CGFS releases report on electronic trading

The BIS is releasing today a report entitled The Implications of Electronic Trading in Financial Markets. This exploratory report represents the findings of a working group established by the Committee on the Global Financial System (CGFS). The group was asked to investigate how electronic trading (ET) systems function in wholesale financial markets that are most relevant to central banks and their actual and potential impact on market structure, price dynamics and overall financial intermediation.

The group, which drew on interviews with a wide range of market participants, including dealers, endusers and system providers, concentrated on ET in foreign exchange and government bond markets. ET has become predominant in the inter-dealer foreign exchange market for the major currencies, transforming it from a somewhat opaque bilateral market towards a more centralised and transparent structure. It is also rapidly gaining ground in inter-dealer fixed income markets. ET is most developed in liquid markets for homogeneous instruments, but it is also expanding in other areas.

ET offers great scope for reducing costs, which is yet to be fully realised in most markets. While the spread of ET may affect the business of some dealers, and may lead to a diminished commitment to market-making, there are so far no firm indications that liquidity has suffered from the introduction of ET or that trading moves away from electronic platforms in times of stress.

The report is available on the BIS website at www.bis.org. The CGFS intends to undertake further work in this rapidly changing area.

Notes to editors

The CGFS is a central bank committee established by the Governors of the G10 central banks to monitor and examine broad issues relating to financial markets and systems with a view to elaborating appropriate policy recommendations to support the central banks in the fulfilment of their responsibilities with regard to monetary and financial stability. The committee is chaired by Yutaka Yamaguchi, Deputy Governor of the Bank of Japan. In carrying out its tasks, the Committee places particular emphasis on assisting the Governors in recognising, analysing and responding to threats to the stability of financial markets and the global financial system.

The working group that prepared the report was chaired by Jos Heuvelman, Director of Financial Markets Department at De Nederlandsche Bank. Its members are listed in the report.