ESMA Guidelines and Recommendations

ESMA announces EU-wide stress tests for CCPs

ESMA Guidelines and Recommendations

Date: 02 June 2016

On 14th April 2016, the European Securities and Markets Authority (ESMA) announced the publication of its first EU-wide stress test exercise regarding Central Counterparties (CCPs) on 29 April 2016.

ESMA is mandated to conduct stress tests of CCPs under the European Markets Infrastructure Regulation (EMIR). The stress test assesses the resilience and safety of the European CCP sector and aims to identify possible vulnerabilities.

Steven Maijoor, ESMA Chair, said:

“CCPs offer significant benefits to the market and play a key role in making derivatives markets safer. CCPs are also highly interconnected – both with financial institutions and markets – and the increasing volumes cleared through CCPs make them even more important for the financial system. Therefore, it is essential to test the sufficiency of their resources, not only individually but also at an EU-wide level. These stress tests are a crucial supervisory tool to ensure the sector is safe and resilient to shocks.”

Scope of ESMA’s CCP stress tests

ESMA, in cooperation with National Competent Authorities (NCAs) and the European Systemic Risk Board (ESRB), test the resilience of European CCPs by exposing them to adverse market scenarios. ESMA’s stress test focuses on the counterparty credit risk that CCPs would face as a result of multiple clearing member (CM) defaults and simultaneous market price shocks.