Basic Principles of Central Clearing (FRM Part 1 2023 – Book 3 – Chapter 17)

*AnalystPrep is a GARP-Approved Exam Preparation Provider for FRM Exams*

After completing this reading, you should be able to:
- Provide examples of the mechanics of a central counterparty (CCP).
- Describe advantages and disadvantages of central clearing of OTC derivatives.
- Compare margin requirements in centrally cleared and bilateral markets, and explain how margin can mitigate risk.
- Compare and contrast bilateral markets to the use of novation and netting.
- Assess the impact of central clearing on the broader financial markets.

[mithleshsyal]

Hello. If CCPs exist in OTC market, then why is the OTC market non standardized, illiquid, etc.??