the short - term securities market is the least integrated segment of the money market. the european commercial paper and certificates of deposit markets are segmented in several market places. but i expect that the market - led short - term european paper initiative, the step initiative, will advance integration. this initiative aims at the convergence of standards and practices through market participants ’ compliance with the step market convention. in the coming days, euribor aci and euribor fbe will formally adopt the step market convention. issuers will then be able to apply for the step label. the eurosystem has supported this private - sector initiative since its inception by acting as a catalyst. it provides technical support for the labelling process for the first two years, and the ecb produces statistics on yields and volumes for this market. let me now turn to the euro government bond market, which is another market that has achieved a very high degree of integration, as revealed by the ecb ’ s published indicators. in the run - up to monetary union, euro area government bond yield spreads converged, and since then, government bond yields in different euro area countries have been driven mainly by euro area - wide factors and news. but let me take the opportunity here to explain the relationship between financial integration and market discipline, given that this has at times given rise to misunderstandings. it is sometimes argued that the convergence in euro area government bond spreads which was seen in the run - up to monetary union is evidence that the process of financial integration may be detrimental to the functioning of market discipline, the latter being the influence exerted by markets on governments by pricing different risks of default. this reasoning, however, neglects the fact that the observed convergence in government bond yield spreads mainly reflected the closer coordination of monetary policies across euro area countries – an overall compression of risk premia also observable in other markets and outside the euro area – and the ensuing convergence of inflation expectations across countries, as well as the progressive elimination of uncertainty regarding exchange rate movements and, finally, the disappearance of intraeuro area exchange rate risk by the time the euro was introduced. since 1999, government bond yield spreads have mainly reflected differences in liquidity and in perceived credit risks, which in turn reflect the sustainability of the countries ’ fiscal positions. i will highlight two implications. first, such “ local factors ” continue to have an impact on bond yields in various euro area countries. yest, pricing differences related to credit risk perceptions do not signal

transact at the quoted price have been identified, brokers reveal their names so that they can determine if each other ’ s credit quality is acceptable and if the exposure can be accommodated within credit limits. as you see, automation of trading is limited in the otc derivatives market. trading systems for foreign exchange. among financial products, foreign exchange probably has recorded the most dramatic shifts in trading mechanisms in the last few years. the volume of foreign exchange traded through electronic brokering systems has grown rapidly and now accounts for some three - quarters of the trading in major markets. besides these systems in the interdealer market, foreign exchange dealers also have developed electronic trading facilities for customers. most bank dealers in foreign exchange have websites that allow their customers to trade electronically. electronic trading between customers does not seem to be happening, although systems reportedly are under development. despite the enthusiasm with which electronic enhancements to trading have been embraced in the spot foreign exchange market, vendors have not successfully extended their services to derivative products involving foreign exchange. a service for the trading of forward foreign exchange has attracted meager volumes, as has a service for the trading of forward rate agreements. the latter service has been hampered by its inability to offer its products in the united states. if the recommendations of the president ’ s working group were enacted, this trading system would be excluded from the commodity exchange act ( cea ), and the legal status of products offered through the service would be clear, likely enhancing its attractiveness. trading systems for swaps. development of electronic trading systems for swaps also is likely being hampered by the potential application of the cea. the cftc has raised questions about the applicability of the cea to a system that electronically matches swap trades between dealers. this system automates the functions that voice brokers currently provide in the interdealer market. participants in the system electronically indicate their desire to enter into specific transactions. other dealers can accept a transaction, or they can send an electronic message suggesting possible changes in terms. participants can execute trades only with other dealers for whom they have acceptable credit limits. the credit limits of all dealers vis - a - vis each other are loaded into the system before trading. the managers of this system believe that regulatory uncertainty about the application of the cea has slowed the growth of their business, too. potential risk - management benefits. what are the implications of these developments ( or potential developments ) for risk management? the most immediately apparent benefits spring from the changes