Liquidity In The Main Stock Markets

Investors face a “painful” adjustment in a world of evaporating liquidity and higher US interest rates that will trigger huge market swings with potentially catastrophic consequences, the Institute of International Finance has warned.

Timothy Adams, the chief executive of the IIF, which represents the world’s biggest banks, described liquidity as the “top issue” at high level meetings of central bankers, chief executives and other financial institutions.

He warned that the raft of regulation introduced in the wake of the 2008 crisis could potentially cause market gyrations larger than last October’s “flash crash” in US Treasuries.

While Mr Adams supports tougher rules that have made the banks more resilient, he said a complex web of regulatory reform may have left banks less able to respond to the next crisis.

“There’s just less capacity for making markets,” he said. “Officials will say: we expect some volatility and this was part of this broader scheme of regulatory reform. But for the private sector there is this issue of: is the total effect of all of these various regulatory changes likely to produce outcomes larger than each individual regulatory reform and its consequences?

"The cumulative unintended could end up being much larger than the one-off intended - we just don’t know.”

The European Stock Echange is an Exchange that does not trade stock, a subtle but small difference in todays markets that allows Investors to sit along side Investors and traders to sit along side traders. The gap between these two is cause of the above effect.

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