2023 CCP Supervisory Stress Test: results report

On 8 November 2023, the Bank of England’s Prudential Regulation Authority (PRA) has published the results of its second public stress test among central counterparties (CCPs) in the UK. The test was conducted the Spring of 2023. It covered all UK CCPs, including ICE Clear Europe Limited, LCH Limited, and LME Clear Limited. The stress was based on a baseline market scenario which included the surge of inflation and interest rates, a corresponding strong increase of government bond yields, and a strong decline of equity prices and commodity products and referencing indices. The PRA thereby particularly examined the resilience of CCPs as regards liquidity and credit risk taking into consideration the default of two clearing members. Key highlights of the findings are briefly listed below:
– Although the results varied among participating CCPs, the test overall revealed adequate resilience of the CCPs;
– No CCP showed a negative „liquidity balance“ during the test;
– Liquidity management is of key relevance for CCPs and differs widely among participating counterparties;
– Non-bank clearing members impose more risks on CCPs as bank clearing members;
– CCPs could financially best deal with the default of a clearing member when they are able to transfer the accounts of such defaulting member to non-defaulting clearing members.
To conclude, it shall be noted that the stress test’s objective was not to measure the resilience of CCPs against certain thresholds, but rather to find out the factors that may have a severe influence on the resilience of CCPs. Therefore, the tests are primarily for informational purposes and may serve the PRA for further regulatory enhancements.
Further information on the results may be found in the enclosed document or if you follow above noted link.