SIFMA AMG Submits Response to ESMA Discussion Paper on Calculation of Counterparