The International Organization of Securities Commissions (IOSCO) has published its Securities Market Risk Outlook 2014-15 (Risk Outlook).

The Risk Outlook seeks to identify and assess potential systemic risks in or related to the securities markets. The potential risks identified include:

• risks in central clearing. The Risk Outlook notes that the systemic importance of central counterparties (CCPs) has grown. CCPs have developed business models and risk management procedures that have proved robust so far. But as their business becomes more complex, and as market volatility eventually returns to higher levels, these models and procedures may come into question because of: (i) the inherent pro-cyclicality of margin calls and the widespread use of similar risk management models; (ii) the varying levels of capitalisation of CCPs to withstand the failure of clearing members and the impact of non-default losses on the operational viability of a clearer; and (iii) the acceptance of collateral of varying quality, which are risk related to the investment policies of the CCPs;
• the increased use of collateral and risk transfer. The Risk Outlook notes that re-hypothecation and collateral transformation practices are sometimes off-balance sheet. This lack of disclosure makes it hard to assess these activities and can contribute to risk in the financial system; and
• governance and culture of financial firms. The Risk Outlook mentions that risks related to corporate governance may build up in the financial system, signalling the need for regulators to better understand how corporate incentives and internal structures contribute to generating those risks.

View IOSCO Securities Markets Risk Outlook 2014-2015, 1 October 2015