ESMA Joins the Global CCP Fire Drill: What the Default Simulation Means for Clearing Members and EMIR Reporting Teams

ByOfficer

Last updated: June 2026

When a clearing member defaults, what decides whether the rest of the market keeps trading is rarely whether the CCP has enough margin on file. It is whether the operational machine around the default works under pressure: can client positions be ported to a surviving member before the porting window closes, can the defaulter’s book be hedged and auctioned without a fire sale, and can connected clearing members at a dozen CCPs all answer the same call in the same few hours. A CCP fire drill exists to find the seams in that machine before a real default does.

On 19 June 2026, ESMA confirmed it had contributed to the latest round of that exercise: the CCP Global International Default Simulation, run in November 2025 across 38 CCPs worldwide together with their clearing members. For EU clearing members and the EMIR reporting teams behind them, the simulation identifies where operational frictions and capacity constraints can surface in multi-CCP default management, and previews the porting and stress-scenario improvements the lead authorities expect for future exercises.

Related reading: ESMA 6th CCP Stress Test: What Clearing Members and Reporting Teams Should Expect

What the CCP fire drill is, and what it is not

The exercise ESMA joined is a default simulation, not a stress test. The two test different failure modes. A stress test sizes financial resources against extreme but plausible market shocks and asks whether margin and the default fund hold. A fire drill simulates the default itself and asks whether people, systems and contractual steps move correctly once a member has gone down.

The November 2025 round was coordinated by the industry body CCP Global and simulated the failure of a single hypothetical participant common to many CCPs at once. Five lead authorities advised on the design, monitored execution, surveyed participants and drew the lessons learned: the Bank of England, the US Commodity Futures Trading Commission, ESMA, Germany’s Federal Financial Supervisory Authority (BaFin) and the Deutsche Bundesbank. The 2025 report follows ESMA’s 2023 report on the global CCP fire drill, which covered the November 2023 exercise involving 31 CCPs and 23 regulators around a hypothetical defaulter labelled A.C.M.E.

Where teams misread this is in treating the fire drill as the regulator’s exercise. CCPs, clearing members and clients are being drilled; the lead authorities advise on the design, monitor execution and survey participants. A member that treats the simulation as a CCP compliance task rather than its own readiness test learns nothing about its own porting and auction-participation capacity, which is what a real default would expose first.

How the simulation maps to EMIR default management

The fire drill rehearses obligations already in hard law. Under Regulation (EU) No 648/2012 (EMIR), a CCP maintains a pre-funded default fund to cover losses that exceed margin, arising from the default of one or more clearing members, and that fund must at least enable the CCP to withstand, under extreme but plausible market conditions, 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 (Article 42(3)). Article 42 sets the default-fund coverage floor. The operational default-management sequence that the drill rehearses sits more directly in Article 48 default procedures and, for the use of financial resources, Article 45 default waterfall.

Porting is the part most exposed by a multi-CCP drill. EMIR requires a CCP to commit contractually to trigger the transfer of a defaulting clearing member’s client assets and positions to another clearing member that has agreed to take them. If that transfer has not happened within the predefined transfer period set in the CCP’s operating rules, the CCP may take all steps permitted by its rules to actively manage the risk, including liquidating the defaulter’s client positions (Article 48 default procedures, porting provisions at paragraphs 5 and 6). The window is short by design; without a pre-arranged receiving member, a client faces a material risk that the CCP will manage the positions under its rules, including liquidation, rather than complete porting.

Collateral mechanics sit underneath this. A CCP accepts highly liquid collateral with minimal credit and market risk and applies haircuts that reflect the potential for value to decline over the liquidation interval, taking into account liquidity risk following the default of a market participant and concentration risk on certain assets (Article 46). In a simulation, the test is whether collateral can be mobilised and valued at the speed the default timeline assumes, not whether it qualifies on paper.

