The Canadian Securities Administrators (CSA) has published its 2023 review of systemic market risk in the Canadian capital markets, The 2023 Annual Report on Capital Markets (the Report). The Report is the regulator’s analysis of recent financial market trends and key vulnerabilities in Canadian capital markets.

Overall, the CSA believes the risks to financial stability in Canadian capital markets are well contained.

Key take-aways include:

  • Bond market: The higher rate environment has not adversely impacted bond trading activity, notes the regulator. Bond turnover and other key liquidity metrics remained within normal ranges. However, the CSA reports the overall credit quality profile of Canadian non-financial corporate bonds declined somewhat.
  • Crypto assets: The CSA observes that crypto asset market remains volatile and unstable. However, the regulator notes links between the crypto asset and traditional financial sectors appear limited.
  • Dealers: The CSA says that the failure of a large dealer could have broad repercussions due to a high degree of connectivity between large dealers and other market participants. However, the regulator notes that “appropriate measures to prevent failures” are in place and leverage levels remain relatively low.
  • Investment funds: On the whole, the regulator reports that fund liquidity risks are low and well managed. However, it notes that exempt funds investing in private assets – such as private debt, private equity, and private real estate – have reported liquidity mismatches and these pressures might increase should the economic climate deteriorate. The good news, the CSA notes, is that exchange-traded funds have demonstrated resilience during what the regulator termed as “recent episodes of economic stress.”

The 2023 Annual Report on Capital Markets is available for download from the website of the Canadian Securities Administrators.

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