Increased market liquidity tends to place downward pressure on volatility - prices become less sensitive to large transactions and absorb news more easily. Trading in Government of Canada bonds, to take one example, is at an all-time high, and bid-ask spreads on these bonds are the narrowest ever experienced. Second, we've seen important improvements in risk management at banks and other financial institutions.
Substantial progress has been made in identifying and controlling the concentration of exposure to specific risks, especially market risk and credit risk. Third, the introduction of derivative instruments, such as credit derivatives, has allowed a better distribution of risk across the system, as well as better risk management by institutions.