Global policymakers published draft guidance on Wednesday for stress testing of central counterparties (CCPs) that are increasingly critical parts of global over-the-counter (OTC) derivatives markets.
Specifically, the International Organization of Securities Commissions (IOSCO) and the Committee on Payments and Market Infrastructures (CPMI) have set out a proposed framework for regulators to stress test CCPs — an exercise that would help regulators understand how a market crash, or similar event, would affect multiple CCPs, financial market infrastructure, and the economy, overall.
“This framework will enable authorities to better understand the magnitude of the interdependencies between CCPs and other entities, and the impact that a stress event affecting various CCPs could have on the wider economy,” says Ashley Alder, chairman of IOSCO’s board, in a statement.
“Having a common basis for supervisory stress testing will help build confidence that these crucial parts of the financial system have enough resources to withstand shocks,” adds Benoît Coeuré, CPMI chairman, in a statement.
In the wake of the financial crisis, the G20 pursued a variety of reforms to derivatives markets, including measures to encourage central clearing of standardized OTC derivatives, which have bolstered the role of CCPs in the financial system.
Comments on the proposed framework are due by Sept. 22.