FRM Part I · FRM Exam Part I · Central Clearing
A CCP has three clearing members, A, B and C. Before clearing, each pair has traded bilaterally with the following net exposures: A owes B 40, B owes C 30, and C owes A 20 (all in USD millions, under no netting agreement across the cycle). After novation to the CCP, each member's trades are netted with the CCP. What is the CCP's net position with Member B, and what does B owe or receive?
Member B receives 10 million from the CCP. After novation, B's 40 million receivable from A and 30 million payable to C are both with the CCP and are netted, giving a net receivable of 10 million.
- AB receives 10 from the CCPCorrect
- BB owes 10 to the CCP
- CB receives 40 from the CCP
- DB owes 30 to the CCP
Explanation
B is owed 40 by A and owes 30 to C. After novation both positions are against the CCP, so B nets to a receivable of 40 - 30 = 10. Choosing B owes 10 reverses the sign. The 40 option ignores the offsetting payable.
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