The 16 authorised European central clearing houses (CCPs) - including the three UK CCPs - demonstrated their resilience to extreme market shocks, according to the results of the European Securities and Markets Authority’s (ESMA) third stress test, published on Monday 13 July.
As in the second exercise (see EUROPE 11953/9), the stress test focused on assessing credit and liquidity risks, but this time also focused on concentration risk, in order to assess the losses arising from the costs of liquidating concentrated positions.
The stress test for credit risk revealed differences in resilience between CCPs, although no systemic risk was identified. The liquidity stress test also demonstrated the resilience of EU CCPs in the scenarios under consideration and, in ESMA’s estimation, revealed no systemic risk.
The new concentration component highlighted the need for EU CCPs to accurately account for liquidation cost within their risk framework.
“The third stress test of EU CCPs, conducted by ESMA, revealed that, overall, CCPs are able to withstand severe shocks in the event of common shocks and simultaneous failures. This resilience was also demonstrated during the unexpected and unprecedented impact of the Covid-19 pandemic on the global financial system”, said Steven Maijoor, ESMA’s Chair.
CCPs have remained resilient in the face of the crisis, despite increased market volatility and operational risk, ESMA notes. In addition, according to ESMA, the scenarios used to test the CCPs in this exercise were overall just as pessimistic as the situation observed on the markets during the pandemic.
The results can be found at: https://bit.ly/32bRXrJ (Original version in French by Marion Fontana)