of the study is to set out a comparative analysis of secondary
markets and to assess the respective advantages and disadvantages of inte­
grated and fragmented markets, particularly from the point of view of the
efficient operation of these markets, the development of domestic and
international dealings in securities, and the protection of savers.
The first part of the study deals with the criteria used in assessing the
various ways in which securities markets are organised.
In the second part, the different systems of organisation and operation of
markets in the nine Member States and in Japan and the United States
are reviewed. The aim of this investigation is to determine for each coun­
try, whether the secondary market in the broad sense is integrated or
fragmented i.e. whether there are one or more markets and what different
kinds of securities are traded on them.
The third part of the study compares, both from a practical and theore­
tical point of view, the respective merits of integrated secondary markets
and fragmented markets. This part also draws certain conclusions about
the Community's future policy with regard to stock markets.
The Commission believes that this study will play a significant part in
determining certain specific objectives for its work in this field. It would
emphasise, however, that the opinions expressed in the study are those of
the author alone. COMMISSION OF THE EUROPEAN COMMUNITIES
Report of Study
Advantages and disadvantages
of an integrated market compared
with a fragmentedt
by
Dr. Hartmut Schmidt
Professor of Finance
University of Hamburg
COLLECTION STUDIES
Competition — Approximation of legislation Series no. 30
Brussels, March 1977 ©Copyright ECSC - EEC - EAEC, Brussels-Luxembourg, 1977
Printed in Belgium
Catalogue number: CB-NP-77-030-EN-C - Ill -
TABLE OF CONTENTS
Table of contents III
List of tables and diagrams X
List of abbreviationsV
Summary XVI
Preface XX
Introduction 1
Part
Criteria for the assessment of different
structures of stock markets 7
A. Criteria for the assessment of stock markets 7
I. Using the participants in the market
as the starting-point
II. Criteria from the point of view of
investors and issuers 10
III.a of market quality from the point
of view of the providers of relevant
financial services7
IV. Elements of procedural efficiency 21
V. The criterion of procedural efficiency
and other criteria for assessing the
quality of secondary stock markets 32
B. Integrated and fragmented (segmented)
secondary stock markets 41
Part 2
Segments of the secondary market in the Member
States of the European Communities, in Japan and
in the United States6
A. Segments of the secondary market in the
United Kingdom and the Republic of Ireland 4
I. Participants and issues traded 4- IV -
II. Stock exchange segments of the secondary
market in the United Kingdom and the
Republic of Ireland 54
1. Jobbing system5
a) The normal dealing procedure 5
b) Modifications for block trans­
actions and in other circumstances
where spreads are wide 62
c) The jobber as broker6
2. Trading without jobbers
a) The "callover" system 67
b) Other methods of trading without
jobbers 6 8
III. Off-exchange segments of the secondary
market in the United Kingdom and the
Republic of Ireland9
1. Automated Real-Time Investments
Exchange Limited (Ariel) 6
2. Other off-exchange segments 73
The segments of the secondary market in Denmark 76
I. Participants and issues traded6
II. Exchange segments of the secondary market
in Denmark 79
1. Hovedb^rsen
a) Dealings in "A List" shares and
bonds 80
b) Dealings in "B List" bonds 81
2. Efterb?Srsen3
III. Off-exchange segments of the secondary
market in Denmark 84
1. Execution of small orders5
2. Block transactions6 - V -
The segments of the secondary market in
The Netherlands 87
I. Participants and issues traded 8
II. Exchange segments of the secondary market
in The Netherlands 90
1. Gesloten hoeken2
2. Open hoeken 3
III. Off-exchange segments of the secondary
market in The Netherlands4
1.e dealings in listed
securities 9
2. Off-exchanges in non-listed s5
The segments of the secondary market in the
Federal Republic of Germany 7
I. Participants and issues traded 9 7
II. Exchange segments of the secondary market
in the Federal Republic of Germany 103
1. Official trading 104
a) Continuous trading
b) Non-continuous trading7
2. Unofficial exchangeg 109
a) Trading in unlisted securities
b) Option trading 111
III. Off-exchange segments of the secondary
market in the Federal Republic of Germany 113
The segments of the secondary market in Belgium6
I. Participants and issues traded 116
II. Exchange segments of the secondary market
in Belgium 120 - VI -
1. The forward market 121
2. The cash market4
a) Le marche des corbeilles
b) The market in domestic govern­
mental bonds6
c) Le marche du parquet 12
d) The exchange market for unlisted
securities 12 7
III. Off-Exchange segments of the Belgian
securities market2 8
The segments of the secondary market in the
Grand Duchy of Luxembourg 130
I. Participants and issues traded 13
II. Exchange segments of the secondary market
in Luxembourg2
1. Trading in listed issues on the Luxem­
bourg Bourse at the present time 13
2. Ventes publiques 133
3. Dealings under the planned Eurex
system4
III. Off-exchange segments of the secondary
market in Luxembourg9
The segments of the secondary market in France 141
I. Participants and issues traded 141
II. Exchange segments of the secondary market
in France 149
1. The Marche officiel 151
a) Trading a la criee2
b)g par opposition 15 3
c) Trading par easier4
d)g par boite 154 VII
2. The Marche hors-cote 155
a) Procedure ordinaire
b)e speciale6
III. Off-exchange segments of the secondary
market in France 158
IV. Attempts at reform9
The segments of the secondary market in Italy 161
I. Participants and issues traded 16
II. Exchange segments of the secondary market
in Italy 168
1. The forward market
2. The cash market9
III. Off-exchange segments of the secondary
market in Italy 170
1.e trading in listed
securities
2. Trading in unlisted securities 17
The segments of the secondary market in Japan 174
I. Participants and issues traded 17
II. Exchange segments of the Japanese
secondary market 182
1. Trading in major securities 184
2.g through Saitori firms6
3. Trading on the exchanges without
Saitori8
III. Off-exchange segments of the Japanese
secondary market 192
1. Over-the-counter trading in listed
securities
2.r trading in unlisted
securities4
3. The Gensaki market6 - VIII -
The segments of the secondary market in the
United States 19 8
I. Participants and issues traded 19 8
II. Exchange segments of the secondary market
in the United States 2 20
1. Exchange segments of the cash market 221
a) Thes of the New York
Stock Exchange 21
b) The market segments of the
American Stock Exchange 2 36
c) The regional exchanges 40
2. Exchange segments of the forward
market 24 7
a) Option exchange markets 247
b) Markets with fixed-date forward
trading in securities 252
III. Off-exchange segments of the secondary
market in the United States5
1.e markets for corporate
securities 257
a) Nasdaq
b) Third market 26 3
c) Fourth market6 7
d) Other markets 70
2. Markets for governmental securities 272
a) The market for U.S. government
and federal agencies securities 2 72
b) The market for municipal
securities 274

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