Supervisory Stress Test of 

Clearinghouses

An Analysis by CFTC Staff of Systemic Risk across 

Multiple Clearinghouses in all CFTC Asset Classes

1 
DISCLAIMER

DISCLAIMER 

This is a report by staff of the U.S. Commodity Futures Trading Commission. Any views expressed in this 

report are solely the views of staff, and do not necessarily represent the position or views of any 

Commissioner or the Commission.

2 
Executive Summary

Purpose of Exercise – Test the resiliency of 5 major clearinghouses under a variety of stress 

scenarios

• Assess the impact of hypothetical stressed market conditions across multiple clearinghouses

– Use actual positions and actual margin 

• Analyze the overall risk that the largest clearing members pose across several asset classes

• Evaluate the sufficiency of the pre-funded resources of individual clearinghouses in the event 

of a clearing member default

3 
BACKGROUND 

4 
Central Clearing

• Used in futures market for over 100 years

• Expanded under Dodd-Frank Act

• Volume has increased significantly

5 
6 

Growth in Clearinghouse Margin Requirements

$0

$20

$40

$60

$80

$100

$120

$140

$160

$180

$200

$220

$240

$260

$280

$300

$320

June 30, 2008 December 31, 2013 September 30, 2016

Billions

Total Initial Margin Requirements

Swaps

Futures
Why did we expand clearing?

• Lessons of crisis: Problems in bilateral OTC swap market 

• Clearinghouses functioned well during the crisis

• Goal of clearing: Improve risk mitigation and monitoring

7 
8 

Comparison of Uncleared and Cleared Markets
Systemic Concerns

• Have we just moved the risk?

• Have we created new concentrations of systemic risk, new points of failure?

9 
Systemic Concerns

Have we just moved the risk? 

Have we created new concentrations of systemic risk, new points of failure? 

• Transaction risk still exists, it is easier to monitor and mitigate

• Less likely to lead to destructive chain of defaults

• Clearinghouses have tools and resources 

• To monitor and mitigate risk

• To manage defaults

• Clearinghouses must meet CFTC & international safety and resilience standards

• CFTC standards

• PFMIs

• Coverage standards

• Vigilance and resilience are key

10
Clearinghouse Tools and Resources to Mitigate Risk 

• Variation Margin (VM) and Initial Margin (IM) 

• Clearing member requirements

• Clearinghouse rules 

• CFTC rules

• Risk surveillance

• By clearinghouse 

• By CFTC 

11
CFTC Risk Surveillance Program

• Identify, quantify, and monitor risks posed by clearinghouses, clearing participants, and other 

market participants to the financial system

– Identify positions in cleared products that pose significant financial risk

– Confirm these risks are being appropriately managed 

• Staff analyses risk in cleared futures and options, IRS and CDS markets

• Proactively identify customers and clearing members who pose significant risk based on 

various portfolio characteristics

• Actively communicates concerns directly with customers, clearing members, and 

clearinghouses

• Applies comprehensive stress testing program 

12
Default Management Tools and Resources

Prefunded Resources

• Defaulting firm’s initial margin

• Clearinghouse capital (“skin in the game”)

• Prefunded guaranty fund – mutualized resource

Other ex ante Resources identified 

• Assessments on Members

• Other tools

– Gains based haircuts

– “Tear ups”

13
Default Management Objectives

• Allocate losses 

• Restore a matched book

• Maintain continuity of functions

14
Stress Testing

Clearinghouse stress testing

• Required by CFTC rules

• Run daily as part of routine risk management program

• Used to size guaranty fund (Cover 2 applied) 

• Run using their own position data and clearing members to test margin adequacy

• Recent CPMI IOSCO guidance on clearinghouse stress testing

“Extreme but Plausible” scenarios used in stress testing

Supervisory stress testing

• Across multiple clearinghouses

• International standards being developed for supervisory stress tests for multiple clearinghouses

15
Objectives of Supervisory Stress Testing in this Exercise

• Assess the impact of hypothetical stressed market conditions across multiple clearinghouses

– Use actual positions and actual financial resources

• Analyze the overall risk that the largest clearing members pose across all CFTC asset classes 

• Evaluate the sufficiency of the prefunded resources of individual clearinghouses in the event 

of a clearing member default

• Tests do not address the following important clearinghouse risks

– Liquidity Risk 

– Operational Risk 

– Cyber security Risk

16
Methodology

17
Clearinghouses

U.S. 

