Financial Market Infrastructures

Abstract

Like a human being's backbone, well-functioning financial market infrastructures contribute to the stability of the financial system. They enable fast and smooth movements, channel relevant information, protect the channels for transmission and reduce risk. Problems in financial market infrastructures may lead to dysfunctions of financial markets, a lack of options for transaction and, therefore, to limited movability, misleading information or disturbed information channels and in the worst case to systemic risk. The chapter explains the role of financial market infrastructure within the wider definition of a financial system. Based on the historical emergence of payment systems, central clearing and central securities depositories, the special advantage of financial market infrastructures for the productivity of intermediaries, for the efficiency of financial markets and for the welfare of an economy is explained. The chapter shows the economic and analytical importance and specificity of financial market infrastructures.