The experience with banking crises and the loss of access to international capital markets during the Asian crisis of the late 1990s led some observers to argue that emerging markets should develop local securities markets in order to provide a more stable source of funding for the sovereign and corporates. This chapter is the first of three studies that the Global Financial Stability Report will provide on the potential contribution that local securities markets could make to ensuring greater financial system stability. This chapter examines the factors that have influenced the contribution of emerging equity markets to financial sector stability—forthcoming issues will analyze local bond markets, which have played a relatively important role in recent years, and the emergence of derivative markets in selected countries, as well as the main policy issues associated with the development of local securities markets as a complementary source of funding to banks and international capital markets.