ESMA announces first EU-wide stress test exercise for CCPs

The European Securities and Markets Authority (ESMA) has scheduled its first European Union-wide stress test exercise regarding Central Counterparties (CCPs) for April 29, 2016.

ESMA is mandated to conduct stress tests of CCPs under the European Markets Infrastructure Regulation (EMIR). The stress test gauges the resilience and safety of the European CCP sector and seeks to identify possible vulnerabilities.

The test exposes CCPs to adverse market scenarios. ESMA’s stress test focuses on the counterparty credit risk that CCPs would encounter in case of multiple clearing member (CM) defaults and simultaneous market price shocks.

esma_logoThe overall exercise is complemented by an analysis of the inter-dependency of CCPs through common CMs, the concentration of CCPs exposures and the potential spill-over effects to non- defaulting CMs triggered by the loss absorption mechanism of CCPs.

The results of ESMA’s EU-wide CCP stress test are set to be announced in an aggregated and anonymised manner. The publication of the final results is scheduled for April 29, 2016 after market close.

Steven Maijoor, ESMA Chair, 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.”

For the full announcement from ESMA, click here.

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