LONDON (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 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 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.

(Reporting by Huw Jones; Editing by David Holmes and David Evans)

By Huw Jones