12  So whilst these behaviours are presumably rational – and cost-effective – for individual market  participants, we are mindful that an aggregate reduction in transparency has the potential to hamper efficient price discovery. 13  Moreover, the steps some participants are taking to conceal information raises questions  about how the aggregate efficiency benefits from faster markets are shared. Finally, the occurrence of flash crashes indicates that, even if fast market prices are more efficient in general, they are not always so. Collectively, these observations suggest we should at least temper the headline conclusion that fast markets are more efficient: as is often the case, the story here is somewhat nuanced. Fast markets and market resilience I want to look now at the implications for resilience, both of individual firms and of markets – that is, whether they can function effectively in bad times as well as good. Again, fast markets may bring some important benefits. For example, because they place less reliance on risk warehousing by intermediaries, they were generally resilient during the 2008-09 financial crisis. Stresses were concentrated in those markets that had relied on dealer balance sheets: in our case the Bank of England introduced a ‘market maker of last resort’ scheme for corporate bond markets in 2009 to offset 7  A regulated multilateral trading system, subject to a range of regulatory requirements relating to: pre and post-trade transparency and non-discriminatory access. 8 A trading venue where counterparties can post trading interest without making such information publicly available.

Importantly, some PTF firms have been able to make markets at lower marginal cost than other participants, including by closing positions or offsetting risk in correlated instruments in shorter time frames. These competitive pressures have been one factor prompting many banks to warehouse less risk in fast markets, changing their business model to act as agents who sit between end-users and PTFs and the 1  remaining, typically large, bank market-makers. To differing degrees across markets, regulation has also played a role in encouraging such activity. In US equity markets, for example, Regulation National Markets System (2005) required brokers to execute client orders at the best price offered electronically on any venue, leading to fleeting arbitrage opportunities for the fastest moving market participants. In Europe in 2007, MiFID laid the groundwork for more competition, leading to different types of trading venues and more market fragmentation, also contributing to the growth of 2  high-frequency trading. And this regulatory influence will continue, with MiFID II set to introduce a whole host of new rules which bear on fast markets. As Governor Carney has often stressed, central banks care deeply about the operation of financial markets. 3  For the purposes of this speech, I will examine the implications of these developments through two prisms: market efficiency and market resilience. 1  See BIS (2016), ‘Downsized FX markets: Causes and Implications’. The Markets in Financial Instruments Directive (MiFID) was introduced in Europe in November 2007. It increased competition between traditional stock exchanges and alternative trading venues.