ESMA Risk Dashboard No. 1, 2019 - europa.eu
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ESMA Risk Dashboard
No. 1, 2019
28 February 2019
ESMA 50-165-750ESMA Risk Dashboard No. 1, 2019 2 ESMA Risk Dashboard No. 1, 2019 © European Securities and Markets Authority, Paris, 2019. All rights reserved. Brief excerpts may be reproduced or translated provided the source is cited adequately. The reporting period for this Report is 1 July 2018 to 31 December 2018, unless otherwise indicated. The reporting quarter for the Risk Dashboard in the Risk Section is 4Q18. Legal reference for 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, nor does it prejudice, preclude or influence in any way past, existing or future regulatory or supervisory obligations by market participants. The charts and analyses in this report are, fully or in part, 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 their ownership, their reuse by non-customers and, in particular, their accuracy, completeness or timeliness, and the provider’s liability related thereto. Please consult the websites of the individual data providers, whose names are given throughout this report, for more details on these disclaimers. Where third-party data are used to create a chart or table or to undertake an 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 or 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
R.1
Main risks
Risk segments Risk categories Risk sources
Level Outlook Level Outlook Outlook
Overall ESMA remit Liquidity Macroeconomic environment
Systemic stress Market Interest rate environment
Securities markets Contagion EU sovereign debt markets
Infrastructure disruptions, including cyber
Investors Credit risks
Infrastructures and services Operational Political and event risks
Note: Assessment of the main risks by risk segments for markets under ESMA’s remit since the last assessment, and outlook for the forthcoming quarter. Assessment of
main risks by risk categories and sources for markets under ESMA’s remit since the last assessment, and outlook for the 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 and 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.
4Q18 was characterised by increasing market nervousness and sensitivity amid global trade tensions,
weakening growth prospects, reduced global monetary policy stimulus and political uncertainty in the
EU. In this context in 4Q18, volatility on equity and sovereign bond markets increased, equity prices
continued to decrease, repricing on corporate and sovereign bond markets continued, and regional
developments led to localised sell-offs and increased short-selling activity. Market risk thus remains
very high. Our outlook for liquidity, contagion and credit risk remains unchanged. Operational risk
remains elevated with a negative outlook, as cyber threats and Brexit-related risks to business
operations continue to be a major concern. Going forward, political and geopolitical tensions coupled
with weakening growth prospects will likely be the main drivers of volatility. As the Brexit deadline
approaches, concerns over a potential no-deal withdrawal increasingly weigh on economic and market
expectations.
Systemic risk as measured by the ESMA
Risk summary version of the composite systemic indicator
Market risk remained at a very high level in 4Q18, increased to high levels that have been unseen
accompanied by very high risk in securities since early 2016. The largest contribution to the
markets and elevated risks for investors, increase came from equity markets.
infrastructures and services. Equity and bond R.2
volatility remained high, reflecting sensitivities to ESMA composite systemic stress indicator (CISS)
events such as trade discussion and geopolitical Multi-quarter high, driven by equities
tensions and the underlying risk of reversal of risk 0.6
premia. The level of credit and liquidity risk 0.4
remained high, with a deterioration in outstanding
corporate debt ratings and still relatively low 0.2
corporate and sovereign bond liquidity. 0
Operational risk was elevated as cyber threats
-0.2
and Brexit-related risks to business operations
remained major concerns. Investor risks -0.4
Dec-14 Dec-15 Dec-16 Dec-17 Dec-18
persisted across a range of products and, under
Equ ity mar ket con trib utio n Bon d market contribu tion
the MiFIR product intervention powers, ESMA Money mar ket con trib utio n ESMA CISS
recently extended the prohibition of binary Correla tio n contribu tion
options and the restrictions on CFDs to retail Note: ESMA version of the ECB-CISS indic ator m easuring sys temic stress in
investors. Going forward, EU financial markets securities markets. It foc uses on three fi nancial market s egments: equity , bond
and money markets, aggregated through standard portf olio t heory. It is bas ed on
can be expected to become increasingly securities market indicators such as volatilities and risk spreads.