CME Clearing (CME)

• Futures: equity, interest rates, energy, metals, currencies and agriculture

• Swaps: CDS and IRS

ICE Clear U.S. (ICUS)

• Futures: equity, softs, and currency

ICE Clear Credit (ICC) 

• Swaps: index and single name CDS

Europe

ICE Clear Europe (ICEU)

• Futures: energy, equity, softs and currencies

• Swaps: index and single name CDS

LCH Clearnet Ltd (LCH)

• Swaps: IRS 

18
Guaranty Funds

• Each clearinghouse may have more than one guaranty fund

• Tests covered a total of 8 guaranty funds for the 5 clearinghouses

• All clearinghouses in this exercise required to meet Cover-2 standard 

Guaranty Funds by Clearinghouse

 

19

Asset Class Clearinghouse

CME ICC ICEU ICUS LCH

Credit Default Swaps √ √ √

Interest Rate Swaps √ √

Futures √ √ √
Guaranty Fund Amounts as of 3/31/16

20

Clearinghouse Guaranty Fund

CME Futures $3.2 billion

CME Interest Rate Swaps (IRS) $2.8 billion

CME Credit Default Swaps (CDS) $650 million

LCH Interest Rate Swaps (IRS) $4.6 billion

ICEU Futures $1.9 billion*

ICEU Credit Default Swaps (CDS) $1.3 billion

ICC Credit Default Swaps (CDS) $1.9 billion

ICUS Futures $478 million

* ICEU GF adjusted to reflect pro rata energy futures component
Clearinghouses’ Own Resources

Clearinghouses commit their own capital to be available in the event of a default

• Funds would be used after the initial margin and the guaranty fund contribution of the firm in 

default were exhausted subject to individual clearinghouse rules

• These are included in this default calculations in this exercise

Committed Amounts:

21

Clearinghouse Amount

CME Futures $100 Million

CME Interest Rate Swaps (IRS) $150 Million

CME Credit Default Swaps (CDS) $50 Million

LCH Interest Rate Swaps (IRS) $63.4 Million

ICEU Futures $100 Million

ICEU Credit Default Swaps (CDS) $50 Million

ICC Credit Default Swaps (CDS) $50 Million

ICUS Futures $50 Million
Products Covered

• Most widely held contracts at all clearinghouses

• Futures and options on futures 

– Equity, Interest Rate, Energy, Metals, Agricultural, Softs, Currency

• Swaps: 

– Interest Rate Swaps (IRS) 

– Credit Default Swaps (CDS) – Single name and indices

22
Clearing Members

• Included the 15 largest clearing members of each clearinghouse

• Results in 23 total corporate groups

• 23 groups account for approximately 88% of the total initial margin required by the five 

clearinghouses

• Affiliated clearing members are combined at the parent level

• These 23 groups comprised 23 house accounts and 20 customer accounts

– Results in 43 clearing member accounts

23
Size of Cleared Markets

24

Total Initial Margin Requirements on April 29, 2016

$0

$20

$40

$60

$80

$100

$120

$140

$160

Futures Interest Rate Swaps Credit Default Swaps

Billions

House

Customer
Stress Test Scenarios

Staff constructed a series of hypothetical scenarios using multiple resources

Stress tests were applied as instantaneous shocks

• “Extreme but plausible” moves

• Calibrated using liquidation period in many instances of more than one day 

 

Examples of CFTC Futures Stress Test Levels

25

Contract Stress 

Up

 Stress 

Down 

Highest Actual 

Historical Return

Lowest Actual 

Historical Return

Gold 10% -10% 9/17/2008 9% 4/15/2013 -9.4%

Crude Oil (WTI) 20% -20% 12/31/2008 14.3% 1/7/2009 -12.3%

S&P 500 15% -20% 10/21/1987 19.4% 10/19/1987 -28.6%
Examples of Price Changes on Dates of Extreme Volatility

