The European Securities and Markets Authority (ESMA), the EU’s securities markets regulator, has today published the framework for its fourth Stress Test for Central Counterparties (CCPs). ESMA, as required by the European Markets Infrastructure Regulation (EMIR), initiates and coordinates this exercise to assess the resilience and safety of recognised European Union (EU) and Tier 2 Third Country CCPs (TC-CCPs) to adverse market developments and to identify any potential shortcomings.
The 2021 Stress Test addresses credit and concentration risks, and uses improved methodologies, including lessons learned from previous exercises, such as assessing the combination of concentration costs and credit losses when liquidating defaulting portfolios or including an intraday exercise for credit. For the first time, and in line with ESMA’s mandate, the exercise also covers operational risk.
Klaus Löber, Chair of the CCP Supervisory Committee, said:
“Last year demonstrated that financial systems are constantly evolving and subject to disruptions such as COVID-19 or Brexit. In that context, it is important to assess that EU CCPs, but also Third Country CCPs of systemic relevance to the EU (so-called Tier 2 CCPs), are resilient as key infrastructures for EU financial stability.
“In this respect, the ESMA CCP Stress Test is an essential supervisory tool that contributes to financial stability and supervisory convergence in the EU.
“In this 4th iteration of the CCP Stress Test, we have further developed the credit and concentration components from the last exercise to develop a more aggregated vision of both risks and introduced a new operational risk analysis with the aim of assessing risks from shared service providers.”
The stress test documentation is available at https://www.esma.europa.eu/press-news/esma-news/esma-launches-2021-central-counterparties-stress-test