So there are a number of lessons for today’s exchanges, to do with the need to respond to market needs, the need to make full use of available technology, and so on. Role of clearing houses It will be very little surprise to many of you that, as the central bank, the aspect of these developments which interests us most is the management of risk. BIS Review 50/2000  2  Clearing houses have traditionally played a central role in the derivatives markets and continue to do so as those markets expand. They are also increasingly active in the underlying cash markets. It’s clear to see why the markets value their service and it is fortunate that, in the London Clearing House, London has a first class central counterparty. But clearing houses concentrate risk at a single point. And, by serving multiple markets, they provide a route for disturbance to be transmitted between markets. So the way they manage their risk, particularly as they expand their activities, is important to you, I hope, as much as to us. Diversifying across products can provide benefits, particularly if this simultaneously diversifies a clearing house’s exposures across existing clearing members. And expansion into new markets where existing members are already active provides clearing houses - and potentially regulators - with more information on members’ overall trading books which they can use to manage their risk more effectively. Diversifying across markets does not, of course, help when, for some reason, the markets all move together.
In a world where a German trader can trade on an exchange in London with a counterparty in the US who uses a French technology provider and a Belgian settlement agent, the question of how to ensure that all parts of the process are regulated effectively is a tough one. Some argue there should be some kind of pan-national “super-regulator”. Perhaps that is where we will eventually get to although one worries about its potential for the worst sort of bureaucracy: and in the meantime we think that an approach based on close cooperation and the exchange of regulatory information, is a pragmatic way forward and more likely to balance the need to protect investors and the need to encourage innovative, responsive markets. But let me turn my attention back to the opportunities that technology offers. The scope for new contracts on B2B and e-commerce networks is enormous. Contracts that would have taken some time to establish themselves in a pit can be quickly listed on screen at relatively little cost. Trading is now possible in such diverse commodities as electricity, telecoms bandwidth and even the weather. The organisers of this event may, in future, be able to hedge their exposure to fluctuating wine prices using exchange-traded futures based on the finest premier cru, I suspect this is one contract where traders would be happy to go to physical delivery. We central bankers will have to stick to our usual vin ordinaire.