As detailed in our Front Page bulletin on 20 December 2014ESMA has released an update to its Q&A providing additional guidance on Risk Measurement and Calculation of Global Exposure and Counterparty Risk for UCITS. The Q&A has a new question (5), which concerns how UCITS should calculate their counterparty risk for exchange-traded derivatives and OTC transactions that are centrally cleared under the European Market Infrastructure Regulation (EMIR)The response is that when calculating the counterparty risk for exchange-traded derivatives and OTC transactions that are centrally cleared, UCITS should look at the clearing model used to determine the existence of counterparty risk and, if any, where the counterparty risk is located. When analysing the clearing model used, UCITS should have regard to the existence of segregation arrangements of the assets and the treatment of claims on these assets in the event of bankruptcy of the clearing member or central counterparty.

A footnote points out that ESMA is continuing its work on the issue of calculation of counterparty risk by UCITS for exchange-traded derivatives and centrally-cleared OTC transactions in light of the provisions of EMIR. ESMA plans to issue more detailed guidance on this issue, dealing with such aspects as the status of the central counterparty and the level of segregation to be put in place by the UCITS, early in 2014.