On 19 October 2021, the Bank of England (BoE) launched its first public supervisory stress test of UK central counterparties (CCPs).

As stated in the earlier BoE Discussion Paper on CCP supervisory stress testing, the 2021-22 stress test will explore the system-wide credit and liquidity resilience of UK CCPs. The findings from the stress test will be used alongside the feedback to the Discussion Paper to help further develop and refine the CCP supervisory stress testing regime.

The stress test will include two components:

  • The credit component will test how CCPs’ resources withstand a combination of market stress scenarios and clearing member defaults.
  • The liquidity component will test the ability of CCPs to service all relevant cash requirements under a combination of market stress scenarios and the default and non-performance of clearing members and service providers.

Both components will include an examination of concentration costs to account for additional costs that may occur if CCPs liquidate directional large exposures into stressed markets for short periods. The stress test will also be used to examine a range of default assumptions across both components.

Reverse stress testing will be used to examine the impact of increasingly severe assumptions regarding market stress severity, concentration costs, the number of defaulters on CCP resilience and to test assumptions that are likely to deplete CCP resources beyond acceptable levels.

The stress test will apply to CCP resources, exposures and market prices as of close of business on 17 September 2021. The stress test horizon is five days.

The BoE intends to publish the results of the stress test in summer 2022.