impede the effective operation of markets, causing severe systemic disruptions and financial instability. financial market infrastructures went largely unnoticed until the global financial crisis broke, and although they performed well through the crisis, it was only then that an appreciation was found for the true importance of such infrastructures, reflecting the fundamental role they play in ensuring financial stability. with this in mind, in april 2012, the committee on payment and settlement systems at the bank for international settlements ( cpss ) and the international organization of securities commissions ( iosco ) published new international standards for payment, clearing and settlement systems, including central counterparties. the main objectives of the new principles are to ensure a robust global financial market infrastructure, which if faced with the financial shocks of the magnitude experienced in 2007 / 2008, will continue to operate effectively. these new standards are tougher and are due to be adopted by cpss and iosco members by the end of 2012. however, i note that the next session will be dealing specifically with this issue, insofar as it pertains to south africa and our state of readiness, and so i will refrain from going into any further detail. 4. financial market infrastructure developments in south africa it is important to indicate at the outset that financial market infrastructures in both the payment and securities markets require a collaborative approach from all the stakeholders. clearing and settlement processes in both these areas involve the interaction of various parties, including participants, infrastructure providers and regulatory authorities, who all have an important role to play. as early as 1993, discussions were initiated between the south african reserve bank ( the bank ) and the banking industry to modernise and develop the domestic payment system. in this process, a strategic approach for the development of the payment system was adopted and meetings were held at different levels with various stakeholders, which culminated in the publication of the framework and strategy document for the national payment system ( commonly known as the “ blue book ” ), in 1995. the blue book bis central bankers ’ speeches outlined various strategies envisioned for the payment system over the next ten years, leading up to 2005. the strategies addressed various aspects of payment system reform that had been identified, as well as the establishment of key pillars of the desired financial market infrastructures and appropriate supporting arrangements. one of the strategies, for example, relates to the establishment of a sound legal framework which culminated in the promulgation of the national payment system ( nps ) act in october 1998. a review completed in 2003, revealed that all

came much later only recently – was when donald kohn, former vice chairman of the us federal reserve apologized by saying, “ the cops were not on the beat, resulting in the worst economic recession and loss of millions of jobs ”! at the end of the day, the problem is not not knowing the problem, but knowing it and dithering, agonizing over choices, temporizing, procrastinating and doing nothing credible, timely, tangible and decisive about it. in other words, in my considered opinion, we don ’ t really have to rethink capitalism and globalisation, for paraphrasing john ruskin, what finally matters is not knowing what must be done but actually doing what must be done and doing it when it must be done!! 2. the cataclysmic financial crisis has thrown into sharp relief, as never before, the critical and important role of “ asset price ” inflation / asset bubbles also, as opposed to that of shop floor / products / services inflation alone, as a key variable, in monetary policy response. for what happened was unprecedented in that with monetary policy focused only on traditional cpi, interest rates were kept low in spite of exploding prices of assets like real estate / property, credit assets, equity and commodities. and this was all made possible because of the huge pre - crisis current account surpluses in china and other emerging market economies ( emes ), and huge private capital inflows into emes in excess of their current account deficits, getting recycled back as official capital flows into government bonds of reserve currency countries, especially the usa, resulting in compression of long term yields which, in turn, translated into lower long term interest rates even for the riskier asset classes mentioned above. this chasing of yield, due to global savings glut, in turn, led to a veritable credit bubble, characterized by unprecedented underpricing of risk as reflected in the all - time - low risk premia with junk bonds spreads becoming indistinguishable from bis central bankers ’ speeches investment grade debt! such a low interest rate environment coupled with luxuriant supply of liquidity, created enabling environment for excessive leverage and risk taking. this financial syndrome was a classical case of “ too much ” and “ too little ” – too much liquidity, too much leverage, too much complex financial engineering, too little return for risk, too little understanding of risks ”. this syndrome of too much of arc