Catalog

	Table of Contents
p. 23 of 58 BACK | NEXT Purpose and Structure of the Toolkit Part One: Introduction and Overview Part Two: Preconditions and Infrastructure for Financial Sector Development I. Preconditions for Financial Sector Development II. Institutional and Market Infrastructure A. Insolvency B. Corporate Governance C. Financial Information D. Payment and Settlement E. Market Functioning Part Three: Financial Regulation and Supervision Part Four: Regional Financial Integration Part Five: ADB's Intervention in the Financial Sector Bibliography Glossary and List of Abbreviations Acknowledgements

Financial Sector Legal and Regulatory Toolkit : Part Two: Preconditions and Infrastructure for Financial Sector Development

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E. Market Functioning

According to the BIS Committee on the Global Financial System (CGFS) of the G-10 central banks, following financial crises over the past decade, "there seems to be a growing consensus that deep and liquid financial markets, especially government securities markets, are needed to ensure a robust and efficient financial system as a whole." Certainly, there has been an increasing amount of attention paid to debt securities markets around the world in the past several years.

While consensus has yet to develop fully, the CGFS has formulated recommendations related to one key aspect: government securities markets. The guidance contains five guiding principles which in turn are used to draw more specific policy recommendations:

1. a competitive market structure should be maintained;
2. markets should have low levels of fragmentation;
3. transaction costs should be minimized to the extent consistent with market stability;
4. sound, robust, and safe market infrastructure should be ensured; and
5. heterogeneity of market participants should be encouraged.

Based on these guiding principles, the CGFS has established five recommendations for the creation of deep and liquid government securities markets:

1. Desirability of coherent debt management strategies. An appropriate distribution of maturities and issue frequency should be ensured as a means of establishing benchmark issues at key maturities.
2. Taxation. The liquidity-impairing effect of taxes should be minimized.
3. Transparency. Transparency of sovereign issuers and issue schedules should be ensured and transparency of trading information encouraged, with due attention being paid to the anonymity of market participants;
4. Trading rules and infrastructure. Safety and standardization in trading and settlement practices should be ensured; and
5. Related markets. Repo, futures, and options markets should be developed. Central banks also have a clear role in market development and financial stability.

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