The staff of the Division of Clearing and Risk of the Commodity Futures Trading Commission recently released its findings from a supervisory stress test it conducted across five derivatives clearing organizations registered with the CFTC: CME Clearing, ICE Clear Credit, ICE Clear Europe, ICE Clear U.S. and LCH Clearnet Ltd. This is the first stress test that the CFTC has performed across multiple clearing organizations; such tests will be a regular part of the CFTC’s risk surveillance program going forward.
The purpose of the stress test was to assess the impact of hypothetical, extreme but plausible scenarios across multiple clearing organizations, with a focus on firms that hold clearing memberships at more than one clearing organization. The ability of each clearing organization to meet the required resiliency levels under such scenarios was evaluated as part of making such assessment.
A total of 11 different stress scenarios, including extreme price changes, were designed and tested across the five clearing organizations and eight clearing organization guaranty funds. The following are the key findings: (1) all of the clearing organizations had the financial resources to withstand a variety of extreme market price changes across a wide range of products and instruments and had sufficient financial resources to cover a default by at least the two clearing members (including affiliates) with the largest margin shortfalls; (2) clearing member risk was diversified among the different scenarios such that no specific scenario or scenarios tended to cause loss at many or most clearing members; (3) clearing member risk was diversified across clearing organizations such that if a particular scenario caused a clearing member to incur loss at one clearing organization, such scenario did not necessarily cause the clearing member to suffer a loss at a different clearing organization; and (4) there was no scenario where the same two firms generated the largest losses at more than one guaranty fund.
The CFTC noted that, although these results were positive, the exercise had a number of limitations. For example, it only analyzed a limited number of scenarios, it only applied the impact of extreme price changes during a one-day period, and it did not take into account strains on liquidity or cyber security or operational risks.
To see the CFTC’s published results, click here.