The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) has issued guidance on supervisory stress testing of central counterparties (CCPs).
Its new framework provides authorities with guidance to support their design and implementation of supervisory stress tests for CCPs.
In April 2015, the G20 finance ministers and central bank Governors asked the Financial Stability Board to work with the CPMI, IOSCO and the Basel Committee on Banking Supervision to develop a workplan for identifying and addressing gaps and potential financial stability risks relating to CCPs.
As part of the CCP workplan, the chairs also asked the Committees to “evaluate the existing stress-testing policies and practices of CCPs, and consider the need for, and develop as appropriate, a framework for consistent and comparable stress tests of the adequacy of CCPs’ financial resources (including capital) and liquidity arrangements, which could involve supervisory stress tests.”
The CCP supervisory stress testing framework is designed to support tests conducted by one or more authorities that examine the potential macro-level impact of a common stress event affecting multiple CCPs.
These tests could help authorities better understand the scope and magnitude of the interdependencies between markets, CCPs and other entities such as participants, liquidity providers and custodians.
The framework sets out six components with underlying elements that describe the steps
authorities would likely follow when designing and running a multi-CCP SST, including: setting the purpose and exercise specifications; establishing governance arrangements developing stress scenarios; data collection and protection; aggregating results and developing analytical metrics; and determining the use of results and disclosure.
Last year, the CPMI and IOSCO published the Consultative report: Framework for supervisory stress testing of central counterparties (CCPs). During the consultation period, they held an industry workshop with representatives from various market sectors and authorities from different jurisdictions.
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