The European Securities and Markets Authority (ESMA) has published a Discussion Paper on the calculation of counterparty risk by undertakings for the collective investment of transferable securities (UCITS) for over the counter (OTC) derivative transactions subject to clearing obligations.

In the Discussion Paper, ESMA seeks views 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.

For each of the different clearing arrangements, ESMA analyses the impact of a default of the clearing member and the client for the calculation of counterparty risk by UCITS.

The deadline for comments on the Discussion Paper is 22 October 2014, after which ESMA may submit a recommendation to the European Commission on a modification of the UCITS Directive.

View Discussion paper: calculation of counterparty risk by UCITS for OTC financial derivative transactions subject to clearing obligations, 22 July 2014