Securities markets in the EU improved in the second half of 2013 but risks remained at high levels, according to a new report by the European Securities and Markets Authority (Esma).

The supervisory body found that the markets performed positively during the period which led to lower systemic risk and volatility. However sensitivities prevailed on the back of global economic outlook and uncertainty around emerging markets. The findings were revealed in Esma’s Report on Trends, Risks and Vulnerabilities and Risk Dashboard for Q4 2013.

Esma chair Steven Maijoor said: “Stress in EU securities markets has decreased, but key markets and investors continue to face substantive risks. As we remain vigilant about monitoring these vulnerabilities, global re-pricing risks as well as a better understanding conduct and operational risks will be a particular concern going forward.”

The report also found that fixed income funds had outflows while equity funds reflected the positive growth of stock markets. Overall, fund flows returned to positive levels at the end of 2013 following a decline in Q2 2013.

Mutual funds were hit much harder than alternative funds, said Esma.

When considering the impact of low interest rates, the report found that such an environment encourages investors to favour particular asset market segments such as fixed income products.

The report also looked at high frequency trading (HFT) in the region’s equity markets, and found that overall the activity was “positively related” to volumes traded, fragmentation, prices and tick sizes, and negatively related to volatility.

HFT accounted for around 22% of the value traded and for 60% of orders, and is concentrated on multilateral trading facilities.