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

Under the post-crisis derivatives reforms agreed by the G20 and implemented through Dodd-Frank, which combination of requirements applies to standardized OTC derivatives?

Standardized OTC derivatives must be cleared through central counterparties, traded on exchanges or electronic platforms where appropriate, and reported to trade repositories. Non-standardized contracts face higher capital and margin requirements. The reforms did not ban OTC derivatives or make clearing voluntary for standardized products.

  1. AClearing through central counterparties, trading on exchanges or electronic platforms where appropriate, and reporting to trade repositoriesCorrect
  2. BMandatory bilateral netting only, with no reporting requirements
  3. CA ban on OTC derivatives between financial institutions
  4. DReporting to trade repositories only, with clearing left to the discretion of each dealer

Explanation

The G20 Pittsburgh commitments called for standardized OTC derivatives to be centrally cleared, traded on exchanges or electronic platforms where appropriate, and reported to trade repositories, with higher capital for non-centrally cleared contracts. Dodd-Frank implemented these in the U.S. The other options misstate the reforms: they did not ban OTC derivatives or leave clearing optional.

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