The purpose of market supervision by the Bank of Italy is to ensure the overall efficiency and orderly conduct of trading: this strengthens the effective transmission of monetary policy impulses, and helps to limit systemic risk and safeguard the stability of the financial system.
These principles are embodied in a series of parameters to which the Bank of Italy pays constant attention:
- Price formation processes, which must be able to rapidly incorporate all the available information;
- Fair and non-discriminatory access to trading opportunities for all investors;
- Ease of identification of buyers and sellers, even for high-value orders;
- Measures that discourage and potentially sanction improper conduct by intermediaries.
A properly functioning market is one based on technology participants can rely on and with good liquidity. This means, among other things, having:
- A robust technological infrastructure, capable of managing large volumes of orders and of promptly restoring functionality in the event of technical problems;
- Rules and trading mechanisms capable of ensuring that even the execution of very high-value orders does not have a significant impact on prices.
To ensure the overall efficiency and orderly conduct of trading, the Bank of Italy operates according to the following three main guidelines:
- The supervision of wholesale market companies should ensure that they have solid capital structures, that they are adequately safeguarded against risks, and managed by persons of proven integrity. The controls are carried out:
- remotely, by examining the company documentation and organizing meetings with top management;
- on-site, with periodic inspections at company premises.
The verification of deficiencies or irregularities are followed by supervisory actions proportionate to the gravity of the irregularity, ranging from an informal reminder to heavy administrative sanctions.
- The daily monitoring of activities carried out on the supervised markets should rely on direct, real-time, access to trading data flows, allowing supervisors to rapidly detect anomalies in transactions and to quickly intervene in the event of potential threats to market integrity. The effectiveness of monitoring is guaranteed by constant interaction with market managers, with whom any malfunctions are promptly discussed and the necessary interventions made.
- The periodic analysis of the structural evolution of the market should assess the efficiency and solidity of the microstructure adopted by the market managers, how the conduct and strategies of operators evolve over time, and the potential risks to financial stability. This analysis benefits both the other authorities (specifically the Ministry of Economy and Finance and Consob), with which there is ongoing and intensive cooperation, as well as the entire financial community, which can draw on the studies published by the Bank of Italy in specific publications or in its periodic financial stability reports.