Friday, 17 December 2021

The European Securities and Markets Authority (ESMA), the EU’s securities regulator, today publishes two Annual Statistical Reports (Reports) analysing the European Union’s (EU) derivatives and securities markets. The Reports, based on data submitted under the European Markets and Infrastructure Regulation (EMIR) and the Markets in Financial Instruments Directive (MiFID), provide an overview of EU/EEA markets in 2020.

The two Reports provide a first comprehensive view of the EU derivatives and securities markets after Brexit, i.e. without data reports from UK financial participants. In both, the impact of the withdrawal is significant: The size of derivatives markets and the volume of securities trading are around two-thirds lower without the UK. Our Reports provide, in dedicated sections, extensive comparative evidence to document the effects of Brexit on market statistics, juxtaposing post-Brexit EEA30 and pre-Brexit EEA31 data, while also considering the continued participation of the UK in the EU Single Market until the end of 2020.

These comparisons aside, the two documents report exclusively on post-Brexit EEA30 data*.

Central clearing of EU derivatives increased in 2020 amid an overall market decrease

Derivatives markets in the EEA30 saw a 4% decline in 2020, while market structures remained largely unchanged. Key figures from the Report include:

  • The EEA30 derivatives market had a total size of EUR 254tn gross notional amount outstanding at the end of 2020, a decrease of 4% on the size compared to the EEA30 market in 2019.
  • The market fall was driven mainly by currency and equity derivatives. Interest rate derivatives grew in the first quarter of the year, but later fell back and finished unchanged over the year. Interest rate, currency and equity derivatives make up respectively 79%, 13% and 4% of the total.
  • Central clearing activity saw an increase for both interest rate and credit derivatives. The total share of interest rate derivatives outstanding cleared grew to 71% from 68% in 2020, while for credit it rose to 41% from 38%.
  • OTC trading still accounts for the major part of trading, with the share actually growing slightly to 92% from 91%. The total share executed on trading venue grew strongly, however, from 19% to 23%, driven by strong increases in the OTC derivatives executed on trading venues in interest rate, credit and currency derivatives.
  • Exposures continue to be highly concentrated in relatively few counterparties, particularly credit institutions and investment firms. CCPs remain important but are less visible in the statistics with the removal of UK CCP reports.
  • The UK remains the dominant market for transactions within the EEA as well as with third countries. Intra-EEA30 exposures account for about a quarter of the derivatives market and grew slightly from 2019.
Securities – Increase in new admissions and a strong home-bias for European equity and bonds

EEA30 securities markets show a market increase in new admissions in 2020, and a continued structural home bias, especially in equity trading. Key figures from the Report include:

  • The EEA30 securities markets turnover volumes amounted to EUR 8.8tn for equities, and EUR 17.9tn for bonds, and are down two thirds from 2019 if comparing EEA30 and EEA31. The distribution of instruments by type has remained broadly unchanged.
  • On equity markets, volumes peaked in March (EUR 1,1tn) due to the COVID-19 pandemic, and the majority of volumes was in shares (86%), even though ETF share of equity volumes (12%) continued to increase in 2020.
  • Trading patterns have remained similar to previous years, with equities trading taking place mainly on-exchange, with regulated markets accounting for 70% of volumes; and bond trading largely off-exchange in 2020 (66%), with large transaction sizes.
  • For EEA30 instruments a strong home trading bias is observed, since 65% of volumes of EEA30 equities occurred on a trading venue or a systematic internaliser in the same jurisdiction as the issuer, and 49% for EEA30 bonds, even if the majority of these instruments were available to trade cross-border.

In addition, the share trading obligation for equity instruments has had a strong impact in 2021. This led to a change in the equity trading landscape with an increase in lit trading of EEA30 shares on EEA30 venues, which will be presented in the next report.

Next steps

The objective of this data analysis is to contribute to ESMA’s risk assessment, to facilitate entity oversight by supervisory authorities, both national and European, and enhance supervisory convergence. ESMA will continue to report its analysis annually.

Source: ESMA reports on derivatives and securities markets in 2020