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The consultative report, Framework for supervisory stress testing of central counterparties, provides a framework for authorities to evaluate the collective response of a set of CCPs to one or more financial stresses. In particular, conducting stress tests of this type could help authorities better understand the impact on the broader economy of a common stress event affecting multiple CCPs, as well as the implications of interdependencies between markets, CCPs, and other entities, such as liquidity providers and custodians.
“Having a common basis for supervisory stress testing will help build confidence that these crucial parts of the financial system have enough resources to withstand shocks,” said CPMI Chairman Benoît Coeuré.
“This framework will enable authorities to better understand the magnitude of the interdependencies between CCPs and other entities, and the impact that a stress event affecting various CCPs could have on the wider economy. The framework is also flexible enough to allow authorities to design a stress test that is best suited to their circumstances,” said IOSCO Board Chairman Ashley Alder.
The framework covers six components of a stress-testing exercise: (i) setting the purpose and exercise specifications; (ii) establishing governance arrangements; (iii) developing stress scenarios; (iv) collecting and protecting data; (v) aggregating results and developing analytical metrics; and (vi) determining the use of results and disclosure. The components are intentionally broad and flexible to allow authorities to develop the most suitable approach for their circumstances. Authorities are encouraged, but not required, to use the framework as they deem appropriate.
Comments on the framework proposed in the report should be submitted by 22 September 2017.