FRM Part II · FRM Exam Part II · Central Clearing
A CCP has exhausted the defaulter's resources, its own skin in the game and the default fund after a large member default. Which recovery tool is most clearly a loss-allocation tool that leaves the CCP's open positions intact for non-defaulting members?
Cash calls on surviving members, within pre-agreed caps, allocate losses while keeping contracts in force. Tear-up terminates contracts, resolution transfers are not recovery tools, and suspending margin worsens exposure, so cash calls fit the description.
- ACash calls on surviving clearing members up to a pre-agreed cap, with variation margin gains haircutting as a further tool if neededCorrect
- BFull tear-up of all contracts across the CCP
- CImmediate transfer of all positions to a bridge bank without any member loss
- DSuspension of margin calls to preserve liquidity
Explanation
Cash calls (assessments) replenish resources while keeping contracts alive, and variation margin gains haircutting also allocates losses without terminating all positions. Full tear-up terminates contracts, a bridge transfer is a resolution (not recovery) tool, and suspending margin increases risk.
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