Sources: ECB, ESMA.
sensitive to mounting political and economic
uncertainty from diverse sources, such as global
trade discussions, emerging market capital flows,
Brexit negotiations and others. Assessing
business exposures and ensuring adequate
hedging against these risks will be a key concern
for market participants in the coming months.ESMA Risk Dashboard No. 1, 2019 4
Risk sources EU sovereign debt markets: In 4Q18, EU
sovereign bond yields were characterized by high
Macroeconomic environment: Growth forecasts volatility during short periods of political
have become more subdued, with downward uncertainty, especially in Italy. Ten-year
revisions of the European Commission’s EU GDP sovereign yields decreased by 0.2 percentage
growth forecast to 1.5% (down from 2.0%) in point on average, although with increases for GR
2019. Global economic growth has also been (+0.2 ppt). The Italian ten-year sovereign yield
revised with projected GDP growth rates of 3.5% spread to the German Bund climbed above 300
for 2019). As regards global economic growth, bps several times during 4Q18, higher than at any
the expansion has become less balanced and time since the euro sovereign crisis.
downside risks to global growth have risen in the
past six months and have become more Market functioning: Markets continue to be
differentiated across regions.1 In the US, subject to technical issues as shown by the
stronger-than-anticipated inflation initially recent delayed market opening of a German
reignited investors’ fears of more aggressive trading venue (15 October). The number of
interest-rate increases. However, in early 2019, circuit-breaker occurrences was similar to
the US Federal Reserve put further interest rate long-term averages over the reporting period,
rises on hold, citing downside risks to global with an average of 129 interruptions per week,
growth. The macroeconomic environment and its and a peak at 295 during the second week of
interaction with market expectations, notably over October (compared with a weekly average of 57
future monetary policy actions, played an active during 3Q18, R.35), potentially reflecting higher
role in recent market sell-offs such as the October market volatility. Regarding market
equity market price drop. This remains a infrastructures, central clearing continued to
significant source of risk going forward. increase amid ongoing implementation of the
Appreciation of the EUR against the USD clearing obligation for derivatives. Central
continued – albeit at a slower pace – with clearing rates for all outstanding OTC credit
divergences in monetary policies on both sides of derivatives grew from 25% to 27% in 2017 2. For
the Atlantic. OTC IRDs, central clearing rates grew from 40%
in 1Q17 to 58% in 4Q17. On 11 September,
Interest-rate environment: Risks of a low following a large divergence in spreads between
interest-rate environment now lie the pace of the Nordic and German power markets, a Norwegian
quantitative easing tapering policies, in the EA power market trader clearing its own trades at
and abroad. While search-for-yield behaviour by Nasdaq Clearing was not able to meet intraday
investors and potential mispricing of assets margin calls and declared default. Its positions
remain a concern in the short to medium term, were subject to a second auction process on
market anxiety over signs of a reversal in risk 12 September and the cost of the default was at
premia was reflected in the global equity sell-off the time covered by the default resources that
in October. Risk premia on bond markets (both were available to the CCP including the
sovereign and corporate) have started showing defaulter’s collateral, CCP’s own capital
signs of risk reallocation. Ten-year EA sovereign (EUR 7mn) and default fund contributions of
spreads to the DE Bund increased by 9 bps on non-defaulting clearing members (EUR 107mn).
average in between the start and the end of 4Q18
(R.9) standing now at a relatively high level. Political and event risk: In the EU, the political risk
Corporate bond spreads with respect to risk-free of a no-deal Brexit, and related developments
rates (as measured by Euribor swap rates) both in the UK and in the EU remains the most
increased significantly for all ratings (R.15), but significant risk. At the same time, discussions
even more so for lower rated ones, a sign of around the IT budget saw short-lived market
increased risk premia on these markets. Potential reactions, while tensions around potential future
curbing of search-for-yield behaviour is also reforms in France might be a source of instability.