26

 Lehman 

Collapse

Worldwide 

Action to 

Address 

Crisis

Post Crisis 

Recession 

Fears

BREXIT CFTC Stress 

Tests 

9/15/2008 10/13/2008 10/21/2008 6/24/2016 UP DOWN

Gold Futures 3.00% -1.90% -2.70% 4.70% 10% -10%

S&P 500 Futures -4.95% 14.10% -3.10% -4.10% 15% -20%

WTI Crude Oil Futures -5.40% 4.50% -4.50% -4.90% 20% -20%
27

Sector Directional Stress for Test Scenario 4

Sector Scenario 4 

Equity Futures DOWN

Rates Futures UP

IRS DOWN

CDS UP

Energy DOWN

Metals UP

Ags DOWN

Softs DOWN

Currency UP
Sector Directional Stress by Scenario 

Sector Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5 Scenario 6 Scenario 7 Scenario 8 Scenario 9 Scenario 10 Scenario 11

Equity Futures UP DOWN DOWN DOWN UP UP DOWN DOWN DOWN DOWN UP

Rates Futures DOWN UP DOWN UP DOWN DOWN DOWN UP DOWN UP DOWN

IRS UP DOWN UP DOWN UP UP UP DOWN UP DOWN UP

CDS DOWN UP UP UP DOWN DOWN UP UP UP UP DOWN

Energy UP DOWN UP DOWN DOWN DOWN UP DOWN UP DOWN UP

Metals UP DOWN UP UP DOWN DOWN UP UP UP FLAT UP

Ags UP DOWN FLAT DOWN FLAT DOWN DOWN DOWN UP DOWN DOWN

Softs UP DOWN FLAT DOWN FLAT DOWN DOWN DOWN UP DOWN DOWN

Currency UP DOWN UP UP DOWN DOWN DOWN DOWN UP UP UP

28
Application of Methodology

• Stress Tests calculated and aggregated independently by CFTC staff

• Reviewed our stresses and test results & draft report with the clearinghouses

• Shared draft of report with certain other authorities 

• Staff used position and margin data routinely filed under CFTC rules as of COB 4/29/16

• Clearinghouse guaranty fund amounts as of 3/31/16 (reported at quarter end)

• Verified dates were representative

• Applied as instantaneous shocks but in many instances were calibrated using a liquidation

period of more than one day

• Tests assume all firms with losses that exceed margin do not make additional payments to 

the clearinghouse

29
Did Clearinghouses Meet Required Resilience?

Level of Coverage at Clearinghouses 

• 11 scenarios ran across the five clearinghouses and eight guaranty funds

• Some scenarios produced identical effects on a guaranty fund, creating a total of 36 non-duplicative 

tests

• Clearinghouses achieved at least cover-two in all tests

• Full coverage of defaults achieved in 23 of the 36 tests

Summary of Default Coverage 

30

Cover Ratio No. of Tests % of All Tests

At Least Cover 2 36 100%

At Least Cover 3 30 83%

At Least Cover 4 25 69%

Cover All 23 64%

Total 36 100%
Do Clearing Members have Similar Risk Profiles?

Did the same scenarios cause shortfalls at multiple clearing members? 

• Clearing Member risk was generally diversified among scenarios

Out of 43 total clearing members accounts (23 house, 20 customer):

– No single scenario accounted for more than 19% of the worst outcomes (8 of 43)

– 10 of the 11 scenarios generated the worst outcome for at least one account

Number of Worst Outcomes for 43 Clearing Member Accounts by Stress Test Scenario

31

Scenario No. of Accounts

Scenario A 8

Scenario B 7

Scenario C 7

Scenario D 6

Scenario E 5

Scenario F 3

Scenario G 3

Scenario H 2

Scenario I 1

Scenario J 1

Scenario K 0
Degree of diversification of Clearing Member Risk

• No single clearing member had the largest loss in more than 6 of the 36 tests

• No two firms generated the largest losses at more than one guaranty fund in any scenario

32
If a Clearing Member incurs a big shortfall at one clearinghouse, 

did it incur large shortfalls at all the clearinghouses? 

