ESMA Risk Dashboard No. 1, 2018 - Europa EU
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ESMA Risk Dashboard
No. 1, 2018ESMA Risk Dashboard No. 1, 2018 2 ESMA Risk Dashboard No. 1, 2018 © European Securities and Markets Authority, Paris, 2018. All rights reserved. Brief excerpts may be reproduced or translated provided the source is cited adequately. The reporting period of this Report is 1 October 2017 to 31 December 2017, unless indicated otherwise. Legal reference of this Report: Regulation (EU) No 1095/2010 of the European Parliament and of the Council of 24 November 2010 establishing a European Supervisory Authority (European Securities and Markets Authority), amending Decision No 716/2009/EC and repealing Commission Decision 2009/77/EC, Article 32 “Assessment of market developments”, 1. “The Authority shall monitor and assess market developments in the area of its competence and, where necessary, inform the European Supervisory Authority (European Banking Authority), and the European Supervisory Authority (European Insurance and Occupational Pensions Authority), the ESRB and the European Parliament, the Council and the Commission about the relevant micro-prudential trends, potential risks and vulnerabilities. The Authority shall include in its assessments an economic analysis of the markets in which financial market participants operate, and an assessment of the impact of potential market developments on such financial market participants.” The information contained in this publication, including text, charts and data, exclusively serves analytical purposes. It does not provide forecasts or investment advice, and does not prejudice, preclude or influence in any way past, existing or future regulatory or supervisory obligations on market participants. The charts and analyses in this report are, fully or in parts, based on data not proprietary to ESMA, including from commercial data providers and public authorities. ESMA uses these data in good faith and does not take responsibility for their accuracy or completeness. ESMA is committed to constantly improving its data sources and reserves the right to alter data sources at any time. The third-party data used in this publication may be subject to provider-specific disclaimers, especially regarding its ownership, its reuse by non-customers and, in particular, the accuracy, completeness or timeliness of the data provided and the provider’s liability related to those. Please consult the websites of the individual data providers, whose names are detailed throughout this report, for more details on these disclaimers. Where third-party data are used to create any chart, table or analysis the third party is identified and credited as the source. In each case, ESMA is cited by default as a source, reflecting any data management, cleaning, processing, matching, analytical, editorial or other adjustments to raw data undertaken. European Securities and Markets Authority (ESMA) Risk Analysis and Economics Department 103, Rue de Grenelle FR–75007 Paris risk.analysis@esma.europa.eu
ESMA Risk Dashboard No. 1, 2018 3
ESMA Risk Dashboard
R.1
Main risks
Risk segments Risk categories Risk sources
Risk Outlook Risk Outlook Outlook
Overall ESMA remit Liquidity Macroeconomic environment
Systemic stress Market Low interest rate environment
Securities markets Contagion EU sovereign debt markets
Infrastructure disruptions, incl.
Investors Credit cyber risks
Infrastructures and services Operational Political and event risks
Note: Assessment of main risks by risk segments for markets under ESMA remit since last assessment, and outlook for forthcoming quarter. Assessment of main risks by
risk categories and sources for markets under ESMA remit since last assessment, and outlook for forthcoming quarter. Risk assessment based on categorisation of the ESA
Joint Committee. Colours indicate current risk intensity. Coding: green=potential risk, yellow=elevated risk, orange=high risk, red=very high risk. Upward arrows indicate an
increase in risk intensities, downward arrows a decrease, horizontal arrows no change. Change is measured with respect to the previous quarter; the outlook refers to the
forthcoming quarter. ESMA risk assessment based on quantitative indicators and analyst judgement.
ESMA’s 4Q17 overall risk assessment is unchanged from 3Q17. EU financial markets remained calm
during the quarter, with limited reactivity to global geopolitical events. While benign market conditions
prevailed during the reporting period, February 2018 saw severe market corrections and the return of
equity market volatility, confirming our prevailing valuation concerns. ESMA’s market risk assessment
remains very high. However, our assessment for credit risk has improved from very high to high. The
outlook for market, liquidity and contagion risks is stable. Operational risk continues to be elevated, with
a deteriorating outlook, due to Brexit-related risk to business operations and the mounting risk of cyber-
attacks. The main sources of risk remain a potential repricing of risk premia and geopolitical
developments whose effects may spill over to global financial markets. On the perimeter of global
securities markets, the latter months saw extreme volatility in the prices of virtual currencies and strong
growth in Initial Coin Offerings.
Risk summary Initial Coin Offerings (ICOs). ESMA has warned
against the substantial risks associated with
Risks in the markets under ESMA’s remit
investments in virtual currencies and ICOs.
remained at high levels, reflecting very high risk
in securities markets and elevated risk for Systemic stress remained at very low levels in
investors, infrastructures and services. ESMA’s 4Q17, based on the composite systemic stress
market risk assessment was again very high. indicator (R.2). Within securities markets, bond
While benign market conditions prevailed during markets again registered the highest contribution
the reporting period, the beginning of February to the systemic stress measure.
