Canadian Securities Course (CSC) Practice Exam

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What sets apart exchange-traded derivative characteristics from OTC-traded derivatives?

Gains and losses settled at the end of the contract
Standardization
Delivery usually takes place
Clearinghouse acts as a 3rd party guarantor

The correct answer is: Standardization

Exchange-traded derivative characteristics differ from OTC-traded derivatives due to the standardization of their contracts. This means that all contracts have the same underlying asset, quantity, and maturity date, making them more transparent and easier to trade. Options A, C, and D are features that can be seen in both exchange-traded and OTC-traded derivatives, so they do not set them apart. Option A refers to how gains and losses are settled, which can vary depending on the type of derivative. Option C mentions delivery, which can also vary in different types of derivatives. Option D mentions the role of a clearinghouse, which can also be present in OTC-traded derivatives. Therefore, only option B accurately sets apart exchange-traded derivatives from OTC-traded derivatives.