33

Worst Net Shortfall Across All Clearinghouses (shows position for each guaranty fund)

(See Appendix 3 for full account list)

Clearing 

Member 

Account

Worst Net Shortfall

Across all Clearinghouses

Remainder or Shortfall at Each Individual Guaranty Fund

1 2 3 4 5 6 7 8 

1 -$1,724,399,671 (-) (-) (+) (+) (-) 

2 -$1,296,896,175 (-) (-) (-) (+) (+) (+) (-) (+)

15 -$56,350 (-) 

16 $42,502,136 (-) (+) (-) 

25 $1,664,597,019 (+) (+) (+) (-) (+) (-) 

26 $1,725,577,649 (-) (+) (+) (+) (+) (+) (+) (+)

41 $6,402,580,285 (+) (-) (+) (+) (+) (-) 

42 $7,627,877,534 (+) (+) (+) (+) 
Conclusions

• Clearinghouses had the financial resources to withstand extreme market price changes across 

a wide range of products

– Cover two requirement was met in every test

– 64% of the tests there was sufficient coverage for a default by every clearing member

• A Clearing Member with the worst loss in a particular scenario at one clearinghouse did not 

have losses everywhere and in many cases had a net surplus remaining or even a net gain 

across all clearinghouses

• Clearing member positions were highly diversified across clearinghouses

– 65% of the accounts did not have a margin shortfall under any scenario

– No single scenario produced the worst result for more than 8 of the 43 clearing member accounts

– Identity of the two firms generating the largest losses was diversified across scenarios

• No two firms generated the largest losses at more than one guaranty fund in any scenario

34
Limitations

• Only as of one date (April 29, 2016)

• Limited number of scenarios

• Time period – calibrated single day shock

• Not a test of liquidity, investment losses, operational risk etc. 

35
Next Steps

Supervisory Stress Tests will be conducted on a regular basis at the CFTC and the program will be 

continually enhanced

Potential Enhancements include:

• Extreme market conditions projected over an expanded timeframe

• Test positions and margins from multiple days

• Include yield curve reshaping and futures forward curve shifts

• Incorporate other clearinghouse risks such as liquidity, operational and cybersecurity 

• Reverse stress testing

• Expand to include more clearinghouses and clearing members

• Broaden product scope

• Joint supervisory stress test efforts with other domestic and international regulators

• Incorporate recommendations of CPMI-IOSCO working group

 

 

36
Project Team

• Jeff Bandman, Acting Director

• John Lawton, Deputy Director 

• Steve Greska, Associate Director 

• William Heitner, Associate Director 

• James Marcello, Assistant Director

• Glenn Schmeltz, Risk Analyst

• Edward Griffin, Risk Analyst

• Ryan Goodman, Risk Analyst

• Kevin Connerty, Risk Analyst

• Nancy Dong, Risk Analyst

37
QUESTIONS? 

38
Appendix 1: Futures Stress Test Levels

39

Contract Stress 

Up %

Stress 

Down %

S&P 500 15 -20 10/21/1987 19.4 10/19/1987 -28.6

Russell 2000 15 -15 10/28/2008 10 12/1/2008 -11.9

S&P 400 Midap 15 -20 10/13/2008 10.5 12/1/2008 -10.9

MSCI EAFE 10 -10 10/29/2008 8.6 10/10/2008 -8.4

MSCI Emerging Mkts 11 -11 10/30/2008 10.6 10/6/2008 -9.5

MSCI Europe 10 -10 10/13/2008 10.1 10/6/2008 -7.6

Nasdaq 100 20 -20 1/3/2001 18.8 9/29/2008 -10.5

10 YR 2.5 -2.5 3/18/2009 3.6 9/19/2008 -2.4

5 YR 2 -2 3/18/2009 2 9/19/2008 -1.9

Eurodollar 0.4 (price) -0.4 (price) 10/20/1987 1.16 (price) 3/17/1989 -0.40 (price)

