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Answer: Excessive reliance on external liquidity tends to promote adverse selection by bad agents
**Correct answer: C. Excessive reliance on external liquidity tends to promote adverse selection by bad agents** This is the statement that is **not** a standard lesson learned from CCP failures. The recognized lessons include: - **A**: Operational risk should be tightly controlled. - **B**: Variation margin should be updated frequently and collected promptly to reduce uncollateralized exposure. - **D**: Initial margin and default funds must be robust enough to absorb severe market shocks and gaps. Option **C** does not fit the usual CCP failure lessons and is the exception.
Author: Manit Arora
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Q-605.3. Each of the following is a lesson learned from prior central counterparty (CCP) failures EXCEPT which is not?
A
Operational risk must be controlled as much as possible
B
Variation margins should be recalculated frequently and collected promptly
C
Excessive reliance on external liquidity tends to promote adverse selection by bad agents
D
Initial margin and default funds should be resilient to large negative asset shocks or gaps
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