And the question is whether or not liquidity would be more resilient under stress depending on whether an asset class was traded on MDPs or SDPs. The question of resilient liquidity matters enormously. As the crisis in 2007 reminded everyone, the liquidity of markets can evaporate, causing liquidity premia to soar, undermining the net worth of those intermediaries and investors who mark to market, feeding back into market dynamics in a vicious circle. As well as controlling leverage, prudential standard setters can help here by ensuring that bank and dealer intermediaries carry capital to cover the risk of swings in liquidity premia and against the pervasive basis risk warehoused by “market makers” in illiquid or non-standard products. The Basel Supervisors Committee is working on that in its Fundamental Review of Trading Book Capital Requirements. But, surely, the design of the market microstructure also matters. In that sphere, might the choice between MDPs and SDPs also make a difference? It is hard to know. There is some evidence from the fx markets that, during the crisis, volumes shifted to single-dealer platforms. One possible explanation for that would be the incentive of individual firms to make clear to their customers that they provided a liquidity service during thick and thin, expecting to be rewarded with more business as normality returns. But I must stress that I do not have a position on this. Rather, my point is that this very important issue has been debated without the liquidity dimension being explicitly considered.

That means being attentive to exchange-traded derivatives and to cash markets, whether on or off-exchange, and perhaps especially to the short-term financing markets. Where firms are concerned, we have learned to focus on maturity transformation and leverage. For markets, it is, perhaps, not quite so straightforward. In the case of intrafinancial system markets, we are interested in whether they produce chains of cumulative maturity transformation and leverage, and how transparent that is. With end-user markets, we are also interested in whether they are driven by strongly procyclical forces; whether they are especially liable to generate assets whose risks are mispriced or obscure; whether demand is dominated by leveraged investors and traders. We are interested in whether they can crater – becoming illiquid or even closing – under stress. And in whether there are ready substitutes. If not, intermediation can become impeded and end-users deprived of valuable services. Across all of these concerns, the underlying factors may be either structural or cyclical. And they go wider than the traditional focus of securities regulators on the integrity of transactions in public “end user” markets. In practice, the components of individual markets give us a list of things to focus on. A list that goes well beyond firms: products and their distribution in primary markets; the rules of the game and infrastructure for trading, including the role of market makers; the infrastructure for post-trade clearing and settlement; and asset management practices. Especially for “end-user markets”, these are subjects typically associated with securities market regulation not with mainstream microprudential supervision.