Microstructure of financial and money markets: lessons learned from the conference held in Paris on 6 and 7 June 2006

The characteristics of trade and the efficiency and stability of markets depend on how such markets are organised. Market microstructure, which analyses this linkage, is an area of research that has grown extremely rapidly over the past years. However, progress has essentially been made with regard to financial markets. The few articles devoted to the money market are either descriptive (and most often applied to the case of the United States), or based on data whose frequency is insufficient to capture certain stylised facts. For central banks, it is essential to have a good understanding of the practices and the organisation of financial and money markets, in particular the way in which they respond to monetary policy impulses. From a financial stability perspective, an in-depth understanding of market practices makes it possible to identify new categories of risk, such as short-term risk. In June 2006, the Banque de France organised in partnership with the Center for Research in Economics and Staistics (CREST) and the Europlace Institute of Finance (EIF), a conference on the microstructure of markets, and notably that of money markets. This conference brought together researchers from central banks, French and foreign universities and renowned research centres. Robert Engle (New York University, Nobel prize 2003) and S. “Vish” Viswanathan (Duke University) presented two invited conferences, and Thierry Foucault (HEC Paris), Joël Hasbrouck (New York University) and Suresh Sundaresan (Columbia University and Federal Reserve Bank of New York) participated in the closing roundtable. The discussions spanned a wide variety of topics that have attracted much attention over recent years: risk measures, the quality of financial markets, the structure of financial and money markets, etc.