The Research Department of the International Organization of Securities Commissions (IOSCO) today published a Staff Working Paper entitled A Survey of Securities Markets Risk Trends 2014: Methodology and Detailed Results, which provides a detailed analysis of responses to its annual survey on market trends and emerging risks.
The views expressed in this Staff Working Paper are solely those of the IOSCO Research Department and do not necessarily reflect the views of IOSCO or its members.
The survey is an annual exercise formulated to collect the views of financial market regulators and experts globally on emerging trends that are or could be of concern. This edition of the survey was conducted in March 2014 and is based on some 200 responses. The main purpose of the survey is to gather views on emerging trends within securities markets and to help identify or highlight pockets of risk that may not be captured by normal statistical analysis or desk research. It is not an attempt to rank risks through a survey. This is the third year that IOSCO Research Department has conducted this particular exercise.
The working paper offers a synthesis of expert opinions. The main areas identified are:
- Issues considered “macro-prudential” in nature are high among the concerns of respondents, especially in the areas of banking vulnerabilities and capital flows.
- More micro-prudential risks clustered around the areas of corporate governance, financial risk disclosure, shadow-banking activities and, especially, regulatory uncertainty.
- Responses differ by the type of respondent: Regulators see risk emanating from illegal conduct, corporate governance, financial risk disclosure and benchmarking issues, while market participants are more concerned with risk arising from the search for yield, resolution and resolvability plans, central counterparties (CCPs) and market fragmentation.
- Respondents saw very few “risks” sourced within securities markets. The role of securities markets with regard to risk was more likely to transmit and/or amplify shocks from outside than to originate risk.
- Respondents thought the fallout from banking vulnerabilities and capital flow volatility could have considerable consequences for the real economy. Concerns about trends in the housing market continue to increase.
- Over time some risk areas have attracted more attention while others have lost prominence. Sovereign debt and the global economic slowdown were leading concerns two years ago, but have declined significantly in importance as developed economies slowly return to economic growth. This shows how quickly the perception of risks can change.
- The impact of cross-border capital flows, financial risk disclosure and CCPs s has drawn more attention between 2013 and 2014.
- However respondents have repeatedly and consistently cited three trends as major concerns in all three annual surveys: regulatory uncertainty; banking vulnerabilities; and volatile capital flows.
- Other noteworthy trends include an increase in the recognition that cybercrime or cyber‑related issues could be a threat to systemic stability; financial risk disclosures and resolution and resolvability frameworks.
Background to the Report:
Following the outbreak of the current financial crisis, IOSCO adopted a new strategic direction that emphasised the need for securities regulators to identify, monitor and manage systemic risks. To that end, IOSCO established a research function comprised of a Research Department at the General Secretariat and the IOSCO Committee on Emerging Risks (CER). Monitoring risk is critical to fulfilling this function. The results of this survey are one input to the annual production of the IOSCO Securities Market Risk Outlook, which will be published in late September 2014.
The IOSCO Research Department Staff Working Papers series can be found at http://www.iosco.org/research/?subSection=staff_working_papers.