The Committee on Payments and Market Infrastructures (CPMI) and the International Organization of Securities Commissions (IOSCO) have today published for public comment the CPMI-IOSCO consultative report Framework for supervisory stress testing of central counterparties (CCPs) (the framework). The framework is designed to support supervisory stress tests (SST) conducted by one or more authorities that examine the potential macro-level impact of a common stress event affecting multiple CCPs (multi-CCP SSTs).
CPMI-IOSCO are publishing this consultative report to solicit feedback on the framework from interested parties, including on the proposed objective of SSTs, the anticipated benefits and other potential implications of multi-CCP SSTs, and the framework’s broader content. As noted below, CPMI-IOSCO have identified a number of targeted areas in which feedback from stakeholders, including public authorities, CCPs, clearing participants, buy-side firms and other relevant parties could be particularly valuable. However, comments on all aspects of the framework are welcome.
Background
In April 2015, the G20 finance ministers and central bank governors asked the Financial Stability Board to work with the CPMI, IOSCO, and the Basel Committee on Banking Supervision to develop and report back on a workplan for identifying and addressing any gaps and potential financial stability risks relating to CCPs that are systemic across multiple jurisdictions and for helping to enhance their resolvability. The chairs of the relevant committees subsequently agreed on the CCP Workplan and launched a series of workstreams under their respective committees to address the substantive priorities related to CCP resilience, recovery planning, and resolvability.
The framework published today is one part of the CCP Workplan. SSTs broadly refer to stress- testing exercises designed and executed by authorities, with or without the direct participation of CCPs. In considering the different objectives that SSTs can be designed to achieve, CPMI- IOSCO have developed this framework to support multi-CCP SSTs that are macroprudentially oriented.
Multi-CCP SST
As illustrated in the framework, a multi-CCP SST would evaluate the collective response of a set of CCPs to one or more common stress events, from a credit perspective, a liquidity perspective or both. In particular, a multi-CCP SST could help authorities better understand the scope and magnitude of the interdependencies between markets, CCPs, and other entities, such as liquidity providers and custodians. For instance, a multi-CCP SST could be designed to analyse concentrations of exposures to common participants, common risk factors, or common dependencies on particular service providers. In contrast to stress tests conducted in the banking sector, the SSTs envisioned under the framework would analyse the broad, macro- level impact of a common stress event affecting a set of CCPs, rather than assess the resilience of a particular CCP or assign a pass/fail metric to any of the CCPs participating in the exercise.
The framework
The framework sets out six components with underlying elements that describe the steps authorities would likely follow when designing and running a multi-CCP SST, including: setting the purpose and exercise specifications (Component 1); establishing governance arrangements (Component 2); developing stress scenarios (Component 3); data collection and protection (Component 4); aggregating results and developing analytical metrics (Component 5); and determining the use of results and disclosure (Component 6). The components are intentionally broad to accommodate any multi-CCP SST, whether carried out by a single authority or multiple cooperating authorities in one or more jurisdictions.
Help authorities think through various issues
Since each supervisory stress-testing exercise may involve different authorities with varying responsibilities, legal frameworks, expertise and resources, the framework purposely applies a non-prescriptive and flexible approach to designing and running a multi-CCP SST. Given the number of variables at play, the guidance is intended to help authorities think through various issues, decision points and potential options, while recognising that each issue or option may not be applicable uniformly across all authorities or jurisdictions. Accordingly, voluntary and flexible application of the framework will let authorities develop the most suitable approach for their circumstances. Authorities are encouraged, but not required, to use the framework as they deem appropriate.
Key areas for stakeholder feedback
While the framework is intended to serve as a guide for relevant authorities seeking to conduct multi-CCP SSTs, these tests are also intended to elicit information that may be valuable, not only to authorities but also to a wide range of financial market participants. For example, the risk management decisions and frameworks of CCPs, clearing participants, buy-side firms and other CCP stakeholders could be informed by an SST’s results. In conducting tests, CCPs and other market participants may play a role by contributing data, information or operational capability at various points in the stress-testing process. Accordingly, feedback from a wide range of stakeholders, spanning authorities and different types of industry participants, will be valuable in a number of key areas as CPMI-IOSCO finalise the guidance in the framework.
Share your view
Stakeholders are invited to share their views on all aspects of the framework and on whether there are additional topics that it would be beneficial to include in the framework. CPMI-IOSCO would be particularly interested to receive views on the following:
- Objective and purposes of multi-CCP tests
- Scope and frequency of SST exercises
- Involvement of CCPs and other stakeholders
- Information-sharing, data collection and data protection
- Technical content of the framework
- Use of SST results and disclosure
Source: www.bis.org
