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ESMA issues first risk report on EU securities markets

The European Securities and Markets Authority (ESMA) has published its first report on trends, risks and vulnerabilities in European Union (EU) securities markets.

The study looks at the performance of securities markets in 2012, assessing both trends and risks to provide a picture of systemic and macro-prudential risks in the EU.

It finds that EU securities markets and investment conditions improved in 2012, especially in the second half of the year, while systemic risk decreased in the fourth quarter.

The recovery is linked to the European Central Bank’s announcement of Outright Monetary Transactions (OMT) in early August, which reduced pressure on euro area sovereign bond markets.

The report also identifies the following key trends:

• Securities markets: after a volatile first semester, financial market conditions in 2012 improved due to the ECB’s OMT announcement. However, sovereign bond markets continue to struggle.

• Collective investments: asset managers benefited from easing markets (with total net asset values up to €8 trillion, compared to €7.4 trillion in 2011); main beneficiaries were bond, hedge, real estate and exchange-traded funds. Overall however, fund inflows remained volatile.

• Market infrastructures: trading on EU venues significantly decreased in 2012. The use of Central Counterparties however, increased: 60% of worldwide interest rate swaps are now centrally cleared, and 10% of credit default swaps.

Steven Maijoor, chair of ESMA comments: “ESMA’s risk analysis points to important first signs of easing in EU financial markets, but risks remain high and regulators, market participants and investors should remain vigilant about risks in the financial markets.”

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