30 year 3 -3 3/18/2009 4.1 9/19/2008 -3

2-year 1.15 -1.15 9/15/2008 0.9 3/1/2002 -1

30-day fed funds .22 (price) -.22 (price) 1/22/2008 0.52 (price) 9/19/2008 -0.22 (price)

Natural Gas 25 -25 7/31/2006 14.3 2/5/2001 -15.4

Crude Oil 20 -20 12/31/2008 14.3 1/7/2009 -12.3

Heating Oil 20 -20 9/19/2005 11 11/15/2001 -9

Gasoline 20 -20 7/8/2008 13.9 3/9/2015 -14.9

Brent Oil 15 -15 12/11/2008 11.8 9/24/2001 -13.4

GasOil 15 -15 1/5/2009 11.9 9/24/2001 -13.2

Gold 10 -10 9/17/2008 9 4/15/2013 -9.4

Copper 13 -13 10/29/2008 12.4 10/13/2004 -11.1

Silver 18 -18 3/19/2009 13 9/23/2011 -17.8

Corn 15 -15 9/15/2009 9 4/1/2013 -7.6

Wheat 17 -17 10/29/2008 9.2 1/12/2009 -9.5

Live Cattle 10 -10 6/15/2006 3.8 12/30/2003 -6.2

Soybean 15 -15 10/8/2010 6.6 6/30/2014 -5.8

Soybean Meal 15 -15 10/27/2014 7.6 7/16/2007 -7.5

Soybean Oil 10 -10 2/22/2005 8.4 10/22/2008 -7

Sugar 15 -15 2/23/2016 11 7/26/1988 -16.7

Coffee 20 -20 10/13/1999 23.6 7/20/2000 -12.1

Cotton 12 -12 6/25/2001 12 11/23/2010 -7.2

Cocoa 10 -10 10/5/2009 8 10/18/2002 -9.5

Hogs 10 -10 12/14/1998 7.1 12/15/1998 -6.7

Euro 6 -6 12/3/2015 3.4 12/19/2008 -3

GBP 6 -6 10/29/2008 3.4 1/20/2009 -5

U.S. Dollar 3 -3 12/19/2008 2.3 3/18/2009 -2.7

Yen 6 -6 5/6/2010 5.3 10/28/2008 -3.9

Mexican Peso 10 -10 10/9/2008 7.3 10/13/2008 -6.4

Aussie Dollar 10 -10 10/13/2008 8.6 10/24/2008 -7

Highest % Return Lowest % Return
Appendix 2: IRS and CDS Stress Test Levels

40

CDS IRS

Currency Jurisdiction

Interest 

Rates 

(bps) 

FX (%)

AUD Australia 60 10

BRL Brazil 60 10

CAD Canada 60 1.5

CHF Switzerland 30 0 

CZK Czech Republic 30 0 

DKK Denmark 30 0 

EUR Europe 30 6 

GBP Great Britain 30 6 

HKD Hong Kong 60 2.4

HUF Hungary 30 0 

JPY Japan 15 6 

MXN Mexico 90 10

NOK Norway 30 0 

NZK New Zealand 60 2.9

PLN Poland 30 0 

SEK Sweden 30 0 

SGD Singapore 60 2.4

USD United States 60 0 

ZAR South Africa 60 2.6

Sectors Widening (%) Tightening (%)

Asia Pacific Sovereigns 75 -30

Basic Materials 75 -40

CDX 45 -20

CDXEM Sovereigns 60 -45

CDXNAHY 45 -20

CDXNAIG 45 -20

CDXNAIGHVOL 45 -20

Consumer Goods 50 -25

Consumer Services 70 -40

Corporate 65 -40

Emerging Market Sovereigns 100 -40

Energy 70 -30

Financials 120 -60

Healthcare 65 -30

Industrials 75 -40

iTraxx 50 -25

iTraxx Asia IG 50 -25

iTraxx Australia 50 -25

iTraxx Eur 50 -25

iTraxx Eur HiVol 40 -20

iTraxx Eur Xover 30 -15

ITRAXX FINSEN 60 -30

Technology 65 -30

Telecommunications 65 -30

Utilities 75 -50

Western European Sovereigns 75 -30
Appendix 3: Worst Net Shortfall across All Clearinghouses

