FRM Part II · FRM Exam Part II · Central Clearing
A regulator requires a CCP to hold resources so that it can withstand the default of the two clearing members and their affiliates generating the largest stressed losses in extreme but plausible market conditions. This standard is commonly known as which of the following?
This is the Cover 2 standard. Under CPMI-IOSCO principles, systemically important CCPs must hold enough financial resources to withstand the default of the two participants and affiliates causing the largest stressed credit exposures, whereas Cover 1 covers only one.
- ACover 2Correct
- BCover 1
- CCover 3
- DNet-to-gross cover
Explanation
The CPMI-IOSCO principles require systemically important CCPs and those with complex risk profiles to maintain Cover 2 resources; other CCPs must meet at least Cover 1. Cover 1 is a single default, and Cover 3 is not the standard.
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