2018 saw severe market corrections and the R.2
return of equity market volatility, confirming our ESMA composite systemic stress indicator
prevailing valuation concerns. On the other hand, Systemic risk broadly stable
0.6
the level of credit risk eased from very high to
high, reflecting a strengthening macroeconomic 0.4
environment and higher credit ratings in several
0.2
EU member states, although the deterioration in
outstanding corporate ratings persisted. Liquidity 0
risk in 4Q17 remained high despite
-0.2
improvements in securities markets. Operational
risk was elevated, but with a deteriorating risk -0.4
Dec-13 Dec-14 Dec-15 Dec-16 Dec-17
outlook as concerns mount over potential cyber-
Equ ity mar ket con trib utio n Bon d market contribu tion
attacks. The risk outlook was stable across the Money mar ket con trib utio n ESMA CISS
other risk categories. On the perimeter of global Correla tio n contribu tion
Note: ESMA version of the ECB-CISS indic ator meas uring sys temic str ess in
securities markets, the latter months saw an securities markets. It foc uses on three financial market s egments: equity , bond
and money markets , aggregated through standard portfolio theory. It is bas ed on
extraordinary rise and subsequent fall in prices of securities market indicators such as volatilities and risk spreads.
Sources: ECB, ESMA.
virtual currencies, as well as growing issuance ofESMA Risk Dashboard No. 1, 2018 4
Risk sources could represent a source of risk in countries with
high levels of public and private debt. Sovereign
Macroeconomic environment: The EU’s bond market liquidity remained ample in 4Q17,
economic recovery continued in 4Q17. although it decreased slightly towards the end of
Household spending remains an important driver the year (R.11).
of the ongoing expansion, while fixed capital
investment is gaining momentum. Business Market functioning: No significant disruptions to
survey data point to the strongest economic the functioning of EU markets were observed in
activity in several years and are still trending up. 4Q17. During this period, the number of circuit
Economic sentiment in the EU reached its breaker occurrences remained low with a weekly
highest level since 2000, supported by a broad- average of 38, compared to 121 in 1H17 (R.39).
based increase in business and consumer The number of ongoing trading suspensions
confidence. According to the European increased, but these were concentrated mainly in
Commission’s Autumn forecast, the EU economy one EU Member State. Central clearing
performed significantly better than expected in continued to increase as implementation of the
2017, in line with stronger growth around the clearing obligation for derivatives continues. In
world. EU GDP is now expected to have grown August, the second delegated regulation
by 2.3% in 2017 and to gradually slow over the requiring mandatory clearing of certain index
next two years to 2.1% in 2018 and 1.9% in 2019. CDS took effect for financial counterparties and
Downside risks to the growth outlook remain ‒ AIFs above the EUR 8bn threshold of gross
linked to global geopolitical events, a potential amounts outstanding. On 18 September, the final
slowdown in China, stronger appreciation of the migration wave to T2S was completed, with four
euro, and risks related to the outcome of the additional markets connecting to it: Estonia,
Brexit negotiations. Latvia, Lithuania and Spain. T2S contributes to
the integration of post-trade processes across
Low interest-rate environment: In 4Q17, ECB participating markets. The total value of settled
monetary policy remained highly accommodative transactions in the EU has increased since the
to ensure supportive financing conditions, while beginning of migration to T2S in June-August
BoE rates remained low despite an increase in 2015. In 4Q17, the share of settlement fails
November. EA government bond yields declined increased for corporate bonds, while declining for
slightly in the reporting period, while corporate equities (R.42). Cyber risk is increasingly
bond spreads tightened again. The low-yield becoming a concern for financial market
environment thus persists, reinforcing risks institutions, especially with respect to their
related to search-for-yield strategies. The high- business continuity and the integrity of
yield fund segment experienced some volatility in proprietary data, as illustrated by recent global
4Q17, with a sharp decline in US high-yield ransomware attacks.
corporate bonds and net redemptions from EU-
domiciled funds of EUR 8bn. Another source of Political and event risk: In the EU, Brexit is among
concern stems from funds investing in emerging the most important political risks. The ongoing
market bonds, which registered net cumulative negotiations between the EU27 and the UK on the
inflows of EUR 71bn (R.25) and may be withdrawal terms represent a high source of
particularly vulnerable to a sudden reversal in uncertainty for financial markets, despite the
global risk premia due to the lower liquidity of their absence of any visible reaction in EU markets ‒
investment portfolio. Excessive risk-taking and foreign exchange markets aside. News flow and
potential capital misallocation thus remain announcements may further intensify political
relevant risk sources in the medium-term. In the and event risk, increase uncertainty and lead to
context of a persistently low interest yield greater asset price volatility in EU markets. In
environment, abruptly increasing yields could particular, a scenario in which negotiations remain
lead to losses for investment positions and inconclusive or end in a disorderly fashion could
generate volatility spikes in asset prices. result in negative cliff effects in financial markets.
