4.5	A CCP should determine the amount and regularly test the sufficiency of its total financial resources available in the event of a default or multiple defaults in extreme but plausible market conditions through rigorous stress testing. A CCP should have clear procedures to report the results of its stress tests to appropriate decision makers at the CCP and to use these results to evaluate the adequacy of and adjust its total financial resources. Stress tests should be performed daily using standard and predetermined parameters and assumptions. On at least a monthly basis, a CCP should perform a comprehensive and thorough analysis of stress testing scenarios, models, and underlying parameters and assumptions used to ensure they are appropriate for determining the CCP’s required level of default protection in light of current and evolving market conditions. A CCP should perform this analysis of stress testing more frequently when the products cleared or markets served display high volatility, become less liquid, or when the size or concentration of positions held by a CCP’s participants increases significantly. A full validation of a CCP’s risk-management model should be performed at least annually.
Stress Test APEX Clear conducts, on a daily basis, stress tests to determine whether the Guaranty Fund is adequate to meet potential stress losses. In compliance with regulatory requirements, APEX Clear’s Guaranty Fund is calculated to be sufficient to cover the potential financial losses that may arise from a simultaneous default of the Largest Loss Member Group and 2 Financially Weakest Members. APEX Clear’s stress testing framework contains historical volatilities and forward looking hypothetical scenarios, which are extreme but plausible, to ensure that APEX Clear has sufficient financial resources in its Guaranty Fund under stressed market conditions. The stress test results and the adequacy of APEX’s Guaranty Fund resources are reported to Management and the Risk Management Committee regularly. Review and validation As the products listed by APEX and cleared by APEX Clear are standardised futures and option contracts, model risk is expected to be low. However, APEX Clear would perform a review of its stress testing scenarios, and underlying parameters and assumptions on a monthly basis. In addition, APEX Clear will perform a full validation on all risk models annually. The validation of risk models in APEX Clear will be done by an independent party, separate from the parties who design, implement and operate the risk models. Such scenario reviews and model validation are approved by the Enterprise Risk Committee.
4.6	In conducting stress testing, a CCP should consider the effect of a wide range of relevant stress scenarios in terms of both defaulters’ positions and possible price changes in liquidation periods. Scenarios should include relevant peak historic price volatilities, shifts in other market factors such as price determinants and yield curves, multiple defaults over various time horizons, simultaneous pressures in funding and asset markets, and a spectrum of forward- looking stress scenarios in a variety of extreme but plausible market conditions.
The stress test scenarios employed by APEX Clear in its assessment of the sufficiency of Guaranty Fund size are relevant, extreme and plausible. These scenarios are conservative to include not only relevant peak historical volatilities but also forward-looking hypothetical scenarios that cover for risks which have not been exhibited in history but could emerge in future. APEX Clear looks back at least 10 years to determine relevant historical scenarios. The scenarios may include the COVID-19 Pandemic (2019/2020), negative oil prices (2020),