Despite this long-standing perception among some market participants that primary dealer status represents an endorsement by the New York Fed of a financial institution’s creditworthiness or ability to provide efficient execution of large transactions, we have repeatedly stressed the importance of other market participants’ engaging in their own assessment of potential counterparties’ capabilities. Recent history provides several reminders that the primary dealer designation provides no guarantee against credit risk or other counterparty risks. While the New York Fed certainly performs its own due diligence, we do so in pursuit of our unique business objectives, which may differ from those of private agents. Market participants should therefore be  7  Since July 2013, the Desk has conducted pilot programs with seven smaller firms outside of the primary dealer system in order to explore how to conduct open market operations in Treasury and mortgage markets with firms that are considerably smaller than existing primary dealers. The Treasury Operations Counterparty (TOC) and Mortgage Operations Counterparty (MOC) pilot programs have provided valuable insight into the appropriate size and operational capacity of open market operation counterparties. BIS central bankers’ speeches  3  engaging in the appropriate level of due diligence required by their fiduciary responsibilities in the context of their specific business requirements. Such independent assessments are in our collective interest because they foster market discipline and a safer, more secure financial system.

There are now more than 600 Islamic financial institutions operating in more than 75 countries. Increasingly, existing Islamic banking institutions are expanding their operations with presence in new jurisdictions. This is resulting in increased cross border financial flows. There has also been increased international participation in Islamic financial markets. Since the late 1990s the Sukuk market has emerged as an important form of intermediation in Islamic finance. It has been instrumental in the financing structures for infrastructure projects, investments in the utilities sectors, in particular for water and power projects, and in the services sector, in education, healthcare and transportation. Islamic finance essentially offers clear value propositions to both global issuers and investors. For issuers, there is access to new sources of funds and liquidity. And in introducing a new asset class, investors gain from portfolio diversification and new investment opportunities that are aligned to productive investment activities. Internationalisation of Islamic finance: mutually-reinforcing benefits Islamic finance draws its strength from serving the real economy. An important feature of Islamic finance is that it involves financial transactions that must be accompanied by an underlying economic transaction. And when it is cross border, it will facilitate financial flows that will support international trade and investment flows. It will contribute towards bridging economies and enhancing our economic connectivity with each other. In this current global environment in which emerging economies are demonstrating their resilience with the ability to sustain growth despite the moderation in global expansion, there is tremendous prospects for mutually reinforcing growth from increased economic connectivity.