ESMA is calling on market participants to
EU sovereign debt markets: Ten-year EU thoroughly review any potential exposure to Brexit
sovereign risk premia generally edged down in cliff effect risks and address these as part of their
4Q17 amid low interest rates and supportive risk management.
monetary policy. Sovereign yields seem to have
somewhat bottomed out for now following an
increase at the beginning of 2017, reflecting the
gradual improvement in the macroeconomic
context. In the medium to long-term, rising yieldsESMA Risk Dashboard No. 1, 2018 5
Risk categories Credit risk – high, outlook stable: In 4Q17 non-
financial corporate bond spreads remained very
Market risk – very high, outlook stable: In 4Q17 low across rating categories in the range of
financial markets exhibited limited reaction to 68 bps for BBB-rated securities to 7 bps for the
geopolitical risks. Short-term expectations of AAA class (R.15). Covered bond spreads recorded
equity price volatility ticked up from 11% to 13%, similar developments. The gradual introduction of
partly reflecting renewed concerns over political mandatory clearing for certain derivative asset
developments in the EU; historically, however, classes should also help reduce counterparty credit
they remained at low levels overall (R.7). In risk. On the other hand, the credit quality of
contrast, exchange rate volatilities continued to corporate bonds continued to deteriorate, though at
decline (R.8). EU financial equity prices were a slower pace compared to 1H17 (R.17), and
mixed, with banks underperforming other sectors substantial inflows for bond funds investing in
(-2.4%), while insurance companies and other emerging markets revealed the persistence of
financials gained 1.2%. In the medium to long search for yield strategies (R.25). Overall, our credit
term, sources of concern stem from political risk assessment improves from very high to high,
uncertainty in the Brexit negotiations and from reflecting the increasingly robust macroeconomic
valuation risk. Elevated prices in the context of a environment, improvements in EA sovereign and
low yield environment could be exposed to corporate creditworthiness and low credit spreads.
severe reversals due to swift repricing of risk A potential future revision of the monetary policy
premia, should a phasing out of expansionary stance may adversely impact our credit risk
monetary policy materialise. assessment, given the high-level of indebtedness in
Liquidity risk – high, outlook stable: Liquidity in several EU countries.
equity markets remained stable in 4Q17, with the Operational risk – elevated, outlook deteriorating:
ESMA composite equity illiquidity indicator Conduct and systems risks remained a key
oscillating close to its long-term average (R.4). concern both within and outside the EU. On
Liquidity in sovereign bond markets deteriorated conduct risk, the number of complaints regarding
slightly towards the end of the year, reflected financial instruments reported directly to NCAs in
mainly in higher bid-ask spreads (R.10, R.11). In our sample saw an uptick in 3Q17 to around
contrast, bid-ask spreads on corporate bonds 1,500, following a steady downward trend from
continued to narrow in 4Q17 to levels below their 2Q16 onwards. One driver of this trend was the
long-term average (R.16). The trading volume of continuing reduction in complaints regarding
centrally cleared repos continued to grow contracts for difference and options, futures and
strongly (R.13) while collateral scarcity premia swaps, following actions taken by NCAs in
(i.e. the difference between general collateral and relation to some firms providing these products.
special collateral repo rates), increased again in Complaints relating to bonds and other debt
late 2017 (R.14) reflecting possible shortages of securities exhibited the greatest increase in
high-quality collateral. This may increase liquidity 3Q17, although more than a quarter of the
risk and volatility in funding costs and reduce complaints still related to equity instruments
overall market confidence. (R.37). The dispersion of Euribor submission
Contagion risk – high, stable outlook: In quotes increased anew in late 4Q17 (R.45),
sovereign bond markets, the median correlation possibly reflecting year-end money market
between Germany and other EU countries’ bond volatility. As regards systems risk, in 4Q17 no
yields decreased temporarily at the beginning of major trading disruptions were observed on EU
4Q17 but remained generally high. Dispersion trading venues, with trading volumes at around a
levels gradually fell, with most countries now third of the two-year peak observed following the
registering positive correlation with German UK referendum (R.40). In post-trading activities,
bonds (R.19). In the medium to long term, corporate bond settlement fails rose from 2% to
contagion risks may derive from swift repricing in 3% in 4Q17 (R.42). Regarding cyber risks,
bond markets leading to high bond fund concerns are expected to intensify in the medium
redemptions and triggering fire sales of illiquid to long term; as a result, the risk outlook for
assets. Intra-sectoral fund interconnectedness operational risk is deteriorating. In 1H17 there
increased in 4Q17 for both hedge funds and were 107 instances of data breaches in the
MMFs (R.29 and R.31). MMFs’ higher financial services sector, mostly related to identity
interconnectedness potentially reflects the build- thefts (R.47).
up of risk buffers against the ongoing trend of
asset price inflation (R.32).ESMA Risk Dashboard No. 1, 2018 6
Securities markets
R.3
Risk summary Risk drivers
– Asset re-valuation and risk re-assessment
Risk level
– Low interest rate environment and excessive risk taking
Risk change from 3Q17 – Geopolitical and event risks
Outlook for 1Q18 – Potential scarcity of collateral
Note: Assessment of main risk categories for markets under ESMA remit since past quarter, and outlook for forthcoming quarter. Systemic risk assessment based on
categorisation of the ESA Joint Committee. Colours indicate current risk intensity. Coding: green=potential risk, yellow=elevated risk, orange=high risk, red=very high
risk. Upward arrows indicate a risk increase, downward arrows a risk decrease. ESMA risk assessment based on quantitative indicators and analyst judgement.
