When is a vertical silo not a vertical silo?

Answer: When it’s your vertical silo.

It’s been interesting to watch the Silo Wars.  Considering that most equities markets are predominantly domestic, it would generally sound like a good thing if the domestic exchange and domestic CSD converged to offer the most efficient possible service for domestic clearing and settlement.  That was the approach adopted by Deutsche Boerse, Borsa Italiana, BME in Spain, etc.  It meant, for example, that Deutsche Boerse could offer real-time trading and settlement as far back as the early 1990s.

Looking from the outside in, that approach would be a bad thing – it locks in users and locks out competition.  And much noise has been made about this over recent years, though there was always a feeling that there was some other motive behind this noise besides the fact that “monopolies are bad, competition is good”.  It often seemed that the parties that complained most were the ones that used to have their own vertical silo, but had lost that monopoly as a result of some major internal mess-up.

So what happens if one markets operator that believes in open competition and “Ban The Silos” were to buy up another markets operator that had fairly recently adopted the “Our Silo is a Good Silo” philosophy?

Would the new combined organisation sell off its CSD operation to create a clear separation between the CSD and its own activities as a competitive markets operator?

Or would it declare that a vertical silo, operated in an open and competitive manner, would actually be to the benefit of the investor?

What do you think?