Importantly, some PTF firms have been able to make markets at lower marginal cost than other participants, including by closing positions or offsetting risk in correlated instruments in shorter time frames. These competitive pressures have been one factor prompting many banks to warehouse less risk in fast markets, changing their business model to act as agents who sit between end-users and PTFs and the 1  remaining, typically large, bank market-makers. To differing degrees across markets, regulation has also played a role in encouraging such activity. In US equity markets, for example, Regulation National Markets System (2005) required brokers to execute client orders at the best price offered electronically on any venue, leading to fleeting arbitrage opportunities for the fastest moving market participants. In Europe in 2007, MiFID laid the groundwork for more competition, leading to different types of trading venues and more market fragmentation, also contributing to the growth of 2  high-frequency trading. And this regulatory influence will continue, with MiFID II set to introduce a whole host of new rules which bear on fast markets. As Governor Carney has often stressed, central banks care deeply about the operation of financial markets. 3  For the purposes of this speech, I will examine the implications of these developments through two prisms: market efficiency and market resilience. 1  See BIS (2016), ‘Downsized FX markets: Causes and Implications’. The Markets in Financial Instruments Directive (MiFID) was introduced in Europe in November 2007. It increased competition between traditional stock exchanges and alternative trading venues.
Yves Mersch: Risk management in times of non-conventional monetary policy Keynote speech by Mr Yves Mersch, Member of the Executive Board of the European Central Bank, at the Joint Bank of Portugal and European Central Bank Conference on “Risk Management for Central Banks”, Lisbon, 25 September 2017. * * * Let me start by thanking you for coming to this joint ECB-Banco de Portugal conference, and the Banco de Portugal for hosting us on this occasion. I am delighted to see central bank risk managers, practitioners and academics here in Lisbon to exchange views on risk management for central banks. This topic has gained such importance in recent years as central banks across the globe, including the ECB, have sharply expanded their balance sheets, even though the time for ever more of the same is behind us. Like the many great maritime expeditions that started out from this country, some of our endeavours in recent years have taken us into uncharted territory. Now is a good time to take stock of what we have learnt and map out what may come next. Following stable principles in the Eurosystem’s risk management framework The Eurosystem has a clearly defined objective, enshrined in the Treaty, to preserve price stability in the euro area.1 The Treaty does not speak of eligible counterparties, collateral haircuts or issue share limits for bond purchases.