R.4 R.5
ESMA composite liquidity index Equity valuation
Lower equity liquidity in 4Q17 Increasing in EA and US
0.61 5
0.60
0.59 4
0.58
0.57
0.56 3
0.55
0.54 2
0.53
0.52
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17 1
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17
Illiquid ity index 2Y- MA Adj usted P/E E A A ve rage EA
Note: Composite i ndicator of illiqui dity in the equity market for the current
Eurostoxx 200 constituents, computed by applying the principal c omponent Adj usted P/E US A ve rage US
Note: Monthly earni ngs adjus ted for trends and cyclical factors via Kalman filter
methodology to six input liquidity meas ures (Amihud illiquidity c oefficient, bi d-ask
methodology bas ed on OECD leading indicators; units of standard deviation;
spread, Hui-Heubel ratio, turnov er value, i nverse turnov er ratio, MEC). The averages computed from 8Y.
indicator range is between 0 (higher liquidity) and 1 (lower liquidity).
Sources: Thomson Reuters Datastream, ESMA.
Sources: Thomson Reuters Datastream, ESMA.
R.6 R.7
Equity prices Financial instrument volatilities
Stable on average in 4Q17 Low and stable
120 200
110 100
100 0
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17
90 EUR 10 Y GBP 10 Y USD 10 Y
50
80 25
70 0
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17
60 VSTOX X 1 M VSTOX X 3 M
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17 VSTOX X 1 2M VSTOX X 2 4M
Non-finan cia ls Ban ks Note: T op panel: implied vol atilities on one-month Euro-Euribor, UK Pound
Insu rance Financial service s Sterling-GBP Li bor and US Dollar-USD Libor swaptions measured as price
indices, in %; bottom panel: Euro Stoxx 50 implied volatilities, meas ured as
Note: STOXX Europe 600 equity total return indices. 01/12/2015=100.
Sources: Thomson Reuters Datastream, ESMA. price indices, in %.
Sources: Thomson Reuters EIKON, Thomson Reuters Datastream, ESMA.
R.8 R.9
Exchange rate volatilities Sovereign risk premia
EUR-USD decreases slightly in 4Q17 Slight decline across countries
20 5 12
15 4 10
8
10 3
6
5 2
4
0
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17 1 2
EUR-USD EUR-GBP
GBP -USD 5Y- MA EUR 0 0
Note: Implied volatilities for 3M options on exchange rates . 5Y-MA EUR is the Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17
five-year movi ng av erage of the implied v olatility for 3M options on EUR-USD PT IE IT ES GR ( rhs)
exchange rate. Note: Selected 10Y EA sovereign bond risk premia (vs. DE Bunds), in %.
Sources: Thomson Reuters EIKON, ESMA. Sources: Thomson Reuters Datastream, ESMA.ESMA Risk Dashboard No. 1, 2018 7
R.10 R.11
Sovereign bond bid-ask spreads ESMA composite sovereign bond illiquidity index
Spreads widen at the end of 4Q17 Slight deterioration at the end of 4Q17
0.12 0.6
0.11
0.4
0.10
0.09 0.2
0.08 0.0
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17
0.07
Eur o MTS Domestic MTS
0.06 1Y- MA Domestic 1Y- MA Eur o MTS
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17 Note: Composite indicator of market liquidity in the s overei gn bond
market for the domestic and Euro MTS platforms, computed by applying
Bid-ask Euro MTS Bid-ask Domestic MTS the principal c omponent methodol ogy to four input liquidity meas ures
1Y-MA Euro MTS 1Y-MA Domestic MTS (Amihud illiqui dity c oefficient, Bid-ask spread, Roll illiqui dity measure and
Note: Bid-ask spread calc ulated as average bid- ask s pread throughout a month Turnover). The indicator range is between 0 (higher liquidity) and 1 (lower
across ten EU markets, Domestic and Euro MTS, in %. liquidity).
Sources: MTS, ESMA. Sources: MTS, ESMA.
R.12 R.13
Sovereign CDS volumes Sovereign repo volumes
Stable or decreasing Trending up despite seasonal drop at year-end
20 80 240
220
15 60 200
180
10 40 160
140
5 20 120
100
0 0 80
Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov-17 Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17
DE ES FR IE Vol ume 1M-MA 5Y- MA
IT PT EU ( rhs)
Note: Repo trans action vol umes ex ecuted through CCPs in sev en sover eign EUR
Note: Val ue of outstanding net notional s overei gn CDS for s elected countries;
repo markets (AT, BE, DE, FI, FR, IT and NL), EUR bn.
USD bn.
