| (1) |
A central counterparty’s stress tests must apply stressed parameters, assumptions, and scenarios to the models used for the estimation of risk exposures to make sure its financial resources are sufficient to cover those exposures under extreme but plausible market conditions. |
(2) A central counterparty’s stress testing programme must—
| (a) |
require the central counterparty to conduct a range of stress tests on a regular basis that considers the central counterparty’s product mix and all elements of its models and methodologies and its liquidity risk management framework; |
| (b) |
prescribe that stress tests are performed, using defined stress testing scenarios, on both past and hypothetical extreme but plausible market conditions in accordance with these Regulations, provided that past conditions to be used must be reviewed and adjusted, where appropriate. |
| (3) |
A central counterparty must— |
| (a) |
consider other forms of appropriate stress testing scenarios including, the technical or financial failure of its settlement banks, nostro agents, custodians, liquidity providers, or interoperable central counterparties; |
| (b) |
have the capacity to adapt its stress tests quickly to incorporate new or emerging risks; |
| (c) |
consider the potential losses arising from the default of a client, where known, which clears through multiple clearing members; |
| (d) |
periodically report its stress testing results and analysis in a form that does not breach confidentiality to the risk committee in order to seek its advice in the review of its models, its methodologies and its liquidity risk management framework; |
| (e) |
ensure that stress testing results and analysis are made available to all clearing members and, where known to the central counterparty, clients; |
| (f) |
ensure that for all other clients, stress testing results and analysis must be made available by the relevant clearing members on request; |
| (g) |
ensure that the information referred to in paragraph (e) is available in aggregated form and does not breach confidentiality; |
| (h) |
ensure that clearing members and clients only have access to detailed stress testing results and analysis for their own portfolios; |
| (i) |
define the procedures to detail the actions it could take given the results of stress testing analysis. |
40.5.1 Stress testing - Risk factors to test
40.5.2 Stress testing - total financial resources
40.5.3 Stress testing - liquid financial resources
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