Risk management is the process of analyzing exposure to risk and determining how to best handle such exposure.
Risk management can also be described as the culture, processes and organization that helps a business to evaluate risk, assess its potential impact and plan the appropriate action to take in order to avoid or control risk by the most economical means. It is not possible or desirable to eliminate all risks, the objective is to implement cost effective processes that reduce risks to an acceptable level, reject unacceptable risks, and transfer other risks through insurance and other means.

Risk management is recognised as an integral part of good management practice.
Risk management is the term applied to a logical and systematic method of establishing
the context, identifying, analysing, evaluating, treating, monitoring and communicating risk
associated with entire system of securities trading.

Risk management is one of the top priorities of the ISE administration. ISE ensure risk management at different levels and introduced the following measures:
 

·        The requirement of Net Capital Balance has been enhanced by 10 times to Rs. 2.5 million for KSE, Rs. 1.5 million for LSE and Rs. 0.75 million for ISE. The definition of net capital balance is redefined to make it more realistic. (Rules of Net Capital Balance Certificate)

·        The Members are required to maintain a capital adequacy ration, which is 25 times of their net working capital. The exposure must not exceed 25 times the net capital employed.

·        The members ability to trade up to Rs. 50 million without margin was abolished and all exposure are now subject to margin.

·        Investor protection fund and clearing house protection fund had been established on the directive of SECP.

·        The undisclosed market system has been introduced.

·        The trading cycle is reduced to T+3 net settlement system from T+7 days.

·        Blank selling is abolished.

·        Regulations for short selling in the ready market are introduced.