Sources: RepoFunds Rate, ESMA.
Sources: DTCC, ESMA.
R.14 R.15
Repo market specialness Corporate bond spreads
Premium spike for collateral in high demand Further decrease in 4Q17
25 250
20 200
15 150
10 100
5 50
0 0
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17 Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17
Median 75th perc 90th perc AAA AA A BBB
Note: Medi an, 75th and 90th percentile of weekly speci alness , meas ured as the Note: EA non-financial corporate bond s preads by rating between iBoxx non-
difference between gener al collateral and special collateral repo rates on financi al corporate yiel ds and ICAP Euro Euribor sw ap rates for maturities from 5
government bonds in selected countries. to 7 years, in bps.
Sources: RepoFunds Rate, ESMA. Sources: Thomson Reuters Datastream, ESMA.
R.16 R.17
Corporate bond bid-ask spreads and Amihud indicator Outstanding long-term corporate debt
Amihud ticked up, bid-ask spreads narrowed Increased share of BBB and lower
0.6 0.6 100
0.5 0.5
0.4 0.4 75
0.3 0.3
0.2 0.2 50
0.1 0.1
0.0 0.0 25
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17
Bid -Ask 1Y- MA Amihu d (rh s) 0
Note: EUR Markit iBoxx corporate bond index bid- ask spr ead, in %, c omputed as 4Q1 2 4Q1 3 4Q1 4 4Q1 5 4Q1 6 4Q1 7
a one-month movi ng av erage of the iBoxx c omponents in the current
composition. 1Y-MA=one-year moving av erage of the bi d-ask spread. Amihud AAA AA A BBB BB and lower
liquidity coefficient index between 0 and 1. Higher value indicates less liquidity. Note: Outst andi ng am ount of c orporate bonds in the EU as of issuance date by
Sources: IHS Markit, ESMA. rating category, in % of the total.
Sources: Thomson Reuters EIKON, ESMA.ESMA Risk Dashboard No. 1, 2018 8
R.18 R.19
Covered bond spreads Dispersion in sovereign yield correlation
Slight decrease in 4Q17 Temporary decline in correlation
150 1.0
125
0.5
100
75 0.0
50
-0.5
25
0 -1.0
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17 Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17
All AAA AA A 5Y- MA Top 25% Core 50% Bottom 25% Median
Note: Ass et swap spreads based on iBoxx covered bond indices, in bps. 5Y- Note: Dispersion of correlati ons between 10Y DE Bunds and other EU countries'
MA=five-year moving average of all bonds. sovereign bond redemption yields over 60-day rolling windows.
Sources: Thomson Reuters Datastream, ESMA. Sources: Thomson Reuters Datastream, ESMA.
R.20 R.21
Sectoral equity indices correlation Debt issuance growth
Lower cross-sectoral correlations Negative issuance growth, except for IG debt
1.0 3
0.9 0
0.8
-3
MM 4Q1 5
MM 4Q1 6
MM 4Q1 7
SOV 4Q 15
SOV 4Q 17
SOV 4Q 16
IG 4 Q15
IG 4 Q16
IG 4 Q17
HY 4 Q15
HY 4 Q17
CB 4 Q15
CB 4 Q16
CB 4 Q17
HY 4 Q16
SEC 4Q15
SEC 4Q16
SEC 4Q17
0.7
0.6
0.5 10% 90% Curren t Median
Note: Growth rates of issuance v olume, i n %, normalised by standard deviati on
0.4 for the foll owing bond class es: high yield (HY); inv estment grade (IG); cov ered
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17 bonds (CB); money m arket (MM); securitised (SEC); sov ereign (SOV).
Ban ks Financial Ser vices Percentiles c omputed from 12Q rolling window. All data i nclude s ecurities with a
Insu rance Non-Finan cia l Corpo ration maturity higher than 18M, except for MM (maturity less than 12M). Bars denote
Note: Correlations betw een daily returns on the STOXX Europe 600 and STOXX the range of values betw een the 10th and 90th percentil es. Missing diamond
Europe 600 sectoral indices. Calculated over 60D rolling windows. indicates no issuance for previous quarter.
Sources: Thomson Reuters Datastream, ESMA. Sources: Thomson Reuters EIKON, ESMA.
R.22 R.23
Net sovereign debt issuance Debt redemption profile
Negative net issuance in the EU Lower short-term financing needs for financials
30 100 400 300
300 150
0 0
200 0
-30 -100
100 -150
-60 -200 0 -300
MT
LU
LT
LV
RO
HU
CY
DE
DK
HR
CZ
IE
IT
NL
FR
GR
GB
FI
BG
BE
EE
ES
SE
SK
EU
PT
AT
PL
SI
4Q1 7 4Q1 8 4Q1 9 4Q2 0 4Q2 1 4Q2 2
1Y high 1Y low 4Q1 7 Non-finan cia ls Financial s
Note: Quarterly net issuanc e of EU sover eign debt by c ountry, EUR bn. Net 1Y- cha nge fin (rhs) 1Y- cha nge non-fin (rhs)
issuanc e calc ulated as the difference betw een new issuance over the quarter and Note: Quarterly redempti ons over 5Y- horizon by EU private financi al and non-
outstanding debt maturing over the quarter. Highest and low est quarterly net financi al corporates, EUR bn. 1Y-Change=difference between the sum of this
issuance in the past year are reported. EU total on right-hand scale. year's (four last quarters) and last year's (8th to 5th last quarters) redemptions.
