July 16, 2024 (NO COMMENTS)

Reverse stress test reveals clearing houses remain resilient under low to moderate market shocks

 

The loss-absorption capacities of US derivatives clearing organisations (DCOs) become insensitive to further member defaults beyond a certain threshold, reverse stress-testing from the Commodity Futures Trading Commission (CFTC) suggests. The agency girded 11 clearing services to gauge their ‘frontiers of coverage’ – the maximum level of market stress that each DCO could withstand relative to the number of member defaults, before exhausting its prefunded or total resources.