Since the inception of the euro, it has staged an impressive take-off, even though its institutional, legal and accounting environment is still far from optimal. Central bankers have good reason to welcome such developments. Not only because they probably make the saving-investment process more efficient, but also because they allow for a better distribution of credit and market risk which should - if anything - enhance the stability and robustness of financial systems. BIS Review 37/2002  3  Financial processes and markets will continue to become more and more internationalised with obvious impacts on securities operations, liquidity and collateral management procedures. What kinds of challenges will this create for market infrastructures on the one hand, and for oversight authorities on the other hand? Let me address these two questions in the following. Implications for financial market infrastructures A first requirement for financial market infrastructures is that they must be capable of coping not only with an increase in cross-border securities operations, but also with their time-critical nature. Therefore, particular efforts should be made to ensure intraday finality, to shorten settlement cycles, to co-ordinate operating hours among the individual systems and to standardize communication procedures as well as message formats. As you know better than I, this is easier said than done, since we still rely heavily on technologies and systems that are tailored to domestic needs and peculiarities. The current coexistence of several non-interoperable platforms implies an extensive amount of costly manual intervention.

In the field of financial market infrastructure, there is no alternative to close cooperation between private market players and oversight authorities. On the one hand, it makes sense in this field as well to rely on market forces to stimulate, as energetically as possible, an eagerness for progress and innovation. On the other hand, we have to take into consideration that there are economic forces working in this area that limit the free play of market forces and require oversight authorities to take on a more active role. First, clearing, settlement and payment systems entail network characteristics with potentially negative externalities not internalised by individually optimising market players. It is thus the aim of oversight authorities to take into account the financial infrastructure as a whole, thereby focussing on the links between all components. In other terms, some of these systems are “too interlinked to fail” and must therefore be overseen with special care. Second, since clearing, settlement and payment services are based on production processes with very high fixed costs, there is a risk that consolidation may lead to a monopolistic market result. Oversight authorities must therefore also make it their goal to prevent potential abuses of market power. Against this background, a trust-based cooperation between financial service providers and oversight authorities remains the key to a continued successful development of an efficient and secure financial market infrastructure that meets the fast-changing needs of the future. BIS Review 37/2002  7