Financial Markets Act, 2012 (Act No. 19 of 2012)RegulationsFinancial Markets Act RegulationsChapter VI : Central Counterparties40.5 Stress testing40.5.2 Stress testing - total financial resources |
| (1) | A central counterparty’s stress-testing programme must— |
| (a) | ensure that its combination of margin, default fund contributions and other financial resources are sufficient to cover the default of at least the two clearing members to which it has the largest exposures under extreme but plausible market conditions; |
| (b) | examine potential losses resulting from the default of entities in the same group as the two clearing members to which it has the largest exposures under extreme but plausible market conditions; |
| (c) | ensure that its margins and default fund are sufficient to cover at least the default of the clearing member to which it has the largest exposures or of the second and third largest clearing members, if the sum of their exposures is larger in accordance with Regulation 31. |
| (2) | A central counterparty must— |
| (a) | conduct a thorough analysis of the potential losses it could suffer and must evaluate the potential losses in clearing member positions, including the risk that liquidating such positions could have an impact on the market and the central counterparty’s level of margin coverage; |
| (b) | where applicable, consider in its stress tests, the effects of the default of a clearing member that issues securities cleared by the central counterparty or the underlying of derivative instruments cleared by the central counterparty; |
| (c) | where applicable, consider the effects of a client’s default that issues securities cleared by the central counterparty or the underlying of derivative instruments cleared by the central counterparty; |
| (3) | A central counterparty’s stress tests must consider the liquidation period as outlined in Regulation 33.5. |