What EMIR 3 changed for the receiving clearing member

Regulation (EU) 2024/2987, known as EMIR 3, was published in the Official Journal on 4 December 2024 and entered into force on 24 December 2024. It amends EMIR, the Capital Requirements Regulation (Regulation (EU) No 575/2013) and the Money Market Funds Regulation (Regulation (EU) 2017/1131), and its headline is the active account requirement designed to reduce EU exposure to important third-country CCPs. For default management, EMIR 3 added a practical accommodation on the porting side.

When a client’s positions transfer to a receiving clearing member following a default, that member takes them on under extraordinary circumstances and a compressed timeline. EMIR 3 adds a new Article 48(8) to EMIR: for three months from the date of transfer, the receiving clearing member may rely on the anti-money-laundering due diligence the defaulting clearing member already performed under Section 4 of Chapter II of Directive (EU) 2015/849, rather than having to repeat it from scratch on the abnormal porting timeline (a separate three-month allowance, agreed with the competent authority, covers the receiving member’s CRR capital requirements for the client exposures). The point teams get wrong is assuming the three-month allowance means an AML file can wait three months as a matter of routine; it applies to the abnormal porting scenario, not to ordinary onboarding.

Recovery and resolution are governed separately by Regulation (EU) 2021/23, the framework for the recovery and resolution of central counterparties. CCPs already authorised under EMIR were required to be able to submit their recovery plans to their competent authorities at the latest on 12 February 2022. A fire drill tests the default-management layer above recovery and resolution: if default management works, recovery tools are never reached; if it fails, the CCPRRR regime is what comes next. Our EMIR reporting guide covers how the reporting obligation interacts with the clearing framework these provisions sit inside.

The operational gaps the 2025 simulation flagged

The lead authorities did not report a failure. They reported that the exercise demonstrated CCPs and market participants could execute default management in a multi-CCP setting, while pointing to where operational frictions surface. Four themes are worth a reporting team’s attention.

First, fragmentation: the lead authorities recommended reducing fragmentation in CCP procedures and communication conventions. A clearing member connected to several CCPs faces a different process, template and notification convention at each, which a single simultaneous default amplifies. Second, portal-based solutions: the recommendation to promote portals over email and spreadsheet workflows acknowledges that ad hoc channels do not scale to a cross-CCP default. Third, porting: the authorities recommended that future iterations include more realistic testing of porting arrangements, because a drill that ports a pre-arranged client to a pre-arranged member proves little. Fourth, a voluntary market stress overlay module and coherent cross-CCP macro stress scenarios, so the next simulation can layer a market shock on top of the default rather than testing it in calm conditions.

The misread here is to treat these as the CCP’s homework. The fragmentation and porting findings land on clearing members, because the member is the entity that has to operate across every CCP’s divergent process at once.

What this changes for reporting teams, and what it does not

A fire drill creates no new transaction reporting obligation. There is no new EMIR template, no new field, and no new submission deadline attached to participating in the simulation. A reporting team that goes looking for a CIDS return will not find one. What the simulation does is expose whether the data a reporting team relies on every day would hold up in the hours after a default.

Position and trade records are the obvious example. Porting depends on the CCP and the receiving member agreeing, quickly, on exactly which client positions move. That reconciliation runs on the same trade and position data that flows through EMIR reporting. A book that reconciles cleanly at month-end but not intraday is a porting risk, not just a reporting-quality issue. Our EMIR initial margin reporting coverage and the EMIR 3 clearing thresholds and active account explainer set out where these data dependencies sit. ESMA’s CCP work runs on parallel tracks: the default simulation tests the operational default process, the CCP stress test sizes the financial resources, and EMIR 3 reshapes where clearing happens. Reading only one is reading a third of the picture.

Frequently Asked Questions

Is the CCP fire drill the same as the ESMA CCP stress test?

No. The fire drill, the CCP Global International Default Simulation ESMA joined in November 2025, simulates the operational default-management process after a clearing member fails. The CCP stress test sizes a CCP’s financial resources against extreme but plausible market shocks. They test different failure modes and produce different reports.

Does participating in the simulation create a new EMIR reporting obligation?

