On June 22, 2018, the European Securities and Markets Authority published an Opinion on the liquidity risk assessment that a CCP must undertake under the European Market Infrastructure Regulation. The Opinion is addressed to national regulators that supervise CCPs.
EMIR requires a CCP to measure its potential liquidity needs on a daily basis and to ensure that it has access at all times to adequate liquidity to perform its services and activities. A CCP must, therefore, ensure it has access to credit lines or other arrangements with liquidity providers in case the financial resources at its disposal are not immediately available. In measuring its liquidity needs, a CCP is required to take into account the liquidity risk generated by the default of at least the two clearing members to which it has its largest exposures (the liquidity risk "Cover-2" test). EMIR and related delegated legislation provide detail on how a CCP should assess the liquidity risk arising from each of its relationships with its clearing members and its liquidity providers.
The purpose of the Opinion is to clarify how CCPs should assess the liquidity risk when a clearing member also acts as a liquidity provider and the liquidity risk when a liquidity provider is not also a clearing member. A CCP must assess the risks of any entities that might pose a material liquidity risk to the CCP. This includes any entity (e.g. a clearing member) acting in multiple different capacities which could pose a liquidity exposure to the CCP and would include clearing members acting in any of the following capacities: settlement banks, payment systems, securities settlement systems, nostro agents, custodian banks, liquidity providers, interoperable CCPs or service providers.
ESMA considers that a CCP should stress test the failure of its clearing members in all their capacities (whether they are liquidity providers or not). When performing its" Cover-2" stress tests, a CCP should test the default of every pair of clearing members acting in all their different capacities vis-à-vis the CCP and select the pair that corresponds to the largest exposure.
The Opinion also provides illustrations of some stress test scenarios that could be considered relevant for a CCP to comply with the EMIR requirements for the stress testing of a CCP's liquid financial resources.
The Opinion is available at: https://www.esma.europa.eu/sites/default/files/library/esma70-151-1149_opinion_on_ccp_liquidity_risk_assessment.pdf.
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