Bank for International Settlements, CGFS Publications No 52 – November 2014 – “Market-makers serve a crucial role in financial markets by providing liquidity to facilitate market efficiency and functioning. This report – prepared by a Study Group chaired by Denis Beau (Bank of France) – assesses changes in the supply of and demand for market-making services as well as their potential impact on fixed income markets. These markets are of particular interest to policymakers, given their relevance to monetary policy and financial stability.  The Study Group identifies signs of increased liquidity bifurcation and fragility, with market activity concentrating in the most liquid instruments and deteriorating in the less liquid ones. Drivers are both conjunctural and structural in nature. While it remains difficult at this stage to provide a definitive overall assessment, it seems likely that the compressed pricing of immediacy services observed in the past will give way to liquidity premia more consistent with actual market-making capacity and costs. Several supporting initiatives, such as strengthening liquidity risk management, improving market transparency and monitoring or adjusting incentive schemes for market-makers, would help making this outcome more likely and would support the robustness of market liquidity. Regular liquidity-providing activities by central banks, in turn, can provide an important backstop. Considering other, more direct measures by central banks to support market functioning, however, involves several difficult cost-benefit trade-offs.”