Liquidity provision is affected by changes in market structure, how trades are executed and by competition from outside of the regulatory boundaries that have been established for systemically important financial institutions. The market structure for many asset classes has evolved from a bilateral OTC structure toward a more open, centralized structure through the adoption of electronic trading platforms, post-trade infrastructures and higher degrees of transparency. For example, in the U.S. Treasury market, firms specializing in high-frequency 4  BIS central bankers’ speeches  algorithmic trading have become much more important and now make up more than half the trading in the electronic, interdealer cash market. This change in market structure has reduced the cost of trading in the interdealer market, especially for small trade sizes. Electronic trading enables the use of automated trading strategies which tend to employ speed for executing small-size trades, and the liquidity on electronic trading platforms allows traders to get in and out of positions quickly. The growth in high-frequency trading likely accounts for the reduction in trade size discussed earlier rather than this reduction being indicative of less liquidity. The movement toward electronic trading has allowed a more diverse set of actors to participate in the market, thereby increasing competition and likely leading to improved market liquidity. These changes, though, may have reduced the profitability of providing liquidity for dealers engaged in trading activity in the Treasury market. 2 Liquidity risk in the Treasury market may also reflect the growth in high-frequency trading rather than the impact of regulation.

In November, the Leaders will, at their Summit in Singapore, issue a legally-binding blueprint to implement the ASEAN Economic Community. ASEAN will eventually evolve into a single market with free flow of goods, services, investment and talent. For investors, an integrated market of half a billion people will be an attractive investment proposition. For financial institutions, it will mean more projects to finance and more wealth to manage. ASEAN’s combined GDP of $ is larger than most economies. It is, in fact, bigger than India’s $ and more that a third of China’s $ In addition, the ASEAN Economic Community will boost the region’s GDP by 10%. To benefit from the growth of China and India, ASEAN is negotiating FTAs with these two giants. They are targeted for completion by 2010 and 2011 respectively. Besides China and India, ASEAN is also enhancing links with other economic centres. ASEAN signed a regional Trade and Investment Framework Arrangement (TIFA) with the US last August. It is negotiating FTAs with Japan, South Korea and Australia and New Zealand. And in May, ASEAN and the European Union decided to launch FTA talks. Political coalescence At the political level, Asia is also coalescing. However, political coalescence is progressing more slowly than economic integration. And it will be far less defined and institutionalised than what we see in the EU. Compared to Europe, Asia is more diverse politically and culturally. There are complexities and practical difficulties. However, the basic direction has been set.