Explanation:
Correct answer: A — Market risk.
After novation, the CCP becomes the counterparty to both sides of the trade, so it is exposed to the market risk of the positions it has taken on.
Why the others are false:
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Q-603.2. Novation, which is critical to central clearing, is the legal process whereby the central counterparty (CCP) positions itself between the buyer and seller by replacing a contract with one or more other contracts. After novation, which risk(s) does the CCP bear?
A
Market risk
B
Conditional market risk
C
Novation implies that the CCP inherits only market risk
D
Novation ensures that the CCP is immunized from credit and market risk