reflected in the continued net outflows from most Globally, trade discussions between the US and
fund categories in 4Q18 (R.25, R26). Event risk, China were an important driver of equity market
for example related to potential escalation of volatility, while comments on the future stance of
uncertainties in trade discussions is affecting US monetary policy authorities was followed by
market expectations, thus weighing on the equity and bond market reactions throughout
economic outlook and potentially changing 4Q18.
anticipations around future monetary policy. In
this environment, markets could be more
vulnerable to risk premia repricing, hence our
Risk categories
continued deteriorating outlook for this risk. Market risk – very high, outlook stable: Equity
market price decreased globally in 4Q18.
1
International Monetary Fund, World Economic Outlook 2
ESMA Annual Statistical Report – EU Derivatives
Update, January 2019, and European Commission, Markets, 2018
Winter 2019 economic forecast.ESMA Risk Dashboard No. 1, 2019 5
Markets sensitivity to event risks remained high, This is usually a sign of differentiation between a
as a sell-off in US equity markets (–5% in two set of core countries and a periphery on EU
days) from growing trade tensions and sovereign markets. Market movements on Italian
expectations of tighter US monetary policy sovereign bonds only moderately spread to other
spread to other regions. EU equities fell heavily markets, showing signs of a high but contained
this quarter (–13%). Volatility was high on equity contagion risk. Across sectors, the correlation
(16% at end 4Q18, up from 8% at the beginning between equity sectoral indices started to
of the quarter) and commodity markets (27% at increase again in 4Q18 (R.20). Finally,
end 4Q18, up from 14% at the beginning of the interconnectedness between the non-banking
quarter) this quarter, in what seems to be an end sector, in particular hedge funds, and the banking
to the artificially low volatilities seen in recent sector remained at a relatively high level (R.29).
years. Political developments in Europe, together
Credit risk – high, outlook stable: In 4Q18, non-
with geopolitical events and discussions over
financial corporate bond spreads continued to
international trade arguments were driving
increase largely for lower-rated IG bonds (BBB)
market volatility. On foreign-exchange markets,
but also for other ratings, clearly showing signs of
volatility was high in 4Q18 for the GBP, as Brexit
risk premia adjustments. This mainly reflects a
approaches, and for the USD amid a strong US
repricing of risk given the growth slowdown and
economy and expectations of further monetary
political uncertainty in the context of ECB
tightening from the Federal Reserve, although in
tapering of corporate bond net purchases, which
early 2019 the central bank signalled that it would
ended in December. Spreads stood within a
put further interest rate increases on hold.
range of 179bps for BBB-rated securities to
Against the EUR, the USD continued to
32bps for the AAA class, in comparison with the
depreciate over the course of the quarter – albeit
much narrower range of 66bps to 9bps at
at a slower pace. As discussed in other sections,
end-2017 (R.15). At the same time, the credit
interest rate risk represents one of the main
quality of outstanding corporate bonds continued to
market risks in the future.
deteriorate, albeit at a slower pace (R.17).
Liquidity risk – high, outlook stable: Liquidity on
equity markets, as measured by the ESMA Operational risk – elevated, outlook deteriorating:
illiquidity index, started deteriorating during the ESMA recently identified several significant
first half of 4Q18, only to return to its initial level investor protection and conduct risk concerns in
at the end of the quarter (R.4). Sovereign bond the EU. Since 2 July 2018, there has been a ban
market liquidity continued to recover from its very on the marketing, distribution or sale of binary
low level of 2Q18, where it was affected by the options to retail investors, which was renewed on
May sovereign market movements in the EU. 2 January 2019 for a further three months. In
Spikes of illiquidity nevertheless occurred in addition, since 1 August 2018, CFDs have been
October and December (R.11). On corporate subject to a restriction in their marketing,
bond markets, the Amihud indicator recovered distribution or sale to retail investors, which has
from September levels, signalling enhanced been renewed for a further three months, from
liquidity; on the other hand, bid-ask spreads first 1 February 2019 onwards. Risks related to Brexit,
decreased, before increasing again towards the and its uncertain impact on an array of complex
end of the quarter. Trading volumes of centrally legal and regulatory issues, continue to pose a
cleared repos were subject to seasonal significant operational risk to EU financial
movements only in 4Q18, with long-term growth markets, for both investors and infrastructures, as
of volumes appearing to slow down (R.13). the possibility of no agreement is significant.
