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FRM Part I · FRM Exam Part I · Introduction to Derivatives

A CCP has three clearing members, each with a bilateral-equivalent position. Under bilateral OTC trading, Firm A has trades with Firms B and C: A owes B 8, B owes C 5, and C owes A 3 (figures in millions), with no other trades. Under multilateral netting through a CCP, each firm's net position is taken with the CCP. What is the total gross payable across firms after multilateral netting, summing only the net payers' amounts?

Netting each firm's obligations gives A a net payment of 5, while B and C are net receivers of 3 and 2. The only net payer is A, so total payables after multilateral netting are 5 million, versus 16 million gross beforehand.

  1. A16
  2. B5Correct
  3. C8
  4. D3

Explanation

Net positions: A pays 8 and receives 3, so net pays 5. B receives 8 and pays 5, so net receives 3. C receives 5 and pays 3, so net receives 2. Only A is a net payer, owing 5, which equals total receipts of 3+2. Summing gross obligations without netting gives 16, the first option's error.

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