We will continue to develop our assessment of whether trading controls deployed around algorithmic trading are fit for purpose, and in doing so we will no doubt capture insights on the role of market making on electronic platforms. This is all part of our task of supervising firms’ trading books. It should be assisted by the introduction of MIFID2 (the Markets and Financial Instruments Directive) in Europe, which will impose rules on algorithms and high frequency trading, including the introduction of circuit breakers, minimum tick sizes and maximum order-to-trade ratios, thereby seeking to improve the stability of markets. It might be possible to conclude that it is all work to understand the problem rather than fix it. Not so, and I want to end by summarising six areas where action is already under way to reduce impediments to the development of diverse and sustainable market based finance. First, maintaining the stability of the financial system means that we have to keep a close watch on how risks that can appear in financial markets and the non-bank financial system may wash back into and affect the critical functions performed by banks; in other words destabilise the core of the system. In order to enhance our protection against this risk, in this year’s Bank of England concurrent stress test, we are taking a substantial step to enhance the coverage of market risks. Our new approach to stress testing trading activities will capture how fast banks could unwind or hedge their trading positions in the stress scenario.

My assessment is that in terms of understanding the risks and framing possible mitigating actions, we will fare better if we start by focussing on the activities that create such market risk, and then as appropriate move on to the entities that house those activities. The policy response from the authorities is by nature an activity that needs to be carried out through close international co-ordination. The Bank of England is committed to playing its part, consistent with the major presence of financial market activity in the UK, alongside and as a part of the work of the G20 under the auspices of the Financial Stability Board. References Jens H. E. Christensen and James M. Gillan “Does Quantitative Easing Affect Market Liquidity”, Federal Reserve Bank of San Francisco, Working Paper 2013-26. Ingo Fender and Uif Lewrick “Shifting tides – market liquidity and market-making in fixed income instruments”, BIS Quarterly Review, March 2015 http://www.bis.org/publ/qtrpdf/r_qt1503i.pdf Financial Policy Committee: Record of the Meeting, 24th March http://www.bankofengland.co.uk/publications/Pages/Records/fpc/2015/apr.aspx  2015. The Financial Services Authority, “The Failure of the Royal Bank of Scotland: Financial Services Authority Board Report, December 2011. Stanley Fischer, “The Importance of the Nonbank Financial Sector” speech at the “Debt and Financial Stability – Regulatory Challenges” Conference, the Bundesbank and the German Ministry of Finance, Frankfurt 27 March 2015. Grace Xing Hu, Jun Pan and Jiang Wang “Noise as Information for Illiquidity”. The Journal of Finance, XXVIII, No 6 December 2013. Michael Joyce, David Miles, Andrew Scott and Dimitri Vayanos “Quantitative Easing and unconventional Monetary Policy – An Introduction”.