Collateral scarcity premia (i.e. the difference Regarding cyber risks, concerns are expected to
between general collateral and special collateral intensify in the medium to long term, especially
repo rates) increased in December. High levels of with respect to business continuity and the
collateral scarcity premia reflect possible integrity of proprietary data as financial data
shortages of high-quality collateral (R.14). This breaches are increasingly frequent in comparison
may fuel liquidity risk and volatility in funding with breaches in other sectors (R.43.). Finally, the
costs and reduce overall market confidence. dispersion of Euribor submission quotes
decreased slightly in 4Q18 (R.41).
Contagion risk – high, stable outlook: On
sovereign bond markets, the median correlation
between Germany and other EU countries’ bond
yields was high in 4Q18, while the dispersion
between Member States has widened (R.19).ESMA Risk Dashboard No. 1, 2019 6
Securities markets
R.3
Risk summary Risk drivers
– Reversal of risk-premia
Risk level
– Political risk
Risk change from 3Q18 – Geopolitical and event risks, especially Brexit
Outlook for 1Q19 – Potential scarcity of collateral
Note: Assessment of the main risk categories for markets under ESMA’s remit since the past quarter, and outlook for the 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 and downward arrows a risk decrease. ESMA risk assessment based on quantitative indicators and analyst
judgement.
R.4 R.5
ESMA composite equity illiquidity index Equity valuation
Illiquidity spike at the beginning of 4Q18 Downward trend for EA, decrease in November for
the US
0.27 30
0.26 25
0.25 20
0.24 15
0.23
10
0.22
5
0.21
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18 0
Nov-16 Mar-17 Jul-17 Nov-17 Mar-18 Jul-18 Nov-18
Illiquid ity index 2Y- MA
US EA
Note: Composite i ndicator of illiquidity in the equity market for the c urrent
Eurostoxx 200 constituents, com puted by applying the principal component 10Y -AVG US 10Y -AVG EA
methodology to six input liquidity meas ures (Amihud illiquidity coefficient, bid-ask Note: Price-earning rati os bas ed on average infl ation-adjus ted earnings from the
spread, Hui-Heubel ratio, turnov er value, inverse turnov er ratio, MEC). The previous 10 y ears (cyclically adj usted price-earning ratios). Averages c omputed
indicator range is between 0 (higher liquidity) and 1 (lower liquidity). from the most recent data point up to 10 years before.
Sources: Thomson Reuters Datastream, ESMA. Sources: Thomson Reuters Datastream, ESMA.
R.6 R.7
Equity prices Financial instrument volatilities
Decreasing for all categories Higher volatilities in 4Q18
135 100
130
50
125
120 0
115 Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
110 EUR 10 Y GBP 10 Y USD 10 Y
50
105
100 25
95 0
90 Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
85 VSTOX X 1 M VSTOX X 3 M
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18 VSTOX X 1 2M VSTOX X 2 4M
Note: Top panel: implied volatilities on one-month Euro-Euribor, UK Pound
Non-finan cia ls Ban ks
Sterling-GBP Libor and US Dollar-USD Libor swaptions meas ured as price
Insu rance Financial service s indices, in % ; bottom panel: Euro Stoxx 50 implied vol atilities, measured as price
Note: STOXX Europe 600 equity total return indices. 01/12/2016=100. indices, in %.
