The European Securities and Markets Authority (ESMA) has reported that the European Union’s (EU) derivatives markets grew by 11% in 2018 to €735 trillion in notional amounts outstanding.
The market’s growth was powered by increases in both interest rate derivatives and equities, the ESMA noted.
The ESMA’s report also found that over-the-counter (OTC) trading continues to account for the vast majority of derivatives activity, representing about 90% of trading over the course of the year.
The ESMA said that these derivatives exposures are “highly concentrated” in just a handful of counterparties — particularly investment firms, credit institutions and central counterparties (CCPs).
“In all markets, a few large counterparties are widely connected to other market participants, and the U.K. remains the dominant market for transactions,” the report said.
Additionally, the report found that about 11% of the market involves intra-group transactions. These sorts of trades can increase risk, ESMA noted, “when they act to exploit regulatory differences across jurisdictions.”