On 22 July 2014, the European Securities and Markets Authority (“ESMA”) published a discussion paper seeking comments on its proposals for the  calculation of counterparty risk by Undertakings for Collective Investment in Transferable Securities (“UCITS”) for OTC derivative transactions subject to the clearing obligation under the European Market Infrastructure Regulation (“EMIR”). ESMA is concerned about the impact of a failing clearing member, or client of a clearing member, on a UCITS entering cleared OTC derivatives.  UCITS are retail investment funds and are regulated across the EU to ensure investor protection. ESMA is seeking views on: (i) how a UCITS should calculate limits on counterparty risk in centrally cleared OTC derivative transactions; and

(ii) whether the same rules should be applied by a UCITS for centrally cleared OTC transactions as for exchange-traded derivatives (“ETDs”). Under existing UCITS legislation, a UCITS’ investments in OTC derivatives are subject to counterparty risk exposure limits. ETDs are not subject to the same limitation. The discussion paper is open until 22 October 2014.

The ESMA discussion paper is available at: http://www.esma.europa.eu/news/ESMA-consults-counterparty-risk-calculation- methods-UCITS-subject-central-clearing?t=326&o=home