Sources: Thomson Reuters Datastream, ESMA. Sources: Thomson Reuters EIKON, Thomson Reuters Datastream, ESMA.
R.8 R.9
Exchange rate volatilities Sovereign risk premia
Jump in volatility for GBP Higher since May 2018
16 8
14
7
12
10 6
8 5
6 4
4
3
2
0 2
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
1
EUR-USD EUR-GBP
GBP -USD 5Y- MA EUR 0
Note: Implied volatilities for 3M options on exchange rates . 5Y-MA EUR is the Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
five-year movi ng av erage of the implied v olatility for 3M options on EUR-USD PT IE IT ES GR
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, 2019 7
R.10 R.11
Sovereign bond bid-ask spreads ESMA composite sovereign bond illiquidity index
Subject to spikes Illiquidity spikes in October and December
0.13 0.8
0.12 0.6
0.11
0.4
0.10
0.2
0.09
0.08 0.0
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
0.07 Eur o MTS Domestic MTS
0.06 1Y- MA Domestic 1Y- MA Eur o MTS
Note: Composite indicator of market liquidity in the s overei gn bond
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
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: Bi d-ask spread as av erage bid-ask s pread thr oughout a m onth across Turnover). The indicator range is between 0 (higher liquidity) and 1 (lower
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 Seasonal movements
18 70 260
16 60 240
14 220
50
12
200
10 40
180
8 30
6 160
20
4 140
2 10 120
0 0 100
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18 Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
DE ES FR IE
Volume 1M-MA
IT PT EU ( rhs)
Note: Repo trans action vol umes ex ecuted through CCPs in sev en sover eign EUR
Note: Value of outs tanding net noti onal sov ereign CDS for selected countries, in
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
Higher dispersion in December Sharp increase in spreads
25 200
175
20
150
15 125
100
10
75
5 50
25
0
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18 0
Median 75th perc 90th perc Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
Note: Medi an, 75th and 90th percentile of weekly speci alness , meas ured as the AAA AA A BBB
difference between gener al collateral and special collateral repo rates on
Note: EA corporate bond s preads by rati ng between iBoxx corporate yi elds and
government bonds in selected countries.
ICAP Euro Euribor swap rates for maturities from 5 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 Long-term corporate debt outstanding
Lower Amihud indicator despite higher bid-ask Rating distribution slightly deteriorating
0.6 0.6 100
0.5 0.5
80
0.4 0.4
0.3 0.3 60
0.2 0.2
40
0.1 0.1
0.0 0.0 20
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
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 3 4Q1 4 4Q1 5 4Q1 6 4Q1 7 4Q1 8
a one-month movi ng av erage of the iBoxx c omponents in the current AAA AA A BBB BB and lower
composition. 1Y-MA=one-year moving av erage of the bi d-ask spread. Amihud Note: Outstandi ng amount of corporate bonds in the EU as of issuanc e date by
liquidity coefficient index between 0 and 1. Higher value indicates less liquidity. rating category, in % of the total.
Sources: IHS Markit, ESMA. Sources: Thomson Reuters EIKON, ESMA.ESMA Risk Dashboard No. 1, 2019 8
R.18 R.19
Covered bond spreads Dispersion in sovereign yield correlation
Further increase in 4Q18 High correlation
120 1.0
100
0.5
80
60 0.0
40
-0.5
20
0
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18 -1.0
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
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 c orrelations betw een 10Y DE Bunds and other EU c ountries'
MA=five-year moving average of all bonds. sovereign bond redemption yields over 60D rolling windows.
Sources: Thomson Reuters Datastream, ESMA. Sources: Thomson Reuters Datastream, ESMA.
