Commodity Futures Trading Commission Chairman Tim Massad on Oct. 19 described in detail the agency's plans to conduct a stress test on the clearing system this fall to make sure that clearinghouses and clearing members are prepared to absorb losses from extreme but plausible events.
Speaking at the FIA’s Futures and Options Expo in Chicago, Massad said the CFTC's stress test exercise is focusing on the five largest clearinghouses: CME Clearing, ICE Clear Credit, ICE Clear Europe, ICE Clear U.S. and LCH.Clearnet. The exercise encompasses futures, options on futures, and swaps that are cleared at these five clearinghouses, using data submitted by these clearinghouses such as positions, margin, and guarantee fund information. The exercise will assess the impact of stressful market scenarios across multiple clearinghouses and clearing members on the same date, Massad explained, adding that the CFTC will publish a report on the test results by year-end.
"We developed a set of stressful scenarios based on a number of factors, including price changes and correlations across markets that occurred on specific dates when there was extreme volatility," he explained. "For example, in constructing the hypothetical scenarios, staff looked at what happened on the day of Lehman Brothers’ collapse and in the aftermath of the Brexit vote."
