Skip to content

FRM Part II · FRM Exam Part II · Central Clearing

A bank clears interest rate swaps through a qualifying central counterparty (QCCP) as a clearing member. Under the Basel framework, which statement best describes the capital treatment of the bank's trade exposures to the QCCP?

Trade exposures to a qualifying CCP carry a very low risk weight of 2%, rising to 4% in specific cases where client exposures are not adequately protected. They are not exempt and not deducted, because some counterparty risk remains even with a QCCP.

  1. ATrade exposures to a QCCP receive a very low risk weight of 2%, with a 4% weight where the bank's clients' exposures are not protected from clearing member defaultCorrect
  2. BTrade exposures to a QCCP are deducted from Common Equity Tier 1 capital
  3. CTrade exposures to a QCCP receive the same 100% risk weight as an unrated corporate
  4. DTrade exposures to a QCCP are exempt from any capital requirement

Explanation

Basel III assigns a 2% risk weight to clearing member trade exposures to a QCCP (4% in certain cases where client positions are not protected by bankruptcy-remote arrangements). Not zero, and not a deduction or 100% corporate treatment. The exemption option ignores that capital is still required.

Did you get it right without looking?

One question tells you little. A timed set on Central Clearing shows your real accuracy, how long you take and where you lose marks.

Practise Central ClearingFree diagnostic mock

More Central Clearing questions