The European Securities and Markets Authority (ESMA) has announced that it will publish its first EU-wide stress tests for central counterparties (CCPs) on 29 April 2016. The aim of the stress test is to assess the resilience and safety of CCPs and to identify possible vulnerabilities. ESMA will conduct the stress test in co-operation with national competent authorities and the European Systemic Risk Board.

The stress test will focus on the counterparty credit risk that CCPs would face as a result of multiple clearing member (CM) defaults and simultaneous market price shocks. The test will consist of:

  • three different CM default scenarios, including the default of the two CMs with the largest exposures per CCP;
  • market price shock scenarios, consisting of a range of scenarios made up of minimum price shocks and a set of hypothetical modelled stress scenarios;
  • 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; and
  • reverse stress scenarios based on an increased number of defaulting CMs.

ESMA will publish the final results on 29 April 2016 after markets have closed.

View ESMA announces EU-wide stress tests for CCPs, 14 April 2016