The rise of computerized trading and the changing roles of big banks are reshaping financial markets and potentially raising new vulnerabilities, U.S. regulators said in their annual report on financial-system threats.
The Financial Stability Oversight Council—a group of senior officials including the heads of the Federal Reserve and the Securities and Exchange Commission—also pointed to emerging risks from clearinghouses, a group of middlemen firms that have become a crucial part of market infrastructure.
The concerns about market structure and what are known as central counterparties were new to the council's annual report, the fifth since the body was formed by the 2010 Dodd-Frank law, and they reflected officials' focus on how technology and regulations are changing the functions and vulnerabilities of financial markets.
"We must continually look ahead to new risks," Federal Reserve Chairwoman Janet Yellen said at the council's meeting Tuesday. While the council's report "documents the continued improvement in the strength and resiliency of the U.S. financial sector," she said, "Our job is not done."
Ms. Yellen and other regulators said they were aware of concerns among market participants that liquidity, or the ability of investors to buy and sell securities quickly, could deteriorate in today's markets, given changes like the rise of electronic trading and new regulations that affect banks' willingness to buy and sell securities. Regulators will publish a report in the coming weeks on unusual volatility in U.S. Treasury markets Oct. 15 of last year—an event they have been examining for months.
The oversight council also cited the rise of rapid-fire electronic trading as a potentially destabilizing factor, saying it has tied disparate parts of financial markets more closely to one another, "possibly amplifying price movements in periods of market stress." More broadly, SEC Chairman Mary Jo White has expressed concern that the complex, fragmented nature of financial markets can fuel instability.
The council didn't recommend any specific action in response to its concerns about liquidity or market structure other than recommending regulators collect and share more data.
Treasury Secretary Jacob Lew, who heads the council, said, "regulators must remain vigilant and work to better understand potential effects on market functioning and the provision of liquidity."
With regard to central counterparties, regulators appear closer to taking action, though Tuesday's report didn't contain specific recommendations for new rules. Central counterparties, such as Intercontinental Exchange Inc. and CME Group Inc., stand between two parties to a financial transaction and are supposed to help prevent a marketwide panic by ensuring either party in a financial transaction gets paid if the other side falters.
Regulators say the growing role of these entities makes markets more transparent and stable, but they have also been speaking out publicly about the need to ensure that the centralized clearing of derivatives and other contracts doesn't prove to be a curse rather than a blessing. The concern is that, if a clearinghouse or some of its largest members began to collapse, it could threaten the entire financial system.
Separately, some big banks and asset managers that are members of major clearinghouses—and could be on the hook to cover their liabilities—have also pushed for boosting the entities' resilience.
Mr. Lew said regulators looking at central counterparties should focus on cybersecurity, stress testing and planning for the entities' potential failure. Ms. Yellen and Timothy Massad, chairman of the Commodity Futures Trading Commission, said they were evaluating additional rules for the central counterparties.
"We have done a lot of work in this area. There is a lot more to do," Mr. Massad said.
Clearinghouses say they already face stringent regulation. CME Executive Chairman and President Terrence Duffy told lawmakers earlier this year the existing regulatory framework "does not need fixing."
Broadly, the council found the threats to financial stability are moderate and the financial system is stable. But the regulators also called out a number of risks they have highlighted in the past, including coordinated action to deal with hacker attacks and a "national plan" for the financial sector and its overseers to respond to cyberthreats.
The council once again warned about risk-taking that could expose banks, pension funds, insurance companies and other firms to a sudden increase in historically low interest rates.
Regulators also continue to fret about risky activity moving outside their reach. The report said, for instance, that limits on bank loans to highly indebted companies—known as leveraged loans—could simply create a market for less-regulated firms to provide them.
The council nodded to the rise in digital currencies, saying, "at this time, digital currencies do not appear to pose financial stability concerns" but they "warrant continued monitoring."
The report said the council is examining how bond mutual funds and exchange-traded funds, whose holdings have grown in recent years, would react to market stress. Separately, the council is examining risks from the asset-management industry on a broad scale, though it hasn't drawn any conclusions, and Tuesday's report didn't contain any recommendations on that front. The fund industry has said concerns that they pose a risk to financial stability are unfounded.
—Andrew Ackerman contributed to this article.
Write to Ryan Tracy at ryan.tracy@wsj.com
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