R.20 R.21
Sectoral equity indices correlation Debt issuance growth
Increasing correlations Decline in issuance across bond classes
1.0 4
0.9 2
0
0.8
-2
MM 4Q1 6
MM 4Q1 7
MM 4Q1 8
SOV 4Q 16
SOV 4Q 17
SOV 4Q 18
IG 4 Q16
IG 4 Q17
IG 4 Q18
HY 4 Q16
HY 4 Q17
HY 4 Q18
CB 4 Q17
CB 4 Q18
CB 4 Q16
0.7
0.6
0.5 10% 90% Curren t Median
Note: Growth rates of issuance v olume, in % , normalised by standard deviation
0.4 for the followi ng bond class es: high yi eld (HY), inv estment grade (IG), c overed
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18 bonds (CB), money m arket (MM), sovereign (SOV). Percentiles computed from
Ban ks Financial service s 12Q rolling window. All data include sec urities with a maturity higher than 18M,
Insu rance Non-finan cia l corpor ati on except for MM (maturity less than 12M). Bars denote the range of values
Note: Correlati ons between daily returns of the STOXX Europe 600 and ST OXX between the 10th and 90th percentil es. Missing di amond indic ates no iss uanc e
Europe 600 sectoral indices. Calculated over 60D rolling windows. 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
40 120 350 50
300 0
20 60
250
-50
0 0 200
-100
-20 -60 150
-150
100
-40 -120 50 -200
-60 -180 0 -250
MT
LU
LV
LT
HR
HU
RO
CY
DE
DK
CZ
IE
IT
NL
FR
GR
FI
GB
BG
EU
BE
EE
AT
ES
PL
PT
SE
SK
SI
4Q1 8 4Q1 9 4Q2 0 4Q2 1 4Q2 2 4Q2 3
1Y high 1Y low 4Q1 8 Financial s Non-finan cia ls
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 ov er 5Y-horizon by EU private financial and non-
outstanding debt maturing over the quarter. Highest and low est quarterly net financi al corporates , EUR bn. 1Y-change= difference betw een 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, 2019 9
Investors
R.24
Risk summary Risk drivers
– Asset re-valuation and risk re-assessment
Risk level
– Correlation in asset prices
Risk change from 3Q18 – Risky market practices: CAs, ICOs
Outlook for 1Q19
Note: Assessment of the main risk categories for markets under ESMA’s remit since the past quarter, and outlook for the 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 and 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
Outflows from all fund categories in 4Q18 Net outflows for most categories
2,500 40
30
1,500
20
500 10
0
-500 -10
-20
-1,500 Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
Corpor ate Govern me nt Emergi ng
Eur ope BF Eur ope EF
HY Mixed Other asse ts
Emergi ng mar kets BF Emergi ng mar kets EF Note: Two-month cumulative net flows for bond funds, EUR bn. Funds investi ng
North A me rica BF North A me rica EF in corporate and gov ernment bonds that qualify for another category are only
Note: C umulativ e net fl ows into bond and equity funds (BF and EF) over time reported once ( e.g. funds i nvesti ng in emergi ng gov ernment bonds reported as
since 2004 by regional investment focus, EUR bn. emerging; funds investing in HY corporate bonds reported as HY).
Sources: Thomson Reuters Lipper, ESMA. Sources: Thomson Reuters Lipper, ESMA.
R.27 R.28
Rate of return volatilities by fund type Liquidity risk profile of EU bond funds
Higher return volatility Stable liquidity and mixed maturity changes
16 100
14
80
12
60
10
8 40
6 20
4
0
2
0 1 2 3 4 5 6 7 8 9 10
0 Other fu nds Loa n funds
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18 HY fund s Govern me nt bond funds
Equ ity Bon d Commo dity Corpor ate bon d funds
Alterna tive Mixed a ssets Real estate Note: F und ty pe is reported accordi ng to the av erage liqui dity rati o, in % (Y-axis),
Note: Annualised 40-day historical return vol atility of EU-domiciled i nvestment the effective av erage maturity of assets , in years (X-axis), and the size. Eac h
funds, in %. series is reported for two years, i.e. 2017 (pale colours) and 2018 (dark colours).