Sources: Thomson Reuters EIKON, ESMA. Sources: Thomson Reuters EIKON, ESMA.ESMA Risk Dashboard No. 1, 2018 9
Investors
R.24
Risk summary Risk drivers
– Sustained search-for-yield
Risk level
– Asset re-valuation and risk re-assessment
Risk change from 3Q17 – Correlation in asset prices
Outlook for 1Q18 – Continued inflows into riskier EU investment funds
Note: Assessment of main risk categories for markets under ESMA remit since past quarter, and outlook for forthcoming quarter. Systemic risk assessment based on
categorisation of the ESA Joint Committee. Colours indicate current risk intensity. Coding: green=potential risk, yellow=elevated risk, orange=high risk, red=very high risk.
Upward arrows indicate a risk increase, downward arrows a risk decrease. ESMA risk assessment based on quantitative indicators and analyst judgement.
R.25 R.26
Cumulative global investment fund EU bond fund net flows
Strong inflows except for US equity funds High inflows into other bond funds
2,500 40
2,000 30
1,500 20
1,000 10
500
0
0
-10
-500 Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17
-1,000 Govern me nt Emergi ng HY
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17 Corpor ate MixedBon ds Other
Note: Two-month cumul ative net fl ows for bond funds, EUR bn. Funds inves ting
Eur ope BF Eur ope EF in corporate and government bonds that qualify for another category are only
North A me rica BF North A me rica EF reported once (e.g. funds inv esting in emerging gover nment bonds reported as
Emergi ng mar kets BF Emergi ng mar kets EF emerging; funds inves ting i n hi gh-yield corporate bonds r eported as HY). Other
Note: Cumulative net fl ows into bond and equity funds (BF and EF) ov er time by comprises the remai ning funds, e.g. absol ute return, hedged, short term or
regional investment focus, EUR bn. inflation-protected funds.
Sources: Thomson Reuters Lipper, ESMA. Sources: Thomson Reuters Lipper, ESMA.
R.27 R.28
RoR volatilities by fund type Liquidity risk profile of EU bond funds
Stable across asset classes Stable liquidity and mixed maturity changes
25
80
20
60
Liquidity
15
40
10
20
5
0
0 3 5 7 9
M aturity
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17
Equ ity Bon d Commo dity Loa n funds Govern me nt BF Corpor ate BF Others B F HY fund s
Alterna tives Mixed a ssets Real estate Note: F und type is reported acc ording to their average liquidity ratio, as a
Note: Annualised 40-day historical return vol atility of EU-domiciled investm ent percentage (Y-axis), the effective average maturity of their assets (X-axis) and
funds, in %. their size. Eac h series is reported for 2 years, i.e. 2016 (bright colours) and 2017
Sources: Thomson Reuters Lipper, ESMA (dark colours).
Sources: Thomson Reuters Lipper, ESMA.
R.29 R.30
Money market fund interconnectedness Retail fund synthetic risk and reward indicator
Increasing interconnectedness end-2017 Higher for commodity funds
30
7
20
10 5
0 3
-10
1
-20 Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17
-30 Equ ity Bon d
Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Alterna tive Commo dity
Destab iliser MMF (coeff. +) Stabili ser MMF (coeff. -)
Money Mar ket Real Estate
Note: Systemic stress indicator based on products of fractions of regressions with
positive (negative) estimated coefficients for individual fund returns ' impact on t he mean Note:The c alculated Sy nthetic Risk and Rewar d Indicator is bas ed on ESMA
sector return and respective estimators. Coefficients stem from VEC models regressing SRRI guidelines . It is computed via a simple 5 year annualis ed vol atility
individual fund returns and moments of the entire industry's return distribution on lags measure which is then translated into categories 1- 7 (with 7 representing
and general financial market indices. Measures aggregated across individual higher levels of volatility).
regressions. Sources:Thomson Reuters Lipper, ESMA.
Sources: Thomson Reuters Lipper, Thomson Reuters Datastream, ECB, ESMA.ESMA Risk Dashboard No. 1, 2018 10
R.31 R.32
Financial market interconnectedness Hedge fund interconnectedness
Increasing for MMFs and HFs Interconnectedness increased in 4Q17
20 80 0.02
15 75 0.01
10 70 0.00
5 65 -0.01
0 60 -0.02
3Q1 2 3Q1 3 3Q1 4 3Q1 5 3Q1 6 3Q1 7 Nov-12 Nov-13 Nov-14 Nov-15 Nov-16 Nov-17
Tota l funds Hedge funds Destab iliser HF (coeff. +) Stabili ser HF (coeff. -)
Bon d funds MMFs ( rhs) Note: Systemic stress i ndicator based on products of frac tions of regressions with
Note: Loan and debt securities vis-à-vis MFI counterparts, as a s hare of total positive (negative) estimated coefficients for individual fund returns' impact on
assets. EA investment funds and MMFs, in %. Total funds includes: bond funds, average return of sector significant at 99% lev el and respective aver age es timators.
equity funds, mixed funds, real estate funds, hedge funds, MMFs and other non- Coefficients stem from VAR models regressing individual fund r eturns on lags and
MMFs investment funds. general financi al market i ndices . Meas ures aggr egated across individual
Sources: ECB, ESMA. regressions.
