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June 22, 2018

ESMA issued an opinion, under the European Markets Infrastructure Regulation (EMIR), that outlines the way central counterparties (CCPs) should assess liquidity risk. The opinion sets out how CCPs in the EU should consider, in their internal risk models, the liquidity risk posed by all entities toward which the CCP has a liquidity exposure.

The opinion aims to clarify the assessment of the liquidity risk posed by liquidity providers, whether or not these are a clearing member. It clarifies that CCPs should include, in the measurement of their liquidity needs, the default of their top two clearing members in all their capacities vis-à-vis the CCP, in addition to assessing, in their stress testing scenarios, all entities toward which the CCP has a liquidity exposure. The opinion is addressed to competent authorities responsible for CCP supervision and it promotes convergent risk management practices and risk control across EU.

 

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Keywords: Europe, EU, Securities, CCPs, EMIR, Stress Testing, Liquidity Exposure, Liquidity Risk, Opinion, ESMA

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