The major derivatives clearinghouses are capable of weathering extreme market scenarios, according a report on the stress testing of these firms by U.S. regulators, according to a report published on Wednesday by the U.S. Commodity Futures Trading Commission (CFTC).
The CFTC report details the results of supervisory stress tests of the major clearinghouses in the United States and the United Kingdom, including CME Clearing, ICE Clear Credit, ICE Clear Europe, ICE Clear U.S., and LCH Clearnet. The tests covered cleared futures and options, interest rate swaps, and credit default swaps, and included the largest clearing members at each clearinghouse.
The test looks at whether margin posted by clearing members, along with other pre-funded financial resources held by the clearinghouses, are sufficient to cover losses under a series of extreme stress scenarios. The tests do not cover other types of risks that clearinghouses face, such as liquidity risk, operational risk or cyber risk.
Among other things, the tests found that clearinghouses have the resources to withstand a variety of extreme market price changes across a wide range of products, and that they met, or exceeded, required resiliency levels. It also found that risk was diversified across the clearinghouses, and that clearing member risk was also diversified across the scenarios.
“These first tests show that clearinghouses had ample resources to withstand extremely stressful market scenarios on the test date,” said Timothy Massad, CFTC chairman, in a news release. “They also show that risk was diversified across clearing members — a loss at one clearinghouse does not mean losses at all. These are very important findings in measuring the strength and resilience of clearinghouses.”
The stress tests will be a regular part of the CFTC’s risk surveillance program, the commission says, and that it has identified enhancements that can be incorporated into future tests.