IMF Working Papers

Competition among Exchanges and Enforcement Policy

By Cecilia Caglio, Andrea Pescatori

February 1, 2013

Download PDF More Formats on IMF eLibrary Order a Print Copy
More formats on IMF eLibrary Order a Print Copy

Preview Citation

Format: Chicago

Cecilia Caglio, and Andrea Pescatori. "Competition among Exchanges and Enforcement Policy", IMF Working Papers 2013, 037 (2013), accessed November 8, 2025, https://doi.org/10.5089/9781475516784.001

Export Citation

  • ProCite
  • RefWorks
  • Reference Manager
  • BibTex
  • Zotero
  • EndNote
Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

In this paper, we explore how competition among stock exchanges, operated as self-regulatory organizations (SROs), affects the design of their members' surveillance. We develop a model where two for-profit SROs compete for trading volume, while brokers execute transactions on behalf of the investors and may misreport the true cash flow. The SROs can deter a fraud by announcing an investigation and imposing a monetary penalty.The success of the investigation depends upon both the amount of resources devoted to monitoring and the efficiency of monitoring technologies. We show that when contracts are incomplete and investors do not have perfect information about the monitoring efficiency, competition among exchanges induces a race to the bottom in enforcement policy and a reduction in total welfare, compared to the case of a monopolist SRO.

Subject: Competition, Currencies, Tax incentives

Keywords: Cash flow, Expected return, WP

Publication Details

You May Also Be Interested In...

Tax Expenditures in Uruguay

November 4, 2025

Industrial Policy Since the Great Financial Crisis

October 31, 2025

Tax Expenditures in Sub-Saharan Africa

October 7, 2025

Annual Update on SDR Trading Operations

October 3, 2025