Sources: Thomson Reuters Lipper, ESMA Sources: Thomson Reuters Lipper, ESMA.
R.29 R.30
Financial market interconnectedness Retail fund synthetic risk and reward indicator
High for hedge funds, decreasing for MMFs Higher for equity and commodity funds
20 80 7
6
15 75
5
10 70 4
3
5 65
2
0 60 1
3Q1 3 3Q1 4 3Q1 5 3Q1 6 3Q1 7 3Q1 8 Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
Tota l funds Hedge funds Equ ity Bon d Alterna tive
Bon d funds MMFs ( rhs) Commo dity Money mar ket Real estate
Note: Loan and debt securities vis-à-vis MFI counterparts, as a s hare of total Note: T he c alculated synthetic risk and reward i ndicator (SSRI) is based on
assets. EA investment funds and MMFs, in %. Total funds includes: bond funds, ESMA SRRI guidelines. It is c omputed vi a a simple 5-year annualised v olatility
equity funds, mixed funds, real estate funds, hedge funds, MMFs and other non- measure which is then translated into categories 1-7 (with 7 repres enti ng higher
MMF investment funds. levels of volatility).
Sources: ECB, ESMA. Sources: Thomson Reuters Lipper, ESMA.ESMA Risk Dashboard No. 1, 2019 10
Infrastructures and services
R.31
Risk summary Risk drivers
– Operational risks, including cyber and Brexit-related risks
Risk level
– Conduct risk, including intentional or accidental behaviour by
Risk change from 3Q18 individuals, market abuse
– Systemic relevance, interconnectedness between
Outlook for 1Q19 infrastructures or financial activities, system substitutability
Note: Assessment of the main risk categories for markets under ESMA’s remit since the past quarter, and outlook for the 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 and downward arrows a risk decrease. ESMA risk assessment based on quantitative indicators and analyst judgement.
R.32 R.33
Complaints indicator by rationale Complaints indicator by instrument
Execution of orders as the main cause for
complaints Complaints regarding debt securities decline
100 400 0
100 4000
300 0
3000
50 200 0
50 2000
100 0
1000
0 0
0 0 3Q1 4 1Q1 5 3Q1 5 1Q1 6 3Q1 6 1Q1 7 3Q1 7 1Q1 8 3Q1 8
3Q14 1Q15 3Q15 1Q16 3Q16 1Q17 3Q17 1Q18 3Q18
Other causes Unauthorised business Other investment products/funds Financial contracts for difference
General admin Fees/charges Options, futures, swaps Mutual funds/UCITS
Quality/lack of Information Portfolio management Money-market securities Structured securities
Investment advice Execution of orders Bonds/debt securities Shares/stock/equity
Total volume reported (right scale) Total volume reported (right scale)
Note: Complaints reported directly to 18 NCAs: AT, BG, CY, CZ, DE, DK, EE, ES, FI, HR, HU, IT, LT, LU, MT, Note: Compl aints reported directly to 18 NCAs: AT, BG, CY, CZ, DE, DK, EE, ES, FI, HR, HU, IT, LT, LU, MT, PT,
PT, RO, SI. Line shows total volume of these compla ints. Bars show % of total volu me by cause. Data collected RO, SI. Line shows total number of these complaints. Bars show % of total volume by type of financial instrument.
by NCAs. Source: ESMA complaints database
R.34 R.35
Circuit-breaker-trigger events by sector Circuit-breaker occurrences by market capitalisation
Higher share for healthcare Increased number of circuit-breaker triggered
100 500
75 400
50 300
25 200
0 100
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
0
Basic Materia ls, Indu strials and Energ y Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
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: Number of daily circuit-breaker trigger events by type of financial
Note: Percentage of circuit-breaker trigger events by economic sector. Res ults instrument and by m arket c ap. Resul ts dis played as weekly aggregates.T he
displayed as w eekly aggregates.T he analysis is bas ed on a s ample of 10,000 analysis is based on a sampl e of 10,000 sec urities, including all cons tituents of
securities, incl uding all constituents of the STOXX Europe Large/Mid/Small 200 the STOXX Europe Lar ge/Mid/Small 200 and a l arge s ample of ETFs tracking the
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.
