On 3 April 2019, the European Securities and Markets Authority (ESMA) published the framework of its third EU-wide stress test exercise for central counterparties (CCPs).
The framework details the design of the CCP stress test exercise, including the objectives, the methodology and the key milestones. The exercise covers both credit and liquidity risks and further develops the applied methodologies with targeted improvements. In addition, the exercise includes for the first time an assessment of the impact of liquidation costs for concentrated positions.
The exercise will cover all authorised EU CCPs, including the three UK CCPs, unless a no-deal Brexit takes place. Currently, 16 CCPs are authorised and will be included in the scope of the exercise.
ESMA has launched the execution phase of the stress test exercise and CCPs will be requested to calculate and deliver the exposures on the basis of predefined templates and detailed methodological instructions. The data will then be analysed by the national competent authorities and ESMA. Publication of the final report is expected in Q2 2020.