ESMA report highlights market infrastructure risks

Although inflation, Ukraine and volatiity remain concerns, market infrascture issues are  also now top of the list, according to the European Securities and Markets Authority’s (ESMA) latest report on trends, risks and vulnerabilities. 

The European regulator said not suprisingly, when volatility spikes, clearing houses demand more margin for trades to compensate for increased risks.

The turblulent market conditions coupled with high trade volumes caused multi-year highs in margin calls, both for initial margin in new trades and variation margin in existing ones.

Margin calls for interest rate derivatives increased as both inflation and interest rate hikes heightened activity.

The report also noted that central clearing volumes saw further increases and settlement activity rose.

Equity settlement fails remained more frequent than before the COVID-19 crisis and slightly above 2H20 levels across asset classes.

“This latest analysis from ESMA puts the longstanding issue of settlement inefficiency well and truly under the spotlight,” says Philip Slavin, CEO of Taskize. “The spike in equity trade fails places an even greater emphasis on the industry as a whole driving greater settlement efficiency.

Key to achieving greater settlement efficiency is finding a way to reduce the amount of time it is taking firms to resolve disputes around the trades.”

ESMA also highlights the risks posed by digitalisation.  It said there was “significant operational risk across a wide range of infrastructure providers, including exposure from fast-rising digitalisation, the use of cloud services in core production
processes and rising cyber risks.

©Markets Media Europe 2022

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