A stress test carried out by the European Securities and Markets Authority (ESMA) on central clearing counterparties (CCPs) has shown European clearing houses are resilient to market shocks, but highlighted some abnormalities for the London Metal Exchange.
The test is an assessment of the reliance of CCPs to adverse market developments - covering both credit and liquidity risk.
ESMA's report, released on July 13, explained two default scenarios run on two different reference dates, December 21, 2018 and March 8, 2019.
The first is a Cover-2 per CCP scenario, where the default of two clearing member groups under common price shocks is assumed separately at each CCP.
The second scenario is the EU-wide Cover-2 scenario, involving a default of the same two groups for all CCPs EU-wide. This is designed to assess the resilience of CCPs collectively to the market stress scenario.
ESMA said that it found no systemic risk during the extreme stress scenarios that it tested CCPs against.
"ESMA's third stress test of CCPs in the EU has found that overall CCPs...