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

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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.