EUROPEAN UNION: ESMA announces EU-wide stress tests for CCPs

Friday April 15 2016

The European Securities and Markets Authority (ESMA) has announced the publication of its first EU-wide stress test exercise regarding Central Counterparties (CCPs) on 29 April 2016. ESMA is mandated to conduct stress tests of CCPs under the European Markets Infrastructure Regulation (EMIR). The stress test assesses the resilience and safety of the European CCP sector and aims to identify possible vulnerabilities.

ESMA, in cooperation with National Competent Authorities (NCAs) and the European Systemic Risk Board (ESRB), test the resilience of European CCPs by exposing them to adverse market scenarios. ESMA’s stress test focuses on the counterparty credit risk that CCPs would face as a result of multiple clearing member (CM) defaults and simultaneous market price shocks

ESMA’s stress test exposes CCPs to three different CM default scenarios, which include:

• the default of the two CMs with the largest exposures per CCP, taking into account the common membership across CCPs;
• the default of the two groups of CMs EU-wide with the largest aggregate exposures; and
• the default of the two groups of CMs EU-wide with the largest aggregate exposures weighted by their probability of default.

The results of ESMA’s EU-wide CCP stress test will be presented in an aggregated and anonymised manner. The publication of the final results is scheduled to take place on 29 April 2016 after markets have closed.

Click on the above link for further details.