41

1 2 3 4 5 6 7 8

1 -1,724,399,671 (-) (-) (+) (+) (-)

2 -1,296,896,175 (-) (-) (-) (+) (+) (+) (-) (+)

3 -1,195,029,470 (-) (+) (-) (+) (-) (+) (-) (-)

4 -1,050,726,441 (-) (-) (-) (-) (+)

5 -805,606,822 (-) (+) (-) (+)

6 -502,241,996 (-) (+) (+)

7 -365,240,667 (+) (-) (-)

8 -341,904,566 (-) (-)

9 -322,644,015 (-) (+) (-) (+) (-) (+) (-) (+)

10 -310,484,500 (-) (+) (-)

11 -292,259,072 (-) (-) (-)

12 -144,683,197 (-) (-) (-)

13 -126,596,254 (-) (+)

14 -881,905 (+) (-) (-)

15 -56,350 (-)

16 42,502,136 (-) (+) (-)

17 86,513,679 (+)

18 190,393,693 (+) (-)

19 319,496,066 (-) (-) (+) (+) (+)

20 567,079,071 (+)

21 858,779,737 (+)

22 1,378,255,178 (+) (+) (+) (+) (+) (+) (+) (+)

23 1,404,095,021 (+) (-) (+) (+)

24 1,610,515,750 (+) (+) (+) (+) (-) (+) (+) (+)

25 1,664,597,019 (+) (+) (+) (-) (+) (-)

26 1,725,577,649 (-) (+) (+) (+) (+) (+) (+) (+)

27 1,750,123,798 (-) (+) (-) (+)

28 1,771,180,814 (+) (+) (+)

29 1,810,410,790 (+) (-) (+) (+) (+) (-)

30 1,943,276,443 (-) (+) (+) (+) (+) (-) (+)

31 2,517,914,443 (+) (+) (+) (+) -

32 2,657,061,905 (+) (+) (-) (+) (-) (+) (-) (+)

33 2,751,769,880 (-) (+) (+) (+) (+) (+) (-) (+)

34 3,071,510,201 (+) (+) (+) (+)

35 3,110,156,991 (-) (+) (+) (+) (-) (+)

36 3,191,208,097 (+) (-) (+) (+) (+)

37 3,522,120,318 (+) (-) (+) (+)

38 3,632,373,279 (+) (-) (+) (+) (+)

39 3,911,904,461 (-) (+) (+) (+) (-) (+) (-) (+)

40 4,919,045,537 (+) (-) (+) (+) (+)

41 6,402,580,285 (+) (-) (+) (+) (+) (-)

42 7,627,877,534 (+) (+) (+) (+)

43 12,245,020,985 (+) (+) (+) (+)

Clearing 

Member 

Account

Worst 

Shortfall 

Across all 

DCOs (Net)

Remainder or Shortfall at Each Individual Guaranty Fund
Appendix 4: Herfindahl-Hirschman Index

The Herfindahl-Hirschman Index (“HHI”) was used to measure the concentration of risk among clearing 

members using Initial Margin at each clearinghouse

• HHI is calculated by squaring the market share of each firm competing in the market and then 

summing the resulting numbers 

• The initial margin required at the clearinghouse was combined for all futures and swaps products 

across both customer and house accounts for all clearing members to calculate each RISK HHI

• The DOJ and the Federal Trade Commission a HHI between 1,500 and 2,500 points to be moderately 

concentrated and HHI is in excess of 2,500 points to be highly concentrated

• The index levels across clearinghouses ranged from 437 – 1033 indicating a low level of 

concentration

Concentration of Clearing Members under Clearinghouse Risk HHI

42

Clearinghouse Herfindahl-Hirschman Index (HHI)

CME 707

LCH 437

ICC 1033

ICUS 930

ICEU 808

Combined 591
Appendix 5: Increase in Futures and Swaps Margin

43

$180

$160

$140

$120

sn

$100

illioB

$80

$60

$40

$20

$0

6/30/2008 12/31/2013 12/31/2014 12/31/2015 4/29/2016 9/30/2016

Swaps Margin

Futures Margin