On 7 June 2021, the European Securities and Markets Authority (ESMA) issued the framework for its fourth stress test for central counterparties (CCPs).

The new stress test exercise has the following components:

  • Credit Stress: assessing CCPs’ resources ability to absorb losses under a combination of market price shocks and member default scenarios.
  • Concentration risk: assessing the impact of liquidation costs derived from concentrated positions.
  • Reverse Credit Stress: increasing the number of defaulting entities and level of shocks and/or liquidation costs to identify at which point CPPs’ resources are exhausted.
  • Operational risk: assessing the importance of shared service providers in the clearing industry and interconnections of CCPs.

The new exercise covers the 13 CCPs authorised in the EU and the 2 UK CCPs classified as Tier 2.

The publication of the final report and results is scheduled to take place in H2 2022.

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