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EU clearinghouses clear stress test

The system of clearinghouses in the European Union is resilient overall to multiple members defaulting at the same time coupled with extreme market shocks, according to the bloc's markets regulator.

The European Securities and Markets Authority on Feb. 2 published the results of its second EU-wide stress tests of central counterparties, or CCPs — entities that stand between buyers and sellers in trades and guarantee the terms of the transactions.

ESMA's stress test included an examination of whether Europe's CCPs could meet their liquidity needs under different stress scenarios. The regulator noted that for the liquidity part of the tests, there were no major systemic risk concerns.

ESMA tested the resilience of 16 European CCPs with approximately 900 clearing members throughout the EU, with the aggregate amount held by CCPs in the form of margin requirements and default fund contributions totaling about €270 billion.

On an individual basis, Spain's BME Clearing SA – Sociedad Unipersonal showed a minor shortfall of required prefunded resources under one aspect of the test, with no systemic impact. For ICE Clear Europe Ltd., the required prefunded resources would be enough, but would only marginally cover the simulated stress losses.