CHAPS banks have oodles of liquidity and are not afraid to use it, as quantitative easing has meant banks accumulated unprecedented quantities of reserves. And in this liquidity-abundant world, banks are less likely to be concerned with how well they use tools for liquidity saving in the Bank’s Real-Time Gross Settlement (RTGS) infrastructure. And besides, the timings of liquidity-hungry payments are stubborn. They can’t always be retimed to optimise liquidity usage, and this means that the potential for liquidity savings in RTGS from the Bank’s Liquidity Savings Mechanism (LSM) is limited.
Continue reading “Saving Liquidity in a Liquidity-abundant World: Why don’t banks use less liquidity when making high-value payments?”
It’s been a while now since high-frequency-trading (HFT) made its debut in the financial market landscape. Initially, little was known about it and regulators and market participants alike were naturally concerned about its potential impact on markets. Nevertheless, over the past few years we have learned quite a bit more about HFT. So what’s the deal with HFT? This short blog post briefly describes the evolution of HFT, summarizes the current understanding of the impact of HFT on market quality and highlights some aspects of HFT activity that are still contentious. Regardless, I believe, the inescapable conclusion that so far emerges is that HFT has mostly had a positive impact on market functioning.
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