FRM Part I · FRM Exam Part I · Central Clearing
Two dealers have a bilateral OTC portfolio. Under the credit support annex, the portfolio's net value to Dealer X is +USD 18 million. Dealer X already holds USD 6 million of collateral from Dealer Y. The CSA has a zero threshold and a USD 2 million minimum transfer amount. What happens?
Dealer Y must post an additional USD 12 million. The net exposure is USD 18 million, with a zero threshold, and USD 6 million is already held. The shortfall of USD 12 million exceeds the USD 2 million minimum transfer amount, so the call is valid.
- ADealer Y must post USD 12 million additional collateralCorrect
- BDealer Y must post USD 18 million additional collateral
- CNo call is made because the shortfall is under the threshold
- DDealer X must post USD 12 million to Dealer Y
Explanation
Required collateral is the net exposure of 18 million less the 6 million already held, giving a 12 million call. This exceeds the 2 million minimum transfer amount, so it is made. Calling 18 million ignores the existing collateral.
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