Bank of England central counterparty stress tests confirm resilience

The Bank of England on Wednesday said results of stress tests on central counterparties (CCPs) showed continued resilience at the businesses, which help clear and settle trades in financial instruments and commodities essential for the global economy.

“The results confirm the continued resilience of UK CCPs to market stress scenarios that are of equal and greater severity than the worst-ever historical market stresses,” said Sarah Breeden, the BoE’s Deputy Governor for Financial Stability.

The stress tests covered three central counterparties which operate in Britain, ICE Clear Europe Limited (ICE.N), LCH Limited, a part of LSEG (LSEG.L), and LME Clear Limited, owned by Hong Kong Exchanges and Clearing Ltd (0388.HK).

The BoE said the tests did not operate on a pass or fail model, and instead aimed to explore the central counterparties’ resilience to credit and liquidity shocks like those which occurred in the energy, metals and UK rates markets in 2022.

However, under one extreme credit scenario, which went beyond historic precedent and minimum regulatory standards, one central counterparty clearing service, LME Base, did experience “full depletion of both prefunded and non-prefunded resources”, the BoE said.

The BoE said it would use the findings “to support and inform its ongoing supervision and regulation of UK CCPs”.