On 31 May 2023, the European Securities and Markets Authority (ESMA) published a final report on the framework for the 5th ESMA stress test exercise for central counterparties (CCPs).

This report sets out the framework for the new ESMA stress test exercise for CCPs, including the scope, the detailed methodology, the expected deliverables and the implementation plan.

The report sets forth that the framework covers the following components:

  • Credit stress: assesses the sufficiency of CCPs’ resources to absorb losses under a combination of market price shocks and member default scenarios.
  • Concentration risk: assesses the impact of liquidation costs derived from concentrated positions.
  • Liquidity stress: assesses the sufficiency of CCPs’ liquid resources under a combination of market price shocks, member/liquidity provider default scenarios and additional liquidity stress assumptions.
  • Climate risk: assesses the degree to which the CCP’s business model is affected by the transition to a carbon-neutral economy, the consequences of the transition on the collateral posted by clearing members, and explores the impact of physical risk on CCPs.
  • Reverse stress: increases the severity of the contemplated scenarios and identifies breaking points of the eco-system for credit, concentration and liquidity stress.

The data submitted by the reporting entities will first be validated by ESMA and the Member State competent authorities and later analysed. The results are scheduled to be published in a final report in H2 2024.