The central counterparties (CCP) of the EU are resilient to extreme shocks on the market. This is the conclusion reached by the European Securities and Market Authority (ESMA) on the basis of the results of the stress test it carried out in 2017 on 16 CCPs and published on Friday 2 February.
Central counterparties are the link between two parties to a transaction (trade in bonds, shares, derivative instruments or raw materials). Their aim is to ensure that the transaction runs smoothly, even if one of the parties defaults, and they are therefore highly connected to all financial institutions active on the related markets. The 16 CCPs tested comprise nearly 900 clearing members and account for a total of €270 billion of resources.
“I am pleased to see the EU CCPs have responded well to the rigorous scenarios used in conducting this second EU-wide stress test”, the President of ESMA, Steven Maijoor, commented.
As for its first exercise in 2016 (see EUROPE 11544), the stress test focused on assessing the counterparty risk to which CCPs would be exposed in the event of the default of several members, together with strong price variations on the market. A new addition in 2017 is that they were also tested on their ability to ride out liquidity risks.
The results show that overall, they are sufficiently financed to resist the default of the two largest clearing entities active with several counterparties and extreme market shocks. However, for the Spanish CCP BME Clearing, this scenario led to a minor shortage of the required pre-funded resources. However, as explains, the shortfall was only marginal and had no systemic impact, particularly in view of the fact that a surplus margin could be used to cover this small deficit. London-based CCP ICE Clear Europe is reported to have sufficient required pre-funded resources, but these would cover the simulated losses only to a marginal extent.
As regards the liquidity risk, ESMA stated that it had detected no major systemic risk issues or any particular gap in the management of this risk on the part of the CCPs tested. (Original version in French by Marion Fontana)