snb to tolerate inflation temporarily moving outside the range it equates with price stability, provided inflation expectations remain well anchored. innovations on the foreign exchange market as i have explained, the snb must adapt its analysis continuously in order to understand and anticipate changes in the goods and services market. however, the latter is not the only market to have undergone profound changes. the foreign exchange market, too – a key market for the snb – has also evolved considerably since the crisis. it is here that we conduct interventions, as required, and it is here that we actively manage our foreign exchange reserves. the snb has had to adapt to ongoing changes taking place on this market as well to ensure that it is able to implement its monetary policy effectively at all times. for the last six years, the foreign exchange market has undergone profound change in three different but linked areas : the technology being used, the fragmentation of trading activity and the emergence of new players. as regards technology, the most notable development has been the shift towards pure e - trading. algorithmic trading, high - frequency trading, artificial intelligence and machine learning are just some of the commonly used terms in e - trading. over 70 % of the transaction volume in the foreign exchange spot market now takes place electronically. the shift to e - trading has also increased the frequency of trades. as a result, information flows have risen considerably. close monitoring of these markets thus requires greater data processing capabilities. the shift to e - trading has also led to the fragmentation of trading. with new forms of organised markets beginning to compete for the distribution of liquidity to end - users, transaction volumes on the primary interbank market have declined, in favour of new secondary market sites. examples include secondary electronic communication networks, individual banks ’ proprietary trading platforms and multi - bank platforms. monitoring market activity has become increasingly complex as the number of sites has proliferated. finally, the market participants themselves have changed. on the one hand, the share of transactions being executed by traditional bank dealers has steadily declined and this activity is being concentrated at the largest banks. on the other hand, new players have entered the market. in particular, companies specialising in high - frequency trading have become nonbank market makers and have started providing liquidity to end - users on a direct and open basis. it is necessary to monitor these trends in order to understand their potential impact on market dynamics. what, practically speaking, do these changes mean for the snb? since the financial

thomas jordan : funding mortgages – securitisation and pfandbriefe in the light of the financial crisis summary of a speech by mr thomas jordan, member of the governing board of the swiss national bank, at the annual general meeting of the pfandbriefbank schweizerischer hypothekarinstitute, zofingen, 15 may 2008. the complete speech can be found in german on the swiss national bank ’ s website ( www. snb. ch ). * * * the funding of mortgages is the focal point in discussions on the causes of the international financial crisis. the massive credit expansion in the us, particularly in the area of sub - prime mortgages, reinforced and prolongued the us real estate bubble. from mid - 2007, the value of financial products backed by sub - prime mortgages declined substantially, leading to heavy losses on the part of banks and investors. the problems encountered with these financial products gave rise to discussions on the future of mortgage funding. the danger of such discussions is that the problems inherent in different instruments could be confused and their economic benefits overlooked. three different refinancing instruments can be differentiated : pfandbriefe, mortgage - backed securities ( mbs ) and structured securitized products. common to all three is that they make it possible to refinance mortgages, and ease the process. however, they differ with respect to risk transfer. while the credit risk remains with the bank when refinancing via pfandbriefe, it is passed on to the investor in the case of mbss and structured securitized products. in mid - 2007, serious problems with structured products backed by sub - prime mortgages put an abrupt stop to the boom in securitisation. false incentives, inadequate control mechanisms, shortcomings in the rating system and insufficient personal responsibility on the part of investors were the main criticisms aimed at securitisation practices. what is important now, is to correct these deficiencies, so that the trust of market participants in these products can be restored. it would be wrong to ban the securitisation of mortgages, since these refinancing instruments generate substantial economic benefit and are an indispensable part of our modern financial system. the mortgage securitisation weaknesses revealed in the financial market crisis do not apply in the case of the swiss mortgage bond. consequently, it should definitely have the potential to