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September 17, 2018

BIS published a report on the results of a study on monitoring of fast-paced electronic markets. The report examines major developments in the evolution of market structure and their implications for central banks. It also offers and overview of core components (in terms of data, tools, and analytics) of effective fast-paced electronic market monitoring, includes statistics on notable trends, and outlines the priorities and approaches of central banks in undertaking near-time and medium-term market monitoring.

Foreign exchange and other fast-paced electronic markets have undergone significant structural changes in recent years. Trading has become increasingly electronic and automated, the use of machine learning is nascent but growing, incumbents are responding to the emergence of new participants, and activity has migrated across a range of trading venues. Moreover, the availability of data for market monitoring has increased substantially. The report points to an overall trend among central banks toward greater use of high-frequency, transaction-level data.

The study also found limitations in the use of Markets in Financial Instruments (MiFID II) data to monitor foreign exchange and other fast-paced electronic markets. Although the use of these data seems promising, it faces three challenges in the form of limitation due to the scope of the legislation, the frequency of the collection, and the lack of centralization of aggregated data. As per the report, amid all these developments, the following key structural trends have emerged:

  • Trading is increasingly fragmented across a range of new venues, while the frequency of activity and speed of information flows have accelerated significantly, especially in foreign exchange markets.
  • Liquidity provision has become more concentrated among the largest banks, as smaller players resort to an agency model of market-making or exit the business altogether. Additionally, a new set of non-bank intermediaries, most notably principal trading firms, have strengthened their positions.
  • Greater electronification has led to the commoditization of large quantities of high-frequency data.


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Keywords: International, Banking, Securities, PMI, Electronic Trading, Market Monitoring, Foreign Exchange, MiFID II, Data, BIS

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