is that this is an area which is deserving of greater discourse. evaluating the effects of the banking reforms will be a key exercise. one set of issues revolve around whether the reforms are having the intended outcomes or, on the other hand, whether there are unforeseen and undesirable effects. this will involve an assessment of banks ’ behavioural responses, whether there are new forms of arbitrage strategies, and the spillover effects on the broader economy. cross - border lending to developing economies one example relates to the impact on cross - border lending to developing economies. there are studies that indicate that some global banks have reduced their presence and activities in developing economies as part of their business review, and some have attributed this to the banking reforms. establishing a clear, causal link between the declining trend in crossborder bank loans to developing economies and the post - crisis reforms will be helpful, if possible. such investigations can support the basel committee ’ s work on a full, timely and consistent implementation of the reforms globally. the increasing role of market - based finance in credit provision the decline in bank inflows to developing economies has been partially offset by these 2 / 5 bis central bankers'speeches economies relying more on market - based finance, or non - bank financial intermediation. in my view, this is a positive development since a more diverse funding system comprising bank - based finance and market - based finance can possibly better meet the changing needs of the real economy. 17 but the increased prominence of market - based finance has also led to some concerns that large redemptions from open - ended funds can potentially pose liquidity risks and hence destabilise financial markets. international organisations and standard - setting bodies such as the financial stability board ( fsb ), international organisation of securities commissions ( iosco ) and basel committee have sought to assess the potential financial stability risks posed by market - based finance. the fsb, for example, developed a set of policy recommendations to address structural vulnerabilities of open - ended funds, and iosco is reviewing these recommendations. 19 there can be other related areas that merit further investigation, including from academia. for example, the interaction between market - based finance and traditional asset management activities, and the effect on underlying markets in which these are invested. evaluating the impact of macroprudential policies a key element of the basel iii reforms is its macroprudential framework to assess new system - wide risks and the use of a counter

just this month, it was reported that the new york stock exchange may enter the derivatives market too. hardly a week passes without press reports of strategic moves by the exchanges. securities exchanges have not been spared from the competition. london stock exchange ( lse ) will launch its dutch trading service, eurosets, in may this year. this will allow the most liquid stocks listed on euronext - amsterdam to be traded through lse. this bold move is being watched closely by the industry, and may challenge conventional wisdom on the contestability of stock exchange liquidity. the outcome of these contests could significantly alter the competitive landscape for exchanges in the next few years. key drivers of consolidation and competition one key driver behind the consolidation and competition is technology. exchanges and clearing houses are very much technology businesses today. trading pits have given way to electronic trading engines in many jurisdictions. central counterparties can no longer operate without sophisticated it - based risk management systems. technology has allowed exchanges to offer different types of instruments - equities, bonds, futures and options - on a single platform. it has enabled improvements in risk management processes, and open access by participants and alliance partners. the cost of investments in technology, however, is high and can only be justified if it is supported by a large volume of trades. shareholders will also demand that these exchanges earn competitive returns on their investments in technology. small exchanges will thus, find it difficult to make the necessary investments to compete. this has been a key driver behind the formation of mega - exchanges, and will continue to fuel their drive for expansion. another key driver is the need for economies of scale. exchanges and clearing houses thrive on liquidity and scale. the likelihood of a cost efficient execution of a trader ’ s order is higher the larger the pool of traders on the same platform. similarly, in the case of clearing houses, the benefits of netting and the efficiency of collateral management are greater the larger the number of counterparties using the facility. the pressure to seek economies of scale and competitive returns is accentuated for demutualised exchanges. implications for regional exchanges exchanges in this region are unlikely to be insulated from competitive pressures for long. analysts are of the view that the cost of competition will drive greater consolidation in the u. s. and europe. once this wave of growth opportunities mature, the mega - exchanges will look to asia as the next frontier of growth. regional exchanges need to gear up for the competition and find ways of staying relevant to the international