ESMA recommends UCITS changes: ESMA has published an opinion addressed to the other EU institutions outlining the impact of EMIR on undertakings for collective investments in transferable securities (UCITS) Directive. ESMA thinks:
- the UCITS Directive should no longer distinguish between over-the-counter (OTC) financial derivatives transactions and exchange-traded derivatives (ETDs);
- instead, the distinction should be between cleared and non-cleared OTC financial derivatives transactions;
- for OTC financial derivative transactions that are not centrally cleared, there is no need to modify the UCITS Directive and the current counterparty risk limits should continue to apply;
- counterparty risk limits should be calibrated to the different types of segregation arrangements, taking into account elements such as the portability of the position if a clearing member defaults;
- UCITS should not apply counterparty risk limits to clearing members, but should apply some limited omnibus client segregation; and
- UCITS' counterparty risk limits to EU CCPs and some non-EU CCPs recognised by ESMA should take into account the relatively low counterparty risk of these entities.