EMIR Update – ESMA consults on counterparty risk calculation methods for UCITS subject to central clearing
On the 22nd July 2014, the European Markets and Securities Authority (ESMA) launched a public consultation on the calculation of counterparty risk by Undertakings for Collective Investment in Transferable Securities (UCITS) which enter into OTC derivative transactions which need to be centrally cleared under the European Markets Infrastructure Regulation (EMIR).
Whilst the UCITS Directive allows investment in both exchange-traded derivatives (ETDs) and OTC derivatives, only investments in OTC derivatives are subject to counterparty risk exposure limits.
The scope of the consultation process is primarily to obtain stakeholders’ views on how limits on counterparty risk in OTC derivative transactions that are centrally cleared should be calculated by UCITS, as well as whether the same rules should be applied for both centrally cleared OTC transactions and ETDs.
On the basis of the feedback received from the public consultation, it is anticipated that ESMA will determine its final views on the appropriate way forward, including a possible recommendation to the European Commission on a modification of the UCITS Directive.
The consultation is open for feedback until the 22nd October 2014 and the relative Discussion Paper is available on ESMA’s official website.