ESMA Discussion Paper on Calculation of Counterparty Risk by UCITS for OTC Derivatives Subject to EMIR Clearing

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On July 23, ESMA published a discussion paper on how the limits on counterparty risk in centrally cleared OTC derivative transactions under the UCITS IV Directive should be calculated, and whether the same rules for both OTC transactions that are centrally cleared and for exchange-traded derivatives (ETDs) should be applied.

The UCITS IV Directive allows UCITS to invest in both ETDs and OTC derivatives, but only investments in OTC derivatives are currently subject to counterparty risk exposure limits.

The consultation closes on October 22, 2014. ESMA will use the feedback to determine its final views on the appropriate way forward, including a possible recommendation to the European Commission on a modification of UCITS IV. Discussion Paper.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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