The European Association of CCP Clearing Houses (EACH) acknowledges the outcome of the ESMA EU-wide CCP Stress Test 20191, which has been made more comprehensive than the previous iteration of 2017 because of its extension to assess the impact of liquidation costs derived from clearing members and clients’ concentrated positions, in addition to credit and liquidity risks.
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 credit, liquidity and concentration risks ‘confirm(s) the overall resilience of EU CCPs to common shocks and multiple defaults for credit, liquidity and concentration stress risks.’ and no systemic risks concerns are identified in either the credit, liquidity or concentration scenarios. This is even more proven by CCPs and authorities’ ability to perform this exercise despite the challenging circumstances linked to the COVID-19 pandemic, including CCPs and authorities operating under their business continuity planning (BCPs).
EACH is also pleased to note ESMA’s acknowledgement that ‘EU CCPs remained resilient through the (COVID-19) crisis, despite the increased market volatility and operational risk’ and that the stress scenarios included in this ESMA CCP Stress Test exercise ‘were found to be overall of comparable severity with the most recent stress events’.
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 daily 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 clearing 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.
EACH and its members acknowledge the amount of work done by authorities and CCPs in performing this exercise, especially during a challenging environment linked to the COVID-19 pandemic, and 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.