ESMA launches its sixth stress test exercise for Central Counterparties
The European Securities and Markets Authority (ESMA), the EU’s financial markets regulator and supervisor, today launched its sixth stress test exercise for Central Counterparties (CCPs). The CCP stress test framework drafted by ESMA for the purpose of this exercise is supported by an adverse market scenario provided by the European Systemic Risk Board (ESRB).
Mandated under the European Market Infrastructure Regulation (EMIR), the stress test aims to assess the resilience of CCPs to adverse market developments and identify any potential shortcomings. It also evaluates the aggregate effects of CCPs’ recovery and resolution arrangements on Union financial stability and, where necessary, enables ESMA to issue recommendations. The exercise covers 16 CCPs including all authorised EU CCPs as well as two UK based Tier 2 CCPs.
“In a world continuously challenged by multiple crises, stress test exercises are critical to ensure that financial market infrastructures have the necessary tools, resources and arrangements in place to be resilient. That is why, for ESMA, the CCP stress test is a key supervisory tool, and we continue to develop it further to better measure potential risks to the EU financial eco‑system.” Verena Ross, Chair
“CCPs play a critical role in managing counterparty credit risk in financial markets. Their resilience is essential for safeguarding financial stability, especially during periods of pronounced stress. This year’s exercise onboards the Recovery and Resolution Component to measure the aggregate impact from the activation of CCPs’ recovery and resolution arrangements.” Klaus Löber, Chair of the CCP Supervisory Committee
ESMA’s supervisory stress tests complement those run daily by individual CCPs by assessing the system-wide implications of potential member defaults and market shocks.
Components of the test framework
This year’s exercise further develops ESMA’s framework by introducing enhanced methodologies and expanding the analytical scope. Developed in cooperation with National Competent Authorities (NCAs) and the ESRB, the framework covers:
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Credit Stress Test: Evaluates whether CCPs’ financial resources are sufficient to absorb losses from combinations of market shocks and multiple clearing member defaults.
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Concentration Risk Analysis: Assesses the market impact and liquidation costs resulting from the close-out of large, concentrated positions.
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Reverse Stress Test: Increases the severity of scenarios to assess the absorption capacity of the system and identify potential breaking points.
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Recovery and Resolution Component: For the first time, ESMA will assess the aggregate effects of CCPs’ recovery and resolution tools on stakeholders.
Next steps
ESMA will launch the data request at the beginning of May, followed by a joint validation of the submissions together with National Competent Authorities. The exercise will then proceed to the analysis and computation of results and, finally, the preparation of the report. The stress test will conclude with the publication of the final outcomes planned for the first quarter of 2027.