Abstract
This article derives securities market macrostructure from microstructural foundations under a variety of assumptions regarding property rights. Because liquidity effectively makes securities trading a network industry, intermediaries can exercise market power by restricting access to the trading mechanism. Fragmentation, cream skimming, and free riding reduce the inefficiency that results from this market power, but welfare would be improved further by requiring open access to all trading venues. Implementing open access in practice must confront a trade-off between reducing market power and potentially impairing the incentives of the operators of trading systems to reduce cost and improve quality. Other network industries, notably telecoms and electricity transmission, have faced similar dilemmas, and the path to the creation of a more efficient property rights structure in financial markets could benefit from the experiences of other network markets.
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