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Clifford Chance

Clifford Chance


EMIR: Calculation of counterparty limits by UCITS for cleared derivatives transactions

6 August 2014

The EU UCITS Directive allows UCITS to invest in both exchange traded and over the counter (OTC) derivatives, subject to eligibility criteria and, in the case of OTC derivatives, exposure limits. The EU regulation on OTC derivatives, central counterparties and trade repositories (EMIR) will impose obligations on UCITS to clear certain OTC derivatives transactions, which will raise a number of issues for UCITS, in particular, as to how the exposure limits apply when UCITS post initial and variation margin on their cleared OTC derivative positions. The European Securities and Markets Authority (ESMA) has recently published a discussion paper on the calculation of counterparty risk by UCITS for OTC financial derivative transactions subject to clearing obligations, which may lead to changes to the UCITS Directive with implications for both OTC and exchange traded derivatives.

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