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FRM Part I · FRM Exam Part I · Central Clearing

Under post-crisis regulatory reform of over-the-counter derivatives, which requirement applies to standardized OTC derivative contracts between eligible market participants?

Standardized OTC derivatives between eligible participants must be cleared through a central counterparty and reported to trade repositories. This was the core G20 reform after the crisis, aimed at reducing counterparty risk and improving transparency, and it increased rather than removed collateral requirements.

  1. AThey must be cleared through a central counterparty and reported to a trade repositoryCorrect
  2. BThey must be settled only in physical form on the contract maturity date
  3. CThey must be traded only between banks that share the same credit rating
  4. DThey must be prohibited from carrying any collateral requirement

Explanation

Post-crisis reforms (G20 commitments) required standardized OTC derivatives to be centrally cleared and reported to trade repositories, and traded on exchanges or platforms where appropriate. The other options describe requirements that do not exist; collateral requirements were increased rather than removed.

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