As part of their engagement with regulators, CME wanted to map risk concentrations within their settlement operations as their members engage in different roles that are critical to the functioning of the system (as settlement members, custodians and as providers of lines of credit). The FNA system was deployed to Complex analytics, visualization and simulation requirements identify, measure and visualize such concentrations based on aggregation from individual transactions. In addition, an operational failure of a large settlement member of a CCP might cause unexpected operational challenges to the CCP or its settlement members.
CME wanted as part of the engagement with their regulator to understand what kind of challenges might manifest under different stress scenarios. The objective was to use the FNA Platform to develop a simulation model on how the network would “rewire” itself in the case of operational incapacity of a settlement member and to evaluate resulting operational risks for the CCP and for remaining settlement members.
FNA Platform is used to satisfy concerns about backup planning, and to predict operational challenges in case of an operational failure of one or more settlement members.
CCPs concentrate large amounts of risks by becoming seller to every buyer and buyer to every seller in the market. Their members play different roles of custody banks, liquidity providers and settlement members and it is not obvious how these roles are concentrated.
Identify risk concentrations across multiple roles members are playing in the system. Monitor changes over time and alert about outliers.
Proof-of-value project identifies previously unknown risk concentrations which prompt the development of a simulation model to evaluate the impact of operational failures (e.g. cyber scenarios) on the CCP’s ability to complete settlement.
- FNA Presentation: Systemic Stress Testing and Central Clearing Interdependencies