The total value traded in Canada’s equities marketplace reached $4.2 trillion as at Dec. 31, 2023, a 10 per cent decline from the previous 12-month period, according to a new report by the Canadian Securities Administrators.

It found Canada’s equities marketplace faced a challenging market environment in 2023 caused by higher interest rates and tighter monetary conditions.

Read: Rising bond yields, frontier markets top of mind for institutional investors in 2024: expert

Despite the higher interest rate environment, it noted there hasn’t been an adverse impact to the bond market. Indeed, since 2021 estimated bid-ask spreads have risen for corporate and government bond trades within the institutional bond market. The higher inflationary environment has caused bond yields and the Bank of Canada policy rate to rise, while credit spreads remained relatively tight.

Canadian mutual funds saw their assets under management increase to C$1.9 trillion as at November 2023, thanks to attractive yields in fixed income markets, the report said. However, it noted due to “an increasingly uncertain economic outlook,” these funds have seen net outflows since the start of the year. It added liquidity risk is relatively low for mutual funds, but there’s a possibility there will be spikes in liquidity pressures from ongoing economic uncertainty. Similarly, prospectus-exempt funds, which invest in private assets and largely rely on institutional investors, are facing greater risk from hefty outflows from changes in investor sentiment.

Volatility in the cryptocurrency asset marketplace continues despite reaching a market capitalization of US$1.7 trillion in 2023, thanks to a value jump of 116 per cent compared to the previous year. Interconnectedness, funding liquidity, redemption and operational risks were the key drivers for increased volatility in the digital asset space, the report said.

“We think that the report will contribute to the securities regulators’ perspective on potential vulnerabilities in Canadian financial markets, as well as complement the work of other provincial and federal regulators and agencies,” said Stan Magidson, chair of the CSA and the Alberta Securities Commission’s chair and chief executive officer, in a press release.

Read: Regulators consult on Canadian crypto platforms