. i am not going to spend time discussing the causes of these events ; suffice to say that there was news of an unexpected sort, and the size of the resulting moves points to greater sensitivity in the response of markets. the ability of markets to trade without triggering major price moves was limited. that said, by the end of both days, volatility had reduced, prices had retraced a portion of their peak intra - day moves and liquidity returned. this quick stabilisation helped to limit contagion to other markets, and thus wider effects on the stability of the financial system. should we therefore be concerned? my answer to that is we should certainly be keenly interested. i agree with the conclusion of the federal reserve bank of new york that understanding the manner in which the evolving market structure is affecting market liquidity, efficiency and pricing is highly important ( potter ( 2015 ) ). this conclusion has been reinforced in the recent publication of the senior supervisors group ( ssg ) in which the pra participates ( senior supervisors group ( 2015 ) ). the ssg has concluded that “ key supervisory concerns centre on whether the risks associated with algorithmic trading have outpaced control improvements. the extent to which algorithmic trading activity, including hft, is adequately captured in banks ’ risk management frameworks, and whether standard risk management tools are effective for monitoring the risks associated with this activity, are areas of inquiry that all supervisors need to explore ”. as supervisors of almost all of the world ’ s major trading banks – through their operations in london – we can provide some helpful assessment of these events. we have observed that the balance between aggregate buy and sell orders submitted to banks ’ electronic trading systems can shift instantaneously, and sometimes violently, upon this type of occurrence. bis central bankers ’ speeches the impact is often exacerbated by the simultaneous reduction in order book depth on organised multilateral electronic trading venues. the electronic trading contribution was more evident on 15 january, as a foreign currency market event than the 15 october ( a bond market event ), reflecting the different patterns of trading in these markets. on the 15 january, the ability of banks ’ e - trading systems to hedge positions consistently through automatic risk management broke down as the necessary reference prices became discontinuous and unreliable. the algorithms of automatic trading have rules embedded in their code such that quotes are immediately pulled if there is a severe market liquidity event. moreover, the algorithms often have automatic rules

major changes in the financial system. these have, in turn, shaped the impact of the global financial crisis and its aftermath. i want now to look at the aftermath of that crisis and pick out several developments that are important for understanding current and future risks to financial stability. the first development concerns the overall pattern of activity in financial markets. while the size of global bond markets has grown rapidly, the evidence indicates that trading volumes in a number of markets have declined. bond inventories held by primary dealers have likewise reduced, bid - ask spreads have risen in the corporate bond markets, and it has become more expensive to hedge named credit risk using derivatives. a key point here is that the balance sheets of dealers active in these markets have shrunk markedly, with many fewer firms active in market - making. markets have grown, but the capacity to maintain liquidity – as judged by the market – making capacity of the major banks and broker - dealers – has declined. 4 as my colleague chris salmon recently put it, this reduction in market making capacity has been associated with increased concentration in many bond markets, as firms have become more discriminating about the markets they make, or the clients they serve. but this trend has gone hand - in - hand with a growth in assets under management, with important implications for the provision of liquidity by market makers in times of stress in those markets. ( salmon ( 2015 ) ). the second post - crisis development is the natural consequence of the severity of the crisis and its impact on real economies. the extraordinary ( by historical standards ) degree of monetary policy easing by central banks was followed by a fall in volatility in financial markets. markets appeared to come to take comfort from their own mantra of “ low - for - long ” high frequency trading is a subset of automated or algorithmic trading where the emphasis is more on the speed of execution than the complexity of the algorithm. low frequency algorithms tend to be more complex mathematically, with less emphasis on computational time. the goal to reduce execution times to small fractions of a second is the subject of michael lewis ’ book “ flash boys ” ( lewis ( 2014 ) ). the finance literature emphasises that the performance of markets in financial assets is driven substantially by changes in the wealth of the marginal investor, which is the market maker or broker - dealer ( nelson et al ( 2015 ) ). bis central bankers ’ speeches rates which in turn incentivised a “ search for yield ” ( to be clear