FRM Part I · FRM Exam Part I · Central Clearing
Which statement about regulatory reforms for non-centrally cleared OTC derivatives following the 2007-2009 crisis is most accurate?
Reforms made uncleared derivatives costlier through higher capital charges and mandatory margin exchange, creating an incentive to clear standardized contracts. They did not exempt uncleared trades from collateral, ban variation margin at CCPs, or force customized contracts into central clearing.
- AThey exempt all uncleared trades from collateral requirements to encourage bilateral trading
- BThey require higher capital and exchange of margin on uncleared derivatives to create an incentive to clear standardized contractsCorrect
- CThey prohibit CCPs from collecting variation margin
- DThey require all customized derivatives to be cleared through CCPs
Explanation
Post-crisis reforms mandated clearing of standardized contracts and made uncleared trades costlier through higher capital charges and margin exchange requirements. Customized contracts are not generally forced into clearing, and CCPs rely on variation margin, so the other statements are false.
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