For example, on-line brokers often provide clients with detailed information regarding market conditions and the execution of orders. Greater transparency on the part of brokers reduces the information asymmetry between brokers and customers. As a result, customers may be able to obtain better execution prices, not least because they can more easily see the prices quoted by various brokers. 2  BIS Review 27/2001  Although the electronification of financial markets can bring benefits to customers, some risks are also associated with it. The first type of risk is by nature operational. Advances in information and telecommunications technologies have made it easier than ever before to set up exchanges for financial products, for example on the internet. In the early stages of their development, the new trading systems need to be thoroughly tested so as to ensure maximum security. In particular, it is important for them to be able to withstand turbulent market conditions, including periods of exceptionally high trading activity and market volatility. The second kind of risk arises from the possibility of a disorderly segmentation of financial markets. As new trading systems are developed, the possibility exists that trading activity becomes spread over a number of exchanges. Competition between exchanges is generally beneficial. However, customers may, at least over a transitory period, be faced with some difficulties in accessing the new exchanges. Until the changeover is complete, customers may thus be unable to always obtain the best execution prices.

Under the influence of changes in banking practices, customers may be able to have access to a wider range of financial products and services. Furthermore, efficiency gains will allow products to be offered at lower prices. In the euro area, electronic finance thus compounds the effects of the creation of the single currency, adding impetus to progress towards integrated financial markets at an area-wide level. Monetary policy needs to take account of these developments. In particular, it is important to monitor the resulting modifications to the financial structure of the economy so as to be able to track changes in investor behaviour, not least in order to assess the transmission channels of monetary policy. Moreover, in this context the possibility of excessive risk taking in the banking sector should not be neglected. Faced with eroding margins in "old businesses", banks may develop their activities in heretofore unexplored fields, by geographical expansion or by product development. In such circumstances, some banks may misjudge the risks inherent in the new activities, as a result of a lack of information, knowledge or skill. In such a situation, the prudential supervision of banks can help by assessing whether the capital buffers of banks remain sufficient for the banking sector as a whole. In financial markets, the issues are broadly similar. It is widely recognised that financial markets have been significantly transformed by the emergence of on-line brokers and electronic trading systems over recent years. In general, these developments have the potential to improve the functioning of financial markets.