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ESMA says clearing houses resilient to market stress, urges tougher checks


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ESMA says clearing houses resilient to market stress, urges tougher checks

TheEuropean Securities and Markets Authority published the results of its firstEU-wide stress testof central counterparties, or CCPs.

Theresults revealed that the system of EU CCPs was overall resilient to the stressscenarios used to model extreme but plausible market developments, the ESMAsaid April 29.

"ESMA's first EU-wide stress test shows that EuropeanCCPs are overall well equipped to face the counterparty risk associated withthe considered stress scenarios."

ESMAtested the resilience of 17 European CCPs with more than 900 clearing membersthroughout the EU, which held over €150 billion worth of resources to coverdefaults. The results showed that CCPs' resources were sufficient to coverlosses resulting from the default of the top two EU-wide clearing member groupscombined with historical and hypothetical market stress scenarios.

However,under more severe stress scenarios, CCPs faced small amounts of remaininguncovered losses varying from between €100 million to €4 billion, especiallyfor scenarios assuming the default of the top two clearing members of every CCPdue to assumed clearing member defaults across CCPs.

TheESMA also issued recommendations on how to improve CCPs' internalmethodologies.

The regulator warned that some of the CCPs own daily stresstesting is less harsh than the minimum shocks used in the ESMA assessment.

"ESMA recommends that CCPs incorporate in theircreditworthiness assessment of [clearing members], the potential exposuresthese may face due to their membership in other CCPs. Such analysis isessential in order to identify sources of increased exposure."