Documentation & Clearing Infrastructure Flashcards
7 cards from real CDP practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Documentation & Clearing Infrastructure flashcards as text
The Credit Support Annex (CSA) primarily governs which aspect of an OTC derivatives relationship?
Answer: The posting and return of collateral to mitigate credit exposure
The CSA establishes the terms under which counterparties exchange collateral (margin) to reduce the credit exposure arising from mark-to-market fluctuations in OTC derivatives portfolios.
In a CSA, the 'Independent Amount' is functionally equivalent to:
Answer: Initial margin covering potential future exposure
The Independent Amount is posted upfront to cover potential future exposure, similar to initial margin, and does not fluctuate with daily mark-to-market changes.
'Variation Margin' under a CSA is exchanged to cover:
Answer: Changes in the current mark-to-market value of the derivatives portfolio
Variation margin is transferred daily to cover current mark-to-market losses, ensuring that credit exposure is continuously reduced to near zero.
A 'Threshold' in a CSA represents:
Answer: The exposure level below which no collateral transfer is required
The Threshold functions as an unsecured credit limit; collateral is only required when exposure to the counterparty exceeds this agreed level.
Under the BCBS-IOSCO margin requirements for uncleared OTC derivatives, which counterparties are mandated to exchange both initial margin and variation margin?
Answer: Financial entities above specified aggregate notional thresholds
BCBS-IOSCO rules phase in requirements based on a firm's aggregate average notional (AANA), mandating both IM and VM exchange for financial counterparties above specific thresholds.
A 'haircut' applied to non-cash collateral in a CSA means that:
Answer: The collateral's market value is discounted for margin credit purposes
A haircut reduces the eligible value of non-cash collateral (e.g., government bonds) below its market price to account for price volatility and liquidity risk during a potential close-out.
The 'Minimum Transfer Amount' (MTA) in a CSA is primarily designed to:
Answer: Avoid operational burdens from very small collateral calls
The MTA establishes a floor below which collateral calls are not made, reducing the operational cost and friction of managing very small margin transfers.
How this page was made: written with AI tools and published by Nathan Beja, founder of Practice Test Geeks, who is responsible for its content. We have not yet matched this exam's facts to an official source, so confirm fees, dates and rules with the exam body. Not reviewed by a subject-matter expert. Editorial policy