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The EU Clearing Houses endures the stress tests

EU clearing houses

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The EU’s comprehensive clearing house system is resilient to extreme market turbulence, according to the Securities Regulator. The results of the second stress test on the EU territory have shown that the system could cope in a situation where several consumers of clearing houses, such as banks, fail to pay their debts at the same time because of extreme disturbances market, said the European Securities and Markets Authority in a statement.
The purpose of the test is to check if a collapse of a clearing house can cause a domino effect across the system.
On an individual level, the Spanish BME Clearing shows a minimal shortage of pre-financing needed in one aspect of the test, but this does not affect the whole system, says the regulator.
The Clearing Houses are backed by pre-guaranteed funds in case of inability to repay and have the role of intermediary in dealing with shares, bonds or derivatives, ensuring that transactions are executed even when one party becomes insolvent.
The European Securities and Markets Authority carried out tests on 16 European Clearing Houses with 900 members that jointly control 270 billion EUR in guarantee funds or in the form of cash to trade aid.
Compared to the first stress test in 2016, the final check was more extensive. The expansion of the stress test, including liquidity risk in addition to counterparty credit risk, provides additional guarantees for their sustainability”, said the spokesman of European Securities and Markets Authority, Steven Maijoor.
The regulator also points out that the liquidity check does not reveal any significant risks to the system. The European Securities and Markets Authority is currently considering whether to issue recommendations after the results are announced.