FRM Part I · FRM Exam Part I · Central Clearing
Following the global financial crisis, non-centrally cleared OTC derivatives became subject to which reform intended to encourage clearing and limit risk?
Regulators required bilateral margining and higher capital charges for non-centrally cleared OTC derivatives. This makes uncleared trades costlier and encourages clearing, without banning them. Reporting obligations were expanded, not removed, and capital charges rose rather than fell.
- AProhibition of all uncleared derivatives trading
- BMandatory bilateral margin requirements and higher capital charges for uncleared tradesCorrect
- CRemoval of trade reporting obligations
- DReduced capital charges for uncleared trades
Explanation
Reforms imposed margin requirements on uncleared derivatives and higher capital charges, making them costlier than cleared trades. Uncleared trading is not banned, trade reporting was expanded rather than removed, and capital charges were increased rather than reduced.
Did you get it right without looking?
One question tells you little. A timed set on Central Clearing shows your real accuracy, how long you take and where you lose marks.
More Central Clearing questions
- Which feature of the bilateral OTC derivatives market, as opposed to central clearing through a CCP, is most accurate?
- A CCP sets initial margin for a portfolio as the 99% one-day VaR scaled to a 5-day margin period of risk using the square-root-of-time rule.…
- A dealer has a bilateral OTC swap portfolio with a client under a credit support annex (CSA) with zero threshold and zero minimum transfer a…
- A CCP's default waterfall after a clearing member defaults is applied in a typical order. Which sequence is correct?
- Two dealers have a bilateral OTC portfolio with a net mark-to-market of $20 million in favor of Dealer X, under a CSA with a zero threshold …
- Which feature of a CCP's margin framework is most directly intended to reduce the procyclicality of initial margin requirements?