Abstarct: In this study, a System Dynamics-baxsed model was developed and evaluated to analyze the impact of systemic risk on the development of the Iraqi capital market. The main objective was to investigate the dynamic interactions among key variables, including systemic risk, investor confidence, market liquidity, market development, and investment capital over a 120-month simulation horizon. First, a causal loop diagram (CLD) was constructed to represent the structural relationships within the system, which was then transformed into a stock-and-flow diagram (SFD) for simulation purposes. The model was validated using several standard tests, including structural validity, boundary adequacy, dimensional consistency, extreme condition testing, and behavior reproduction. The results confirmed that the model adequately reflects the real-world dynamics of the Iraqi capital market. The baxse-run simulation revealed that systemic risk plays a central role in shaping the trajectory of market development through multiple feedback loops. Scenario analysis, including baxseline, improved market, and risk intensification scenarios, demonstrated that reducing systemic risk leads to higher investor confidence, improved liquidity, and increased investment, whereas increasing risk negatively affects overall market performance. Sensitivity analysis further indicated that the Risk Shock Factor has the most significant influence on system behavior. Overall, the findings suggest that sustainable development of the Iraqi capital market depends primarily on effective systemic risk management and strengthening investor confidence, which are identified as the key policy leverage points in the model.