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The European Association of CCP Clearing Houses (EACH) acknowledges the outcome of the ESMA EU-wide CCP Stress Test 2017. EACH members supplied data on a confidential basis to ESMA in the development of this report. ESMA has extended the scope of this exercise compared to last year both by including liquidity stress tests and by including parameters which go beyond what is plausible.
The ESMA report demonstrates that European CCPs are resilient and well equipped to withstand extreme market developments. EACH is pleased that this year’s exercise, for both credit and liquidity risks ‘confirms the results of last year, i.e. that EU CCPs are overall resilient to common shocks and multiple shocks and multiple defaults’ and no systemic risks concerns are identified in either the credit or the liquidity scenarios. EACH wants to point out the need to be cautious when choosing what to highlight, in order to avoid creating a concern that is not comprehensively justified by the analysis in the report.
The ESMA CCP Stress Tests complement the already rigorous standards to which European CCPs are held by their regulators, laid down in EMIR. In accordance with EMIR, CCPs themselves also perform exacting internal stress tests on their systems and models to ensure that they are fit to perform in situations of extreme but plausible market stress and default. The outcomes of these internal stress tests are scrutinised by members and regulators to ensure their continued validity. A broad number of authorities are included in the ongoing CCP supervision through the CCP Supervisory Colleges which include National Competent Authorities (NCAs) of the Member State where the CCP is located, NCAs from other Member States, the ECB and ESMA itself.
In line with EMIR and as approved by the CCP Supervisory Colleges, all European CCPs are able to sustain a default of their two largest clearing members (‘Cover 2’) and continue to function effectively. The ESMA CCP Stress Tests extend the boundaries of what could be considered extreme but plausible as identified by the College, and in the case of reverse stress tests, as ESMA itself notes the assumptions go ‘beyond what was considered as possible’. The ESMA Stress test exercise tests the potential for the ‘implausible’ event of absence to central bank repo. As stated by ESMA, ‘this by no means puts into question the availability of this tool’ and the fact that ‘access to central bank liquidity (…) is highly reliable.’.
EACH and its members will continue collaborating with their regulators, clearing members and clients to continue offering a safe and efficient risk management process for the benefit of the markets and the economy as a whole.
For more information, please find attached the EACH press release or visit our website www.eachccp.eu