Sources: Barclayhedge, Eurekahedge, TASS, HFR, ESMA.ESMA Risk Dashboard No. 1, 2018 11
Infrastructures and services
R.33
Risk summary Risk drivers
– Operational risks, incl. cyber risks
Risk level
– Conduct risk, incl. intentional or accidental behaviour by
Risk change from 3Q17 individuals, market abuse
– Systemic
Outlook for 1Q18 relevance, interconnectedness between
infrastructures or financial activities, system substitutability
Note: Assessment of main risk categories for markets under ESMA remit since past quarter, and outlook for forthcoming quarter. Systemic risk assessment based on
categorisation of the ESA Joint Committee. Colours indicate current risk intensity. Coding: green=potential risk, yellow=elevated risk, orange=high risk, red=very high risk.
Upward arrows indicate a risk increase, downward arrows a risk decrease. ESMA risk assessment based on quantitative indicators and analyst judgement.
R.34 R.35
Trading suspensions – lifecycle and removals On-going trading suspensions by rationale
Low number of removals Increased number of on-going suspensions in 4Q17
300 60 200 2.5
150 2.0
250 50
1.5
100
200 40 1.0
50 0.5
150 30 0 0.0
100 20 4Q1 5 2Q1 6 4Q1 6 2Q1 7 4Q1 7
Market manag ement arra ngements
50 10 Issuer's failu re to disclo se peri odic in formation on ti me
0 0 Undisclosed p rice-sensitive information
4Q1 5 2Q1 6 4Q1 6 2Q1 7 4Q1 7 Other non- compli ance with r ules of the regu lated market
Other disorde rly tr ading conditions
Suspen sio ns beg un Suspen sio ns end ed Unknown
Removals Averag e du ration (rhs) Averag e du ration (rhs)
Note: N umber of dead s uspensions, s plit by the quarter during which they started Note: Number of s uspensions of financial ins truments traded on EEA trading
and ended, and remov als of fi nanci al ins truments traded in EEA trading v enues. venues ongoing at the end of the reporting period, grouped by quarter during
Average durati on of dead sus pensi ons, in days , computed as the mean of the which they started and by rationale. Av erage durati on, in years, computed as the
difference between the end-of-quarter date and the issuance date. mean of the difference between the end-of-quarter date and the start date.
Sources: ESMA Registers. Sources: ESMA Registers.
R.36 R.37
Complaints indicator by rationale Complaints indicator by instrument
Execution of orders is main cause for complaint Complaints mostly related to equity and bond instruments
100 4,000 100 4,000
80 3,000 80 3,000
60 60
2,000 2,000
40 40
20 1,000 1,000
20
0 0 0 0
3Q1 4 1Q1 5 3Q1 5 1Q1 6 3Q1 6 1Q1 7 3Q1 7 3Q1 4 1Q1 5 3Q1 5 1Q1 6 3Q1 6 1Q1 7 3Q1 7
Other causes Execution of orders Other invest ment produ cts/funds Financial contract s for diffe rence
Investment advice Portfolio management Options, futu res, sw aps Mutual funds/UC ITS
Quality/lack of information Fees/charges Money market securities Structured se curities
General admin Unauthorised business Bonds /debt secu rities Share s/stock/e quity
Total volume reported (rhs) To tal volume rep orted (rhs)
Note: Com plaints reported directly to 18 NCAs (AT , BG, C Y, CZ, DE, DK, EE, Note: Com plaints r eported directly to 18 NCAs (AT, BG, CY, CZ, D E, DK, EE, ES,
ES, FI, HR, HU, IT , LT , LU, MT, PT, RO, SI), in % of total vol ume by cause. The FI, HR, HU, IT, LT, LU, MT, PT, RO, SI), in % of total vol ume by ty pe of financi al
line shows the total volume of complaints reported (rhs). instrument. The line shows the total number of complaints reported (rhs).
