Answer: Bifurcations

**Correct answer: A. Bifurcations** According to Gregory, several items listed in the choices are actually **advantages** of CCPs: - **Market liquidity** - **Loss mutualization** - **Default management** A key **disadvantage** is **bifurcation**. ### Why bifurcation is a disadvantage CCPs typically clear **standardized instruments** (for example, plain vanilla interest rate swaps) but may not clear **exotic instruments**. This can split a portfolio into: - positions that are cleared through the CCP, and - positions that remain outside the CCP That separation can create operational, collateral, and hedging inefficiencies. Therefore, **bifurcations** is the potential disadvantage.

Author: Manit Arora