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FRM Part II · FRM Exam Part II · Solvency, Liquidity and Other Regulation After the Global Financial Crisis

Following the post-crisis derivatives reforms agreed by the G20 and implemented through Dodd-Frank, which requirement applies to standardized over-the-counter derivatives?

Standardized OTC derivatives must be cleared through central counterparties and, where appropriate, traded on exchanges or electronic platforms, with all trades reported to trade repositories. Non-cleared trades face higher capital and margin requirements. This reduces bilateral counterparty risk and increases transparency.

  1. AThey must be cleared through central counterparties and, where appropriate, traded on exchanges or electronic platformsCorrect
  2. BThey must be held to maturity without any collateral exchange
  3. CThey are exempt from reporting if the counterparties are both large dealers
  4. DThey must be settled only in physical form at maturity

Explanation

The G20 reforms require standardized OTC derivatives to be centrally cleared and traded on exchanges or electronic platforms where appropriate, with trade reporting to repositories. Non-centrally-cleared contracts face higher capital and margin requirements. Reporting is required, not waived for dealers.

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