. 8 there is an additional positive point. electronic trading enables faster information propagation. arbitrage trades between individual equities and between markets have increasingly been conducted automatically and at lightning speeds using algorithms. this is likely to boost the efficiency of the financial market and the allocation of scarce resources. 4. three challenges posed by electronic trading although the expansion of electronic trading has brought many positive effects, as noted, it also has its own negative side with respect to the proper functioning of financial markets. there are three crucial issues. the first issue is market vulnerability induced by the presence of electronic trading. in particular, algorithmic trading is vulnerable to unpredictable events. on may 6 of this year, the so - called flash crash caused a violent fluctuation in prices over some ten minutes in the u. s. equity market. the u. s. commodity futures trading commission and the securities and exchange commission carried out a joint investigation into the incident. 9 their joint report pointed out that, at the start of the flash crash episode, one algorithm ’ s automated execution of a very large sell order confused and dislocated other algorithms. as a result, many market participants, whether algorithmic or human, refrained from buying, and thus market liquidity decreased sharply, leading to unusual turbulence in several stocks. some algorithm - based arbitrage trades contributed to spreading this market seizure to a wide range of individual stock prices, leading to the full - blown flash crash. although algorithmic trading may contribute to market stabilization in normal times, this may not be the case when unexpected events or unknown unknowns occur. mechanistic algorithms may not be able to respond properly to unexpected and unprecedented events in the same way as humans, who have common sense. in such circumstances, the human brain performs better than the digital computer. thus, a mutually complementary relationship between algorithms and humans is absolutely crucial. in particular, safeguard should be considered, such as circuit breakers compatible with high - speed algorithmic trading. the japanese equity market has not been immune from this type of market disruption. there have been several instances caused by large but erroneous orders that were filled instantly. learning from these incidents, japanese brokerage houses are now required to refrain from placing orders that exceed a threshold amount, to prevent the execution of mistaken orders. 10 moreover, a new market safeguard has been introduced which is compatible with high - speed trading. just in time for arrowhead ’ s launch, the tokyo 7 stock exchange instituted a new trading

usha thorat : banking in the hinterland keynote address by ms usha thorat, deputy governor of the reserve bank of india, at the conference on “ banking in the hinterland ”, organised by the indian banks association and rural marketing agencies association of india, mumbai, 14 february 2007. * * * ladies and gentlemen, it gives me great pleasure to be here this morning to share my thoughts on banking in the hinterland. the theme of my talk today is that there is a huge business opportunity in banks going rural. rural banking has great potential if banks adopt appropriate approach and suitable strategies – scale up their business levels, achieve capacity utilisation and devise innovative ways to cater to the typical needs of the vast rural sector. i will divide my address into three parts. in the first part, i shall describe the rural urban divide in banking. in the second part, i will describe some changes that are happening in the rural sector. finally, i will try and elaborate on the kind of strategies that could be considered for banking in the hinterland. part – i : the rural urban divide analyses of certain indicators of banking penetration of scheduled commercial banks in the country, including rrbs, amply testify to the rural urban divide existing in their operations / business, as will be seen from the following : average population per branch office ( appbo ) the average population served per branch office is an important indicator of banking penetration. the trend in this indicator ever since the last decade is as under : while the population per branch has decreased for urban areas, the same has increased for rural areas indicating that branch expansion has not kept pace with the population increase in the rural areas. number of accounts per 1000 population the number of deposit ( current plus savings ) and credit accounts per thousand population is given below : it is seen that the deposits ( current plus savings ) accounts per 1000 population in the rural areas as a whole, is about sixty per cent of the urban areas. north eastern states, orissa bihar and chattisgarh have particularly low ratio. similar position is generally evident even in terms of credit accounts per 1000 population. however, southern states are relatively better off in this regard ( annex 1 and annex 2 ). number of accounts per branch the number of deposit and credit accounts per branch in the rural areas is generally lower than the position in urban areas as shown under : outstanding balances per branch the deposits and credit outstanding per branch also reflect the rural urban divide. it is seen that deposits