Systemic risk in securities markets

George A Walker, Centre for Commercial Law Studies, Queen Mary, University of London.

More traditional approaches to market regulation have assumed that wider systemic threats will generally only arise in the banking markets due to underlying credit risk and the maturity transformation process in medium- to long-term lending using sight or demand funds. Security-related risks including, in particular, market risk as well as interest rate risk in bond markets and foreign currency risk are recognised. In the event of any major difficulty, securities firms can nevertheless dispose of their shares, bonds or other instruments in liquid form or over-the-counter (OTC) markets which has generally been considered sufficient to avoid any significant systemic threat arising in the securities markets.