turn to the second pillar for financial sector development, namely markets. markets the development of the financial sector cannot be envisaged without the promotion of strong, well - functioning and deep financial markets. significant progress has been achieved in positioning the domestic stock market on the international financial arena. the stock exchange of mauritius ( sem ) is endowed with a state - of - the - art trading infrastructure and, as a result of its good performance, was the second african exchange after the johannesburg securities exchange ( jse ) to attain membership status of the world federation of exchanges ( wfe ) in november 2005. moreover, in about a month, on 1 october 2008, the mauritius stock exchange is scheduled to join the dow jones wilshire global index. in 2007, market capitalisation in us dollars on the sem increased by 70 per cent year - onyear, with non - residents ’ gross inward investment in the equity market registering a record high. the remarkable track record of the sem should induce the private sector to take better advantage in securing long - term funding. the amendments brought in 2007 to the securities act 2005 could give a boost to securities trading on the stock exchange. there is significant room for improvement with regard to development of fixed income markets, which have remained rather shallow and illiquid despite recent interest from foreign investors. traditionally, fixed income markets are important channels through which public and private institutions avail of financial resources for medium - and long - term projects. bond markets also constitute good investment opportunities for long - term investors such as pension funds and insurance companies. there have been a few bond issues lately – including one launched by the european investment bank – and this should be encouraged for the benefit of all stakeholders. in the light of limited success experienced with the secondary trading of treasury bills on the stock exchange of mauritius, the bank of mauritius is currently undertaking a review of the primary dealer system. the central bank is also working on the issue of benchmark bonds in collaboration with bankers. a commodity exchange, named global board of trade ( gbot ), is scheduled for launch in mauritius in january 2009 with the collaboration of financial technologies india ( fti ) ltd. this commodity exchange, which intends to trade commodities and derivative products in metals, oil and agriculture, shall take the mauritian financial system a step further by enabling better enterprise risk management and financial planning. mauritius will also seriously need to contemplate the development of full - fledged currency futures in the near future – that would assist in formation and

the hierarchy of claims in some member states, while in others the deposits rank alongside any other senior unsecured creditor of the bank in insolvency. this may imply different treatment of depositors depending on the location of their deposits and lead to further market fragmentation. introducing harmonised depositor preference for eligible deposits in the eu would lower the risk of bank runs as it reduces the incentive for uninsured depositors to withdraw deposits. in addition, it would aid the resolvability of banks, since it avoids the cumbersome task of splitting the eligible deposits into covered and uncovered parts. it would also enable uninsured deposits to be transferred or sold along with the insured deposits and thus increase the franchise value of the bank under resolution and its essential parts. nevertheless, it should be acknowledged that depositor preference may lead to increasing secured lending and decreasing maturity of the funding of banks. however this can be limited ( i ) by introducing a minimum requirement for bail - in - able instruments, calibrated to provide an adequate buffer of loss absorbency as foreseen in the draft eu framework ; as well as ( ii ) by the introduction of the net stable funding ratio that banks will have to fulfil. another argument often raised against deposit preference is that it may also raise the cost of senior unsecured funding for banks. this is a discussion that we need to take seriously. however i would make here two observations. first, one has to recognise the change in the liability structure of banks that is brought about by the deleveraging of the system. with generally lower loan to deposit ratios in the future relative to the pre - crisis period, and a clearer priority ranking of bank creditors, the role of senior unsecured wholesale funding for banks has evolved and will likely continue to evolve. if we accept that a smaller and less leverage banking system is desirable, then this evolution is not to be feared or resisted. second, the overall effect on funding costs of banks is not straightforward, given the potential offset provided by cheaper deposit funding. currently, more than half of the g20 countries already have depositor preference, among them the us, with no appreciable cost difference to banking systems without depositor preference. furthermore, deposit preference can in principle reduce the probability of default of financial institutions. depositor preference could further strengthen the incentives of unsecured creditors to exercise more effective discipline over banks ’ risk - taking. this implies that while the loss given