Transaction Cost Economics in European Financial Markets: A PLS-SEM Analysis (2012–2023)

Abstract

Aims: This study examines the impact of financial market regulations, specifically MiFIR and MiFID II, on transaction costs and competitive positioning within European financial market infrastructures. The research evaluates the extent to which regulatory interventions influence market leadership, revenue structures, and cost efficiency in stock exchange organizations. Study Design: The study employs an empirical approach based on Partial Least Squares Structural Equation Modeling (PLS-SEM) to analyze the relationships between infrastructure transactions, market economics, infrastructure operations, and transaction costs. Transaction costs are measured as the revenues of financial market infrastructure providers, reflecting the cost implications for market participants. Place and Duration of Study: The study focuses on European financial market infrastructures over the period 2012–2023, covering both pre- and post-implementation phases of MiFID II. Methodology: Secondary data were collected from audited annual financial reports, trading statistics, and regulatory disclosures. The dataset consists of 120 observations, transformed using natural logarithms (LN) to facilitate statistical modeling. A PLS-SEM was developed based on secondary data and regulatory sources. The PLS-SEM analysis was performed using 5,000 bootstrapped subsamples to assess model validity and path significance. Results: The findings indicate that infrastructure operations have a strong positive effect on transaction costs (path coefficient: 0.870), whereas infrastructure transactions exert a weaker influence (path coefficient: 0.083). Market economics do not directly affect transaction costs (path coefficient: 0.027) but positively influence infrastructure operations (path coefficient: 0.311). The model exhibits strong explanatory power, with an R² of 0.909 for transaction costs and 0.682 for infrastructure operations. The analysis shows that operational cost structures are the primary driver of transaction costs in stock exchanges, while trading activity plays a more limited role. Broader market dynamics indirectly affect costs by shaping infrastructure demands. The model demonstrates high explanatory power. Conclusion: This study provides empirical evidence on the regulatory impact on financial market infrastructures, highlighting the critical role of infrastructure operations in shaping transaction cost structures. The findings suggest that regulatory compliance, cost structures, and market dynamics collectively influence market leadership and competitive positioning. Future research could explore technological advances and cross-border market integration as potential factors influencing regulatory cost optimization and the efficiency of financial markets, thus contributing to the field of science.