Failures of implementation warrant "immediate attention"
On May 3, the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions published a joint report on clearinghouse risk management practices. The report assessed recovery planning, coverage of financial resources and liquidity stress testing at 19 central counterparties in 17 jurisdictions.
While the report found that the CCPs have made progress in implementing arrangements consistent with the key international standards on financial risk management and recovery practices, it warned that "some CCPs are still failing to implement a number of measures in the areas of risk management and recovery planning." The report said these failures of implementation warrant "immediate attention."
The two standard-setting bodies put particular emphasis on recovery planning. They warned that if a CCP has not fully implemented a comprehensive and effective recovery plan, "it is a serious issue of concern that should be addressed with the highest priority." They also flagged a concern about liquidity risk and said CCPs need to include "liquidity-specific scenarios" in their stress testing.
Separately, CPMI and IOSCO jointly issued guidance on April 10 on how regulators should conduct stress testing of central counterparties. The two international standard-setting bodies said the guidance will support the design and implementation of stress tests "that examine the potential macro-level impact of a common stress event affecting multiple CCPs." Such supervisory stress tests could help authorities better understand the scope and magnitude of the "interdependencies" between markets, CCPs and other entities such as participants, liquidity providers and custodians, they said.
In related news, CPMI and IOSCO have jointly issued technical guidance for the reporting of OTC derivatives to trade repositories. The guidance, which was issued on April 9, seeks to harmonize certain data elements by guiding authorities in setting the definitions, formats and allowable values. These elements include data indicating whether the transaction has been cleared, which central counterparty cleared the transaction, which clearing member cleared the trade, and which trading facility was used to execute the transaction.