Sources: ESMA complaints database. Source: ESMA complaints database
R.38 R.39
Circuit breaker trigger events by sector Circuit breaker occurrences by market capitalisation
Lower share for financials Limited number of occurrences
100 1,600
75 1,200
50
800
25
400
0
Mar-16 Jun-16 Sep -16 Dec-16 Mar-17 Jun-17 Sep -17 Dec-17
Basic Materia ls, Indu strials and Energ y 0
Mar-16 Jun-16 Sep -16 Dec-16 Mar-17 Jun-17 Sep -17 Dec-17
Technolog y, Utilities an d Telecommunications S ervice s
Healthcare, Consumer Cyclicals an d Non- Cyclicals Larg e caps Mid cap s Small caps ETFs
Financial s Note: N umber of daily circuit breaker trigger ev ents by ty pe of fi nancial instrum ent
Note: Percentage of circuit break er trigger ev ents by economic s ector. Results and by mark et cap. R esults display ed as weekly aggregates.The analysis is
displayed as w eekly aggregates .The analysis is based on a s ample of 10,000 based on a sample of 10,000 securities, incl uding all cons tituents of the ST OXX
securities, incl uding all c onstituents of the STOXX Europe 200 Large/Mid/Sm all Europe 200 Large/Mid/Small c aps and a large s ample of ETFs tracking the
caps and a large sample of ETFs tracking the STOXX index or sub-index. STOXX index or sub-index.
Sources: Morningstar Real-Time Data, ESMA. Sources: Morningstar Real-Time Data, ESMA.ESMA Risk Dashboard No. 1, 2018 12
R.40 R.41
Trading system capacity proxy Equity market concentration
Volumes increased to 25% of capacity Greater concentration
80
100 100
80 80 60
60 60
40
40 40
20
20 20
0 0 0
Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov-17 Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17
Tradin g volume 3M-MA Volume Top 25% Core 50% Bottom 25% Median
Capacity (rhs) All- time high (rhs) Note: Concentrati on of notional v alue of equity trading by national i ndices
Note:Daily and three-month moving average trading vol ume registered on 36 EU computed as a 1M-MA of the Herfindahl-Hirschman Index, in %. Indices i ncluded
trading venues, EUR bn. C apacity c omputed as the average across trading are FTSE100, CAC 40, DAX, FTSE MIB, IBEX35, AEX, OMXS30, BEL20,
venues of the ratio of daily tr ading v olume over maximum v olume obs erved since OMXC20, OMXH25, PSI20, ATX.
31/03/2016, in % (right axis). Sources: BATS, ESMA.
Sources: Morningstar Realtime, ESMA.
R.42 R.43
Settlement fails IRS CCP clearing
Increase in corporate bond fails OIS and swap central clearing rates higher
10 100
8
90
6
4 80
2 70
0
Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Jul-17 Nov-17 60
Corpor ate bon ds 6M-MA cor p Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17
Equ itie s 6M-MA equities
Swap Basis S wa p OIS FRA
Govern me nt bond s 6M-MA gov
Note: Share of fail ed settlement instruc tions in the EU, in % of v alue, one-week Note: OTC interest rate derivativ es cleared by CCPs captured by Dealer vs. CCP
moving av erages. 6M-MA=six-month moving av erage. Free-of-paym ent positions, in % of total noti onal amount. Spikes due to short-term movements in
transactions not considered. non-cleared positions.
Sources: National Competent Authorities, ESMA. Sources: DTCC, ESMA.
R.44 R.45
Difference between the Euribor and the maximum contribution Euribor – Dispersion of submission levels
Spike at the end of 4Q17 Low and stable overall dispersion
0.3 0.1
0.0
-0.1
0.2
-0.2
-0.3
0.1 -0.4
-0.5
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17
0.0 Top 15% Core 70%
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17 Bottom 15% Raw 3M Euribo r
Note: N ormalised differ ence in percentage points between the highest 3M E uribor ECB refinancing rate
contribution submitted by panel banks and the c orrespondi ng Euribor rate. T he Note: Dispersion of 3M Euribor submissions, i n % . T he "Raw 3M Euribor" rate is
chart shows the maximum difference across the 8 Euribor tenors. calculated without trimming the top and bottom submissions of the panel for the
Sources: European Money Markets Institute, ESMA. 3M Euribor.
Sources: European Money Markets Institute, ESMA.
R.46 R.47
Rating changes Financial services data breaches
Positive for structured finance instruments Mostly related to identity thefts
8 200 20
6
150 15
4
100 10
2
0 50 5
-2 0 0
1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17
-4
Dec-15 Apr -16 Aug -16 Dec-16 Apr -17 Aug -17 Dec-17 Identity the ft Financial access
Non-financial Covered bond Existen tia l da ta Account access
Financial Insurance Nuisance % of tota l (rh s)
Sovereign Structured finance Note: Estimated number of data breaches, financial services only, worldwide, by
Note: Net change in ratings from all credit r ating agenci es, excl uding CERVED type. Breaches in financial s ervices sector as % of total data breac hes across all
and ICAP, by asset class computed as a percentage number of upgrades minus sectors (secondary axis). Both series as reported by the Gemalto Breac h Lev el
percentage number of downgrades over number of outstanding ratings. Index. The underlying data were gathered by Gemalto from publicly av ailabl e reports
Sources: RADAR, ESMA. of information breaches.
Sources: Gemalto Breach Level Index, ESMA.ESMA Risk Dashboard No. 4, 2017 13
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