LONDON, July 9 (Reuters) - Some clearing houses must

improve their defences against customers defaulting, the

European Union's securities watchdog said on Tuesday, following

a stress test that highlighted how UK clearers still dominate

parts of the market post-Brexit

Clearers stand between buyers and sellers of securities,

ensuring their trades are completed even if one side goes

defaults.

The European Securities and Markets Authority (ESMA) tested

how 16 clearing houses, including those owned by exchanges such

as Euronext, Deutsche Boerse, ICE,

London Stock Exchange Group ( LDNXF ) and Cboe,

generally coped with several theoretical disruptions, such as

multiple users defaulting.

"ESMA's fifth stress test confirmed the overall resilience

of the European clearing landscape to severe credit and

liquidity stress scenarios," Klaus Loeber, chair of ESMA's

clearing house committee, said in a statement.

Some clearers, however, need to strengthen how they deal

with "concentration".

Market participants with large positions in a particular

asset class face "add-on" or extra requirements for margin, or

cash posted at clearers to help cover any default and ensure

speedy liquidation of positions.

The add-ons sufficiently covered stress in interest rate

derivatives, bonds, and stocks and equity derivatives, but fell

short in commodity and freight derivatives, and emission

allowances.

The gaps were not as large as in past tests but "we would

like to see continued improvement," Froukelien Wendt, director

for clearers at ESMA, told reporters.

For many asset classes a single clearer accounts for the

bulk of add-ons across the market, such as for interest rate

derivatives, or forex derivatives at London Stock Exchange

Group's ( LDNXF ) LCH clearing arms in London, ESMA said.

ICE dominates commodity derivatives and emission allowance

clearing add-ons, but for stocks, and equity and credit

derivatives, there is no single dominant clearer, ESMA said.

The EU has passed a law aimed at reducing the bloc's heavy

reliance on clearers like LCH and ICE in London following

Britain's departure from the EU in 2020.

EU permission for LCH and ICE to continue serving bloc-based

customers directly from London is due to expire in June next

year, but the ESMA test results highlight the challenge of

reducing their dominance over EU rivals in a short period of

time.

The watchdog said most of the clearers have started to

integrate climate risk from assets like stocks and bonds into

their in-house stress testing.

"This exploratory analysis should be understood as a

yardstick for further action with regard to climate risks'

monitoring," ESMA said.