Niklaus Blattner: Global trends in financial market infrastructures and their significance for financial stability Introductory remarks by Mr Niklaus Blattner, Vice-Chairman of the Governing Board of the Swiss National Bank, at the end-of-year media news conference, Zurich, 14 December 2006. *  *  *  Developments at banks and financial markets are subject to extensive daily media analysis and commentary. By contrast, financial market infrastructures, i.e. stock exchanges, payment and securities settlement systems, only rarely make the headlines. I have decided to shift the focus today and concentrate on financial market infrastructures. In particular, I wish to highlight some interesting global trends and assess how these trends impact on the stability of the financial system. Internationalisation of financial market infrastructures Traditionally, most financial market infrastructures have a strong national focus. This made sense as long as the financial markets also had a strong domestic focus. However, the deregulation and liberalisation of financial markets and the associated increase in cross-border financial flows resulted in a widening gap between financial markets and financial market infrastructures, with the latter remaining constrained within national bounds. More internationalisation of financial market infrastructures became inevitable in order to avoid a loss of competitiveness due to inefficiencies. This process of opening up market infrastructures still continues today. We can differentiate between different types of internationalisation. First, direct access to infrastructures that used to be reserved exclusively to domestic participants is now being granted more frequently to foreign participants as well.
On the other hand, the growing interconnection and internationalisation of infrastructures result in new kinds of transmission channels (often cross-border), through which the credit or liquidity problems of individual market participants can spread to other participants. In the new environment, operational problems experienced within individual financial market infrastructures can also spread much more rapidly to a larger number of players. A working group is currently dealing with precisely these issues. It was set up by the Committee on Payment and Settlement Systems (CPSS) of the Bank for International Settlements (BIS) and one of the participants is the SNB. What is already clear is that the advantages of internationalisation clearly outweigh the drawbacks so far. Any threats to financial stability would have to be countered by modifications to the systems’ architecture, the applicable rules and oversight. BIS Review 123/2006  1  Tentative adjustment to market developments While financial market infrastructures were internationalised quite rapidly, they repeatedly lagged behind the deregulation of the financial markets. In today’s environment, it is possible for innovative financial products to gain popularity quickly and to achieve enormous trading volumes shortly after their introduction. A recent example is the rapid growth in the market for credit derivatives. While the trading volume of credit derivatives absolutely exploded in the last decade, the efficiency of the transaction confirmation and settlement processes for a long time left much to be desired. As a consequence, the backlog of concluded, yet unconfirmed transactions grew steadily.