Here I will explain how our analysis of market structure shaped the design of the Bank’s corporate bond purchase scheme, and how the scheme may have affected the functioning of the market. In both cases our understanding of these markets, informed by market intelligence, analysis and our own experience in previous operations, has been both tested and improved as the Bank has responded to events. Section 1 – Sterling’s headline days during 2016 The foreign exchange markets are core to the broader financial system, processing enormous volumes of transactions and relied upon by a broad range of economic participants from corporates to individuals. The structure of these markets has evolved markedly in recent years, with electronic trading playing an ever greater role, while the amount of balance sheet devoted to this activity by intermediaries has fallen. Benefits of the broader trend towards greater speed and electronification, common across a range of markets, include a reduced cost of transacting – and hence better value for end-users – but these structural changes as a whole have also led some to question whether markets are now less resilient in periods of stress. 1  2  The value of sterling fell by 17% against the US dollar over 2016 , largely as market participants digested the impact of the EU referendum decision on its long-term sustainable level.
Market Functioning Speech given by Chris Salmon, Executive Director, Markets, Bank of England  OMFIF City Lecture, London Tuesday 24 January 2017  I am grateful to Charlotte Barton, Nick Butt, Liam Crowley-Reidy, Nick Govier, Tom Horn, Rebecca Jackson, Sarah John and Nick Mclaren for their assistance in preparing this speech. 1  All speeches are available online at www.bankofengland.co.uk/speeches  Introduction  It is a pleasure to be here this evening. The economic and political events of the past twelve months raise many questions. From my vantage point as the head of the Bank of England’s Markets Directorate, they reemphasise the need for central banks to understand the structure and functioning of core financial markets. That matters both for our role as guardians of financial stability, and to ensure the effectiveness of our own operations to implement monetary policy. Let me illustrate this with reference to developments in two very different markets. i)  The first – the sterling FX market – a large, global, highly liquid, and almost continuously traded, market, with a constantly evolving structure. Here, the challenge is to understand how those developments affect the functioning of the market. My focus will be on the lessons about market functioning from two particular episodes last year: the period immediately following the EU referendum and its ‘flash crash’ a few months later. ii)  The second market – the sterling corporate bond market – is small, local, and thinly traded, with heterogeneous underlying assets.