Well, the central counterparty, who is a known player, functions as the counterparty to each of the parties to the transaction. The seller and the buyer then have a claim and a liability, respectively, with the central counterparty instead of with each other. The advantages of a central counterparty are that securities settlement can be both safer and more efficient. The transactions can be netted out 5 and the counterparty is known. The counterparty risks can be managed by the central counterparty obtaining collateral. Moreover, the central counterparty has its own financial resources. The drawback with a central counterparty is that the market risks are concentrated to a single player – a high concentration of risk. Provided the operations are properly organised, however, this is not a problem. Still, the concentration of risk does mean that central counterparties are often systemically important. Supervision and oversight are therefore highly relevant. 6 I shall leave counterparty risks for the moment and turn to the problem in the United States with insufficient market transparency. Many American credit derivatives are non-standardised products and have therefore been inherently difficult to understand and value. If attempts were made to cope with the lack of transparency, one way would be to use electronic trading because this enhances market transparency and reduces the risk that access to information is not uniform. Another important effect of electronic trading is that concentrating trading to one facility makes pricing more efficient. Each order can be matched with the best price.

Turning now to market transparency, what is the situation in Sweden? MiFID entails the introduction of rules for transparency before and after share trading. The requirement applies to all trading facilities and involves the publication of prices and volumes. So for shares there are no deficiencies concerning transparency in these respects. There may, however, be shortcomings in over-the-counter trading in interest-bearing securities and derivatives. A large proportion of fixed-income trading in Sweden is done by telephone rather than on a market. Derivative instruments can also be traded off-market. 8 If trading is arranged instead with an electronic facility, each order is matched against the best price and market access can be improved for new players. Still, there may be financial markets whose functioning is not improved by increased transparency. It should therefore be up to each market, including the Swedish fixed-income market, to decide which approach is most effective. What are the lessons from this argument? Well, in times like these, coloured by financial market uncertainty, there is much less propensity to take risks. Financial market participants are more interested in low-risk assets, low-risk markets and counterparties that they know and are safe. In a severe situation, this can mean that in certain cases trading ceases altogether because even small risks are perceived as too large. This is because the problems associated with counterparty risks and a lack of transparency become more tangible when markets are turbulent. Every measure by which the financial markets can be made to function even in turbulent times is welcome.