On Tuesday 9 July, the European Securities and Markets Authority ('ESMA') published the results of a fifthstresstest of European Union central counterparties ('CCPs') and Tier 2 central counterparties ('TC-CCP'), i.e. non-EU members with implications for EU financial markets.
The study assessed the credit, concentration and liquidity risks to which these financial guardians are exposed, including for the first time an ‘exploratory’ analysis of their exposure to climate risk. It thus offers a glimpse of the robustness of the European landscape in the event of crises.
“The test confirmed the overall resilience of the European clearing landscape to severe credit and liquidity stress scenarios. However, we have still identified areas where some central counterparties may need to strengthen their risk management frameworks or where additional supervisory work should be prioritised, including on concentration modelling”, Klaus Löber, Chairman of the CCP Supervisory Committee, concluded on Tuesday.
According to ESMA, there are still shortcomings in CCPs' management of concentration risk, particularly with regard to positions in commodity derivatives. As far as climate risk is concerned, their exposure depends heavily on the vulnerability of the markets they offset, particularly those for raw materials and energy.
See the ESMA report: https://aeur.eu/f/czd (Original version in French by Bernard Denuit)