The Capital Markets

CHAPTER 7Making Markets Work: The Critical Role of Market Infrastructure

Eric Czervionke

INTRODUCTION

Every day trillions of financial transactions between counterparties are made smoothly and seamlessly. We have come to expect smoothly functioning markets and often give little thought to the many operational steps that take place after a trade is made. In fact, most people are blissfully unaware that there is a vast technological infrastructure underpinning our financial system, operated by hundreds of financial market infrastructure institutions that span jurisdictions and markets. These critical institutions literally make our markets work.

This chapter focuses on the post‐trade activities that take place after securities and derivatives trades are made and will highlight the market infrastructure providers involved in these activities along the activity chain. There are complex regulatory and market structure nuances that exist across jurisdictions and even markets within jurisdictions. These subtleties make market infrastructure an interesting topic to explore, but also mean that we are forced to describe the key activities at a relatively high level in order to focus on those elements that are common.

We will focus primarily on infrastructure in two areas: securities market infrastructure and derivatives markets. While we will attempt to highlight differences across jurisdictions where possible, to keep this discussion manageable we will take a largely U.S. and European ...