Financial Markets Act, 2012 (Act No. 19 of 2012)RegulationsFinancial Markets Act RegulationsChapter VI : Central Counterparties31. Liquidity risk31.6 Liquidity risk stress testing |
(1) | A central counterparty must regularly perform robust liquidity stress tests or scenario analyses and obtain the prior written approval of its controlling body or controlling body approved committee in respect of any going-concern behavioural or other relevant assumption and reasoning applied in respect of the stress mismatch, which stress tests or scenario analyses must be based on the central counterparty’s relevant strategic and business plans in order to— |
(a) | ensure that the central counterparty— |
(i) | identifies the potential sources of liquidity strain; |
(ii) | considers the amount of liquidity it may need to satisfy contingent obligations; |
(iii) | considers and understands the potential impact of any plausible severe and prolonged liquidity disruption; |
(b) | identify and quantify the central counterparty’s exposure to possible future liquidity stresses; |
(c) | analyse possible impacts on the central counterparty’s cash flows, liquidity positions, profitability, and solvency. |
(2) | A central counterparty must ensure that the results of the stress tests or scenario analyses— |
(a) | are comprehensively discussed and understood by the central counterparty’s senior management; |
(b) | form the basis for taking remedial or mitigating action to— |
(i) | limit the central counterparty’s liquidity exposure; |
(ii) | timely build up a liquidity cushion; |
(iii) | timely adjust the central counterparty’s liquidity profile according to the central counterparty’s risk tolerance approved by the central counterparty’s controlling body; and |
(c) | are appropriately linked to and play a key role in shaping the central counterparty’s contingency funding plan, which, among other things, must outline policies for managing a range of stress events and clearly set out strategies for addressing liquidity shortfalls in a systemic event. |
(3) | A central counterparty must have in place sufficiently robust early warning indicators to identify the emergence of increased risk or vulnerabilities in its liquidity position or funding needs. |
(4) | As a minimum, in order to identify potential sources of funding that are of such significance that the withdrawal thereof may cause liquidity problems, a central counterparty must separately monitor the significant counterparties, significant instruments or products, and significant currencies, provided that in the case of secured and unsecured funding from counterparties, the central counterparty must aggregate the respective amounts related to all relevant types of liabilities to a particular counterparty or group of connected, associated or affiliated counterparties, and all other relevant direct borrowings. |
(5) | A central counterparty must— |
(a) | obtain the prior written approval of its controlling body or controlling body approved committee in respect of any assumption made relating to the realisable value of assets under a forced sale scenario; |
(b) | on request, submit to the Authority all relevant controlling body approved assumptions and reasoning applied in respect of the realisable value of assets under a forced sale scenario; |
(c) | ensure appropriate diversification in both the tenor and source of its funding; |
(d) | ensure that its policies, processes, systems and procedures relating to liquidity risk management are sufficiently robust to effectively manage the central counterparty’s— |
(i) | on-going liquidity needs, including any relevant intraday liquidity requirements; and |
(ii) | collateral positions. |