Clearinghouses quizzed on stress tests as authorities mull guidance

29 May 2015. By Neil Roland.

Global regulators are questioning more than 30 clearinghouses about their stress tests and will seek public input on how to improve these tests with an eye to ultimately issuing guidance, a US official said.

Robert Wasserman, a US Commodity Futures Trading Commission
official, said recently that international standard-setters have sent surveys with about 100 questions each to clearinghouses worldwide.

“The idea is to look at stress testing at a very, very articulated level to get deep into the weeds to understand what folks are doing now,” Wasserman, the CFTC’s chief clearing and risk counsel, told the
commission’s global markets advisory committee.

The questionnaires, he said, touch on governance of the tests; how they identify credit and liquidity risks following member default; and their models of extreme but plausible market conditions.

Other questions cover how the tests apply risk shifts to member and
client portfolios; clearinghouse determinations of their financial and
liquidity resource requirements, and clearinghouse evaluation of test strengths and weaknesses, Wasserman said.

More questionnaires are due to go out this summer, he added. The
assessments are being conducted by the Committee on Payments and Market Infrastructures and the International Organization of Securities Commissions.

Consultation next year

Wasserman, a member of a CPMI-IOSCO panel, said these authorities also plan to seek public feedback next year in a “consultation” on how to improve the tests.

These efforts are being supplemented by industry workshops in an
attempt “to perhaps come up with additional guidance” for
clearinghouses, he said.

Wasserman said the CPMI-IOSCO group met in March with industry participants in Frankfurt.

The banks clamored for more clearinghouse disclosure of the assumptions and methodologies used in stress tests, he said.

“The loudest take-away from that meeting is the importance of disclosure and governance,” Wasserman said.

In March, CPMI and IOSCO announced that they were beginning a review of clearinghouse stress tests. The announcement offered no specificity.

Since 2012, clearinghouses have been required to conduct stress tests that use a range of scenarios to determine the resources they need to manage credit and liquidity risk.