No. The simulation creates no new EMIR template, field or deadline. It is an operational readiness exercise. Its value to a reporting team is that it tests whether existing trade and position data would support porting and reconciliation in the hours after a real default.

Which authorities led the 2025 exercise?

Five lead authorities advised on the design, monitored execution and drew the lessons learned: the Bank of England, the US Commodity Futures Trading Commission, ESMA, Germany’s BaFin and the Deutsche Bundesbank. The exercise itself was coordinated by the industry body CCP Global and involved 38 CCPs.

What is porting and why did the drill focus on it?

Porting is the transfer of a defaulting clearing member’s client positions and assets to a surviving clearing member, governed by the default procedures in Article 48 of EMIR. The lead authorities recommended more realistic porting testing because the operational risk is greatest when the receiving member is not arranged in advance and the transfer window is short.

What did EMIR 3 change for a clearing member that receives ported positions?

Regulation (EU) 2024/2987 adds Article 48(8) to EMIR: for three months from the transfer date, a receiving clearing member may rely on the anti-money laundering due diligence the defaulting member already performed under Directive (EU) 2015/849, recognising that porting happens under extraordinary circumstances over a short period. It is a sequencing relief for the abnormal default scenario, not a general extension of routine onboarding timelines.

How does the fire drill relate to CCP recovery and resolution?

The fire drill tests the default-management layer that sits above recovery and resolution. Recovery and resolution are governed separately by Regulation (EU) 2021/23. If default management works, recovery tools are never reached; if it fails, the recovery and resolution regime is what follows.

What were the main lessons from the 2025 simulation?

The lead authorities reported that default management could be executed in a multi-CCP setting, and recommended reducing fragmentation in CCP procedures and communication conventions, promoting portal-based solutions, testing porting arrangements more realistically, and adding a voluntary market stress overlay and coherent cross-CCP macro stress scenarios in future iterations.

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Key Takeaways

  • The exercise ESMA joined is a default simulation, the CCP Global International Default Simulation, run in November 2025 across 38 CCPs, not a CCP stress test.
  • Five lead authorities advised and observed: the Bank of England, the CFTC, ESMA, BaFin and the Deutsche Bundesbank; CCP Global coordinated.
  • The drill rehearses obligations already in EMIR: the default fund and the ‘second and third largest’ alternative coverage floor (Article 42(3)), default procedures and porting (Article 48), and collateral mechanics (Article 46) under Regulation (EU) No 648/2012. The operational default-management sequence sits in Article 48; the default waterfall for use of financial resources in Article 45.
  • EMIR 3 (Regulation (EU) 2024/2987, in force and applied from 24 December 2024 for most provisions) adds Article 48(8), letting a receiving clearing member rely for three months on the defaulting member’s AML due diligence on ported positions, a relief for the abnormal porting scenario only. Note that certain active account and clearing threshold provisions apply only once related regulatory technical standards enter into force.
  • Recovery and resolution are a separate regime under Regulation (EU) 2021/23; the fire drill tests the default-management layer that sits above it.
  • The 2025 lessons centre on fragmentation in CCP procedures, portal-based solutions, more realistic porting tests, and a future market stress overlay.
  • No new EMIR reporting obligation results; the simulation tests whether existing trade and position data would support porting and reconciliation intraday.

Sources and References

Reading the drill before the default arrives

A clearing member that waits for a real default to discover whether its porting arrangements, collateral mobilisation and intraday reconciliation actually work has chosen the most expensive way to find out. The fire drill is the cheap version of that lesson. The 2025 findings tell EU clearing members where the friction is: which CCP processes diverge, where porting is untested against the hard case, and which workflows still run on channels that will not scale to a simultaneous cross-CCP default. The teams that treat the simulation as their own readiness exercise are the ones who will not be reading their default-management runbook for the first time on the day it matters.

Disclaimer: The information on RegReportingDesk.com is for educational and informational purposes only. It does not constitute legal, regulatory, tax, or compliance advice. Always consult your compliance officer, legal counsel, or the relevant supervisory authority for guidance specific to your institution.

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