The International Organization of Securities Commissions has published the “IOSCO Securities Markets Risk Outlook 2016,” examining key trends in global financial markets and their potential risks to financial stability.
The forward-looking report focusing specifically on issues relevant to securities markets and on whether these may be, or could become, a threat to the global financial system. For this edition, the scope goes beyond financial stability to also include IOSCO’s two other key objectives: investor protection and market efficiency. The report highlights the importance that IOSCO attaches to pre-emptive work on analyzing and detecting emerging risks in securities markets, which are playing an increasingly bigger role in financing the global economy.
The analysis draws upon input from experts in the markets, the academic world, and the regulatory community through interviews, research reports and an survey conducted in March and April 2015. It is intended to compliment the risk identification work of other global organizations, such as the Financial Stability Board and the International Monetary Fund.
Corporate bond market liquidity: The expansion in corporate bond primary markets has raised some concern about whether the secondary market structure will withstand periods of market stress going forward. The outcome of the analysis of the available data is nuanced and further data gathering should shed more light.
Risks associated with the use of collateral in financial transactions: Collateral is playing a growing role in financial markets. Services such as collateral optimization, collateral transformation, collateral arbitrage, re-hypothecation and reuse will continue to increase. These collateral management activities may have inherent risk transfer as part of their make-up, lead to greater market interconnections, have greater asset encumbrance (in some circumstances) and may create the potential of risk concentration in those participants that provide such services.
Harmful conduct in relation to retail financial products and services: Harmful conduct can appear in many different forms. A frequently cited case involves the mis-selling of unit-linked products and structured retail products.
Cyber-threats: In securities markets, cyber threats have increased in frequency, sophistication, and complexity over the past few years, and have become a systemic risk. Securities markets regulators around the world are focusing on mitigating cyber risks and increasing the cyber resilience of financial systems.
IOSCO is an international policy forum for securities regulators and is recognized as the global standard setter for securities regulation. Its membership regulates more than 95 percent of the world's securities markets in more than 115 jurisdictions.