05 February 2018
Reporter: Brian Bollen

Eurex passes second EU-wide stress test

Eurex Clearing has successfully passed the second EU-wide stress test conducted by the European Securities and Markets Authority (ESMA) to assess the resilience of central counterparties (CCPs) in stressed market conditions.

The exercise is conducted in cooperation with national competent authorities (NCAs), which supervise CCPs through supervisory colleges, and the European Risk Board (ESRB). The stress test used to reference data provided by CCPs, which was validated and calculated by the NCAs based on common scenarios and instructions.

The European Market Infrastructure Regulation (EMIR) requires ESMA to conduct such tests on an annual basis.

Thomas Laux, chief risk officer at Eurex Clearing, said: “The stress test is an important contribution to ensuring financial stability in Europe, given the important role of central counterparties.”

“This shows once again that our CCP offers stability to its clearing community and to the markets in general, even under stressed conditions."

Laux added: “The tests proved both the robustness of our lines of defence and a strong liquidity management. Receiving a neutral confirmation of our sound and appropriate risk and stress testing framework is a well-appreciated reward for our work.”

ESMA's results showed that overall the system of EU CCPs is resilient to multiple clearing member defaults and extreme market shocks. The report also highlighted individual CCP-specific results.

The test builds on the first, conducted in 2016, which focused on counterparty credit risk only. ESMA explained that it tested the resilience of 16 European CCPs with approximately 900 clearing members EU-wide.

The aggregate amount of collateral held by CCPs on the test date in the form of margin requirements and default fund contributions was approximately €270 billion.

ESMA put the focus of the test on credit risk as well as associated liquidity risk that EU CCPs would face under different stressed market environments. Eurex Clearing passed in both categories.

ESMA chairman Steven Maijoor said: “CCPs are considered to be low-risk entities, but as market infrastructures at the heart of the financial system, the failure of a CCP has the potential to cause serious systemic risk. Therefore, testing whether CCPs can withstand extreme scenarios involving clearing member defaults and simultaneous market price shocks is an important supervisory tool in mitigating systemic risk.”

Maijoor explained that the test will remain an indispensable supervisory tool in contributing to systemic resilience, financial stability and orderly markets.

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