For example, the recommendations include maintaining better change control processes for designing, testing, and introducing trading technologies and algorithms. Additionally, they emphasize the importance of ensuring that risk management, clearing, and settlement processes are robust to challenges presented by the speed, sophistication, and potentially large gross trading volume associated with very rapid execution. The updated best practices also emphasize the importance of avoiding automated trading strategies that create a false impression of market price, depth, or liquidity. While the possibility of such trading practices has always existed, electronic trading provides more efficient tools for this type of behavior, and might also give some participants the false impression that it is easier to hide such behavior. Finally, the enhanced best practice guidance recommends that market participants who represent a material share of daily trading consider the impact on market liquidity before making abrupt changes to automated systems or trading strategies. This last recommendation is an important addition to an existing best practice that calls for market participants to manage large positions with care. Whether a firm has a large position, or represents a sizeable share of market activity, it has the responsibility to help support market functioning and liquidity. Making significant changes to either such a position or trading activity could disrupt market functioning and liquidity if not done with care, and the TMPG calls for such positions and activity to be managed with particular vigilance. I would like to thank the TMPG for its continued excellent work in improving market practices.

Given these critical roles and the risks posed by periods of sharp volatility, understanding the manner in which the evolving market structure is affecting market liquidity, efficiency, and price dynamics is of the utmost importance, and something we plan to study further. Best practices in the treasury market The Treasury Market Practices Group (TMPG) recently released a consultative white paper that addresses the effects of ongoing changes in automated trading on the structure of the Treasury market. This study was well under way before October 15, but it includes some preliminary observations from the TMPG on that event as well. The TMPG is a group of market professionals, sponsored by the New York Fed, committed to supporting the integrity and efficiency of the Treasury, agency debt, and agency mortgage-backed securities markets. The group has released a wide range of best practices for these markets, including a fails charge that resulted in a dramatic decline in delivery fails in Treasury securities and agency MBS, and the recommendation to margin forward agency MBS trades, a practice that now covers most bi-lateral forward trades in that asset class. The TMPG white paper on automated trading in the Treasury market includes an updated set of best practice recommendations that provide additional guidance for firms and trading venues involved with electronic and automated trading. Some of the changes to the best  8  BIS central bankers’ speeches  practices have to do with improving governance and back-office processes to keep pace with technological advancements.