Brussels, 02/05/2016 (Agence Europe) - The 17 central counterparties (CCP) assessed by the European Securities and Markets Authority (ESMA) are sufficiently financed to resist the default of the two largest clearing members active in several of the counterparties, according to the results of a 'stress test' carried out on these CCPs and published by ESMA on Monday 2 May.
On the basis of the 'EMIR' Regulation (648/2012) on market infrastructure, the stress test, the first of a series of annual tests, focused on assessing the counterparty risk to which the CCPs would be exposed in the event of multiple clearing member defaults and simultaneous market price shocks. This exercise was accompanied by an analysis of the interdependency of the counterparties on the grounds of their relationships with the clearing members.
On the basis of figures from the end of 2014, “the results show that the CCPs' resources were sufficient to cover losses resulting from the default of the top two EU-wide CM groups combined with historical and hypothetical market stress scenarios”, ESMA states in a press release. “However, under more severe stress scenarios, CCPs faced small amounts of total residual uncovered losses varying from 100 million to €4 billion” in a scenario whereby a clearing member defaulting in one CCP would also be considered to be in default in all CCPs in which it was active, leading to the default of the two largest clearing members for each CCP, the press release adds.
To improve the capacity of the CCPs to ride out the default of entities using their services, ESMA recommends that the national supervisors focus their attention on: - the analysis by the central counterparties of the creditworthiness of their clearing members, taking account of their exposure in other counterparties; - the revision of price variations on the markets used by the CCPs in their own 'stress tests'. (Original version in French by Mathieu Bion)