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IOSCO Produces CCP Stress Test Framework

On April 10, the International Organization of Securities Commissions (IOSCO), in conjunction with the Bank for International Settlements’ (BIS) Committee on Payments and Market Infrastructures, published a framework for supervisory stress testing of central counterparties (CCPs) in a single jurisdiction or across multiple jurisdictions. The framework’s focus is stated to be the evaluation of “broad, macro-level impacts across multiple CCPs.”

The framework divides the process that authorities would follow in coordinating a multi-CCP supervisory stress test (SST) into six stages:

  • purpose and exercise specifications;

  • governance arrangements;

  • developing stress scenarios;

  • data collection and protection;

  • aggregating results and developing analytical metrics; and

  • use of results and disclosure.

Reports have suggested that the framework may affect the European Union’s proposed amendment of the European Market Infrastructure Regulation in relation to the supervision of CCPs, in particular third-country CCPs (EMIR 2.2).

However, EMIR 2.2 provides only for the assessment of individual CCPs. Under EMIR 2.2, the European Markets and Securities Authority may specify a CCP as “substantially systemic” and require that CCP to establish an EU venue to mitigate, by facilitating supervision, the substantial exposure risk to the European Union and its financial system.

A footnote in the framework adds that its purpose does not preclude the use of the framework, where “suitably adapted . . . for the design of tests with other objectives, including SSTs designed to analyze the individual financial resilience of CCPs”.

An unnamed European Commission official confirmed that the framework would not impact EU plans for the introduction of EMIR 2.2.

The framework is available here.

The BIS press release in relation to the framework is available here.

©2018 Katten Muchin Rosenman LLP

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John Ahern, Financial Attorney, London, Katten Law Firm
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John Ahern, partner at Katten Muchin Rosenman UK LLP and head of the London Financial Services group, focuses his practice on banking, financial services, UK and European financial markets, and related regulations. His background in private practice and as in-house counsel at a global investment bank provides him with perspective on the unique regulatory issues facing the wholesale and private banking sectors. John advises multilateral trading facilities, broker-dealers and banks on trading, clearing and settlement as well as custody of securities—both physical and...

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Carolyn H. Jackson, International Attorney, Katten Muchin law firm
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Carolyn Jackson is a partner in Katten Muchin Rosenman UK LLP and is a Registered Foreign Lawyer. She provides US financial regulatory legal advice to a broad range of market participants, including commercial banks, investment banks, investment managers, broker-dealers, electronic trading platforms, clearinghouses, trade associations and over-the-counter derivatives service providers.

Carolyn guides clients in the structuring and offering of complex securities, commodities and derivatives transactions and in complying with US securities and commodities laws and regulations. 

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Nathaniel Lalone, Katten Muchin Law Firm, Financial Institutions Attorney
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Nathaniel Lalone, a partner at Katten Muchin Rosenman UK LLP, has a broad range of experience in the regulation of financial products and financial markets, and frequently provides regulatory and compliance advice to trading venues, clearing houses and buy-side firms active in the over-the-counter (OTC) derivatives, futures and securities markets. He is actively involved in advising clients on the implementation of MiFID 2 and MiFIR in the European Union as well as the international reach of US financial services regulation. He also has significant experience with structuring...

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Neil Robson, private equity fund managers counselor, Katten Law Firm, London
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Neil Robson, a regulatory and compliance partner with Katten Muchin Rosenman LLP, focuses his practice on counseling hedge and private equity fund managers and other investment advisers on operational, regulatory and compliance issues. He regularly addresses Financial Conduct Authority (FCA) and EU authorization and compliance under both the EU Alternative Investment Fund Managers Directive (AIFM Directive) and MiFID, cross-border issues in the financial services sector, market abuse, anti-money laundering and regulatory capital requirements, formations and buyouts of...

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