Shearman & Sterling LLP | Financial Regulatory Developments Focus | International Standard Setters Publish Framework for Supervisory Stress Testing of Multiple CCPs
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  • International Standard Setters Publish Framework for Supervisory Stress Testing of Multiple CCPs
    04/10/2018
    The Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions have published a Framework for the supervisory stress testing of CCPs, following a joint consultation launched in June 2017.

    In April 2015 the CPMI and IOSCO were asked by the G20 to develop, in conjunction with the Financial Stability Board and the Basel Committee on Banking Supervision, a "CCP workplan" for identifying and addressing remaining gaps and potential financial stability risks related to CCPs that are systemic across multiple jurisdictions and for helping to enhance their resolvability.

    As part of the CCP workplan, CPMI-IOSCO evaluated the stress-testing policies and practices of CCPs and identified that supervisors needed a stress testing framework that would enable them to better understand the macroprudential risks that could materialize were multiple CCPs to face a common stress event at the same time. The Framework provides a means for national supervisors to design and conduct supervisory stress tests to evaluate the broad, macro-level impact of such common stress events. The Framework uses the term "multi-CCP SSTs" to describe these stress tests. It is not intended that multi-CCP SSTs supersede internal stress testing conducted by CCPs or that multi-CCP SSTs be used to assess the resilience of individual CCPs.

    The framework comprises six components representing the steps supervisors would be likely to need to take when designing and conducting a multi-CCP SST. The components are: (i) purpose and exercise specifications; (ii) governance arrangements; (iii) developing stress scenarios; (iv) data collection and protection; (v) aggregating results and developing analytical metrics; and (vi) use of results and disclosure. For each component, the Framework sets out the specific issues supervisors might consider when deciding how to implement that component.

    CMPI-IOSCO believe that multi-CCP SSTs will assist supervisors in understanding the scope and magnitude of interdependencies between markets, CCPs and other entities, such as participants, liquidity providers and custodians. These tests could also be useful in providing information on the potential impact of market shocks, for example where multiple CCPs managing one or more defaults are liquidating similar or common assets.

    View the Framework.

    View the CCP workplan.