, are critically dependent on the willingness of dealers to warehouse risk in return for the informational advantage that seeing the flow provides. such frictions have started to take new forms in fast markets. in particular at the same time as highfrequency trading activity has increased, a number of banks have stepped back from acting as market makers and have assumed a more infrastructural role. but new market participants still rely on banks to provide market access and extend them credit when engaging in algorithmic trading, through banks ’ prime brokerage and clearing businesses. providing a competitive service to such technologically advanced clients – particularly those trading at very high frequency – requires substantial investment in technology and infrastructure, including that to facilitate the real - time monitoring of exposures and risk management. the costs associated with this are high, and serve as an effective barrier to entry. as few banks provide these services, this leads to a concentration of nodes of market access for short - term liquidity providers. the changing role of banks / dealers in fast markets prompts the question whether the nature of potentially disruptive risks is also changing. one obvious concern would be if a prime broker or clearing bank was paralysed, including for reasons unconnected to its activity in fast markets – say because of a cyber attack. i think it is fair to say that our understanding of how market functioning would respond in such a scenario – i. e. one in which a number of, in particular high - frequency, liquidity providers were denied market access – remains relatively limited. if there is a common theme across all three of my examples, it is the limits of our understanding. none of the points i have raised with regard to market resilience are wholly new. we at the bank are following developments in the structure of these markets and their implications for financial stability closely, including through discussions within the bank ’ s financial policy committee ( fpc ). and as regulator both of many participants in electronic markets and some of those markets themselves, the financial conduct see, for example, shafik, m ( 2015 ), ‘ dealing with change : liquidity in evolving market structures ’ and the analysis of the sterling flash crash in box 3 of the financial stability review, november 2016 ( pages 39 - 41 ). all speeches are available online at www. bankofengland. co. uk / speeches authority ( fca ) too has remained deeply engaged and responsive to those developments which fall under its purview. likewise

##mptom of material changes in the structure of certain markets and the nature of their participants. although these changes are ongoing, we need to understand them and their drivers, if we are to succeed in correctly identifying any implications for financial stability. one should be wary of over - generalisation, particularly with an audience such as this, given the substantial diversity in markets across both product types and geography. i would nonetheless characterise the broad trends of the past few decades as follows : firstly, there has been an increase in electronic trading across most markets. this is particularly the case in markets for inherently liquid instruments – i. e. those which are simple and homogenous, such as equities ( chart 3 ). all speeches are available online at www. bankofengland. co. uk / speeches second, at least initially, the migration from voice to electronic trading has allowed for far greater transparency around the prices at which market participants are both willing, and able, to transact. this in turn has given rise to a plethora of new data, which combined with advances in technology, has led to the growth of algorithmic trading, including that at high frequency ( chart 4 ). and, for the purposes of this speech, by ‘ fast markets ’ i mean those markets where these trends have gone furthest : most obviously major equity, foreign exchange ( fx ) and futures markets. in these markets, there is less need for intermediaries to warehouse risk, due to the inherent liquidity characteristics that attract a wide range of participants, making it easier to find a near - instant match between buyers and sellers. this has allowed the emergence of new technology - focused, smaller, non - bank, market participants that specialise in using algorithms to execute and route orders at high speed. chief amongst these are principal trading firms ( ptfs ), who trade on a proprietary basis, using sophisticated technology ( chart 5 ). 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 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 (