ESMA unveils latest CCP stress tests

ESMA has launched a pan-EU stress test exercise with the aim of identifying individual shortcomings for the regulator to address.

The European Securities and Markets Authority (ESMA) is seeking industry feedback on its central counterparty (CCPs) stress test with the launch of a pan-EU stress test exercise.

The exercise will cover 17 EU CCPs including all products currently cleared by those CCPs.

The objective of the exercise is not to assess the compliance of CCPs with regulatory requirements or issues with ESMA’s methodology but will aim to identify potential shortcomings for ESMA to address.

ESMA has outlined four components of the stress test including a credit stress test, a liquidity stress test and a reverse credit stress test along with additional analysis.

ESMA’s exercise will complement similar stress tests CCPs already run on a daily basis.

As CCPs’ existing stress tests focus on their own environment including their participants and activities, the ESMA stress test will look at the entire system of EU CCPs by considering issues such as CCP connectivity.

CCPs are required to provide data for the exercise in March that will then be validated by ESMA and national competent authorities (NCAs) in Q2 2017.

ESMA aims to finalise the data analysis by Q3 2017 and aim to release the results in Q4.