FRM Part II · FRM Exam Part II · Derivatives
A risk manager reviews how Basel III treats exposures to a qualifying central counterparty (QCCP). Which statement is correct?
Trade exposures to a qualifying CCP get a 2% risk weight, while default fund contributions are capitalised under a separate risk-sensitive formula. This encourages central clearing while still reflecting the loss-sharing risk members bear. Treating QCCP exposure as 100% weighted or ignoring default fund contributions is incorrect.
- ATrade exposures to a QCCP receive a very low risk weight of 2%, while default fund contributions are capitalised separatelyCorrect
- BTrade exposures to a QCCP receive a 100% risk weight like corporates
- CDefault fund contributions to a QCCP carry no capital requirement
- DTrade exposures to a QCCP are fully deducted from CET1
Explanation
Basel III gives a 2% risk weight to trade exposures to QCCPs (4% in certain cases where client clearing conditions are not met), reflecting their robust risk management. Default fund contributions carry a separate, risk-sensitive capital charge to reflect mutualised loss exposure. Hence the other statements are wrong.
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