R.36 R.37
Trading system capacity proxy Equity market concentration
Volumes at 25% of capacity on average Increasing towards the end of the quarter
80 80 60
50
60 60
40
40 40 30
20 20 20
10
0 0
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18 0
Tradin g volume 3M-MA vol ume Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
Capacity (rhs) All- time high (rhs) Top 25% Core 50% Bottom 25% Median
Note: D aily and three-month moving av erage trading volume regist ered on 36 EU Note: Concentrati on of notional v alue of equity trading by national i ndices
trading venues, EUR bn. C apaci ty com puted as the average across tradi ng computed as a 1M-MA of the Herfindahl-Hirschman Index, in %. Indices i ncluded
venues of the raio of daily trading vol ume over maximum volume observed si nce are FTSE100, CAC 40, DAX, FTSE MIB, IBEX35, AEX, OMXS30, BEL20,
31/03/2016, in %. OMXC20, OMXH25, PSI20, ATX.
Sources: Morningstar Realtime, ESMA. Sources: BATS, ESMA.ESMA Risk Dashboard No. 1, 2019 11
R.38 R.39
Settlement fails OTC central clearing rates
Decrease for equities, higher for corporates Increasing for credit derivatives and IRDs in 2017
10 70
8 60
6 50
4 40
2 30
20
0
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18 10
Corpor ate bon ds 6M-MA cor p
Equ itie s 6M-MA equities 0
Govern me nt bond s 6M-MA gov 1Q1 7 2Q1 7 3Q1 7 4Q1 7
Note: Share of failed settlement instruc tions i n the EU, in % of value, one-week
moving averages. Jum p in Dec ember 2018 due to a singl e tr ansac tion instruc ted
on 10 D ecember with s ettlement requested on the same day which was fi nally CD IRD
cancelled on 18 December 2018 (amount of EUR 500bn). Note: Shar e of gross notional amount outst anding for credit derivatives
Sources: National Competent Authorities, ESMA. (CD) and interest rate derivatives (IRD), in %.
Sources: TRs, ESMA.
R.40 R.41
Difference between the Euribor and the maximum contribution Euribor – dispersion of submission levels
Slightly lower levels in December 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-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18
0 Top 15% Core 70%
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18 Bottom 15% Raw 3M Euribo r
Note: N ormalised differ ence in percentage poi nts betw een the highest 3M E uribor ECB refinancing rate
contribution submitted by panel banks and the c orresponding 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 eight 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.42 R.43
Rating changes Financial services data breaches
High rating volatility in October Increasing share for financials
8 200 20
6 150 15
100 10
4
50 5
2
0 0
0 1H13 2H13 1H14 2H14 1H15 2H15 1H16 2H16 1H17 2H17 1H18
Dec-16 Apr -17 Aug -17 Dec-17 Apr -18 Aug -18 Dec-18 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: Volatility of rati ngs by all credit rating agenci es, excl uding CERVED and Note: Estimated number of data breaches, financial services only, worldwide, by
ICAP, by asset class c omputed as number of rating changes over number of type. Breac hes i n financi al services s ector as % of total data breaches acr oss all
outstanding ratings. sectors (secondary axis). Both s eries as reported by the Gemalto Breac h Level
Sources: RADAR, ESMA. Index. The underlying data were gathered by Gemalto from publicly available
reports of information breaches.
Sources: Gemalto Breach Level Index, ESMA.ESMA Risk Dashboard No. 1, 2019 12
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