ESMA’s first stress test for EU CCPs looming
25 April 2016 Frankfurt
Image: Shutterstock
The European Securities and Markets Authority (ESMA) will launch the first of its stress test exercises for EU central counterparties (CCPs) on 29 April.
ESMA, in cooperation with national competent authorities (NCAs) and the European Systemic Risk Board (ESRB), will test the resilience of European CCPs by exposing them to adverse market scenarios.
The stress test will focus on the counterparty credit risk that CCPs would face as a result of multiple clearing member defaults and simultaneous market price shocks.
The overall exercise is complemented by an analysis of the inter-dependency of CCPs through
common clearing members, the concentration of CCPs exposures and the potential spillover effects to non-defaulting clearing members triggered by the loss absorption mechanism of CCPs.
CCPs are also tested against a set of reverse stress scenarios by further increasing the number of defaulting clearing members in order to look for extreme but plausible scenarios that could have a significant impact on the resilience of EU CCPs.
ESMA is mandated to conduct stress tests of CCPs under the European Markets Infrastructure
Regulation (EMIR).
Steven Maijoor, chair of ESMA, said: “CCPs offer significant benefits to the market and play a key role in making derivatives markets safer. CCPs are also highly interconnected—both with financial institutions and markets—and the increasing volumes cleared through CCPs make them even more important for the financial system.”
“Therefore, it is essential to test the sufficiency of their resources, not only individually but also at an EU-wide level. These stress tests are a crucial supervisory tool to ensure the sector is safe and resilient to shocks.”
The results of the stress test will be presented in an aggregated and anonymised manner on 29 April.
ESMA, in cooperation with national competent authorities (NCAs) and the European Systemic Risk Board (ESRB), will test the resilience of European CCPs by exposing them to adverse market scenarios.
The stress test will focus on the counterparty credit risk that CCPs would face as a result of multiple clearing member defaults and simultaneous market price shocks.
The overall exercise is complemented by an analysis of the inter-dependency of CCPs through
common clearing members, the concentration of CCPs exposures and the potential spillover effects to non-defaulting clearing members triggered by the loss absorption mechanism of CCPs.
CCPs are also tested against a set of reverse stress scenarios by further increasing the number of defaulting clearing members in order to look for extreme but plausible scenarios that could have a significant impact on the resilience of EU CCPs.
ESMA is mandated to conduct stress tests of CCPs under the European Markets Infrastructure
Regulation (EMIR).
Steven Maijoor, chair of ESMA, said: “CCPs offer significant benefits to the market and play a key role in making derivatives markets safer. CCPs are also highly interconnected—both with financial institutions and markets—and the increasing volumes cleared through CCPs make them even more important for the financial system.”
“Therefore, it is essential to test the sufficiency of their resources, not only individually but also at an EU-wide level. These stress tests are a crucial supervisory tool to ensure the sector is safe and resilient to shocks.”
The results of the stress test will be presented in an aggregated and anonymised manner on 29 April.
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