Explanation

D is correct. The CCP's net exposure is AUD 28 million under central clearing.

Calculation Breakdown:

Bilateral Netting Calculations:

• Firm 1: (90-60) + (12-70) = 30 + (-58) = -28 = AUD 0 million (negative exposure becomes zero)
• Firm 2: (60-90) + (57-0) = -30 + 57 = AUD 27 million
• Firm 3: (70-12) + (0-57) = 58 + (-57) = AUD 1 million

Central Clearing Calculations: Under central clearing, all trades are novated to the CCP, and the CCP's net exposure is the sum of all positive net exposures:

• Firm 1: -28 = AUD 0 million
• Firm 2: AUD 27 million
• Firm 3: AUD 1 million
• CCP's total net exposure: 27 + 1 = AUD 28 million

Why other options are incorrect:

• A: Firm 1's net exposure under bilateral netting is actually AUD 0 million (after netting, the -28 becomes zero)
• B: Firm 2's net exposure under bilateral netting is AUD 27 million, but this statement is incorrect because it's not the correct answer among the options
• C: Firm 3's net exposure under central clearing is AUD 1 million, not AUD 0 million

The key insight is that under central clearing, the CCP bears the net exposure of all counterparties, which sums to AUD 28 million in this case.