The Administration may feel that there is a need for the existing arrangements to be replaced by a separate Ordinance establishing an institution called the HKMA, having its own board and clearly defined functions. This appears sensible and is at least consistent with arrangements in other jurisdictions. But it is my strong view that, should this be considered desirable for whatever reasons, the opportunity should be taken to achieve greater and not less autonomy for the HKMA. There should be more, and not fewer, safeguards against political interference in the work of the HKMA. The Administration has indicated that it will take the matter forward in due course and no doubt the Legislature will be consulted when the Administration has formulated more concrete proposals. My advice, for what it is worth, is to proceed cautiously and in quieter times when market conditions are less unsettled. 31. Thank you very much again for giving me the honour of delivering the Susan Yuen Memorial Lecture. BIS Review 87/1998
We need to better understand the degree to which any changes in the nature of liquidity reflect the evolving structure of financial markets, changes in regulatory policy or other factors. With respect to regulatory policy, an important objective should be to achieve the best balance between the benefits of increased safety and soundness versus any costs imposed by these regulatory changes on market function and liquidity. In my remarks today, I will focus on market liquidity rather than funding liquidity, although I recognize that the two are related in important ways. I will examine market liquidity in two important fixed-income markets – the U.S. Treasury market and the U.S. corporate bond market. The Treasury and corporate bond markets provide a useful contrast in evaluating liquidity conditions as they differ with respect to the homogeneity of their securities, how their securities are traded and how regulatory changes may have affected the incentives of dealers to make markets in these securities. BIS central bankers’ speeches  1  The Treasury market is much more homogeneous and the average size of each issue is much larger. Trading volume and average trade sizes are much larger, and much of the trading activity for interdealer on-the-run securities is conducted electronically through the use of central limit order books (CLOB). In contrast, the corporate bond market is much more heterogeneous; there are many more distinct bonds available; and bond sizes are much smaller. As a result, corporate bond trading is fragmented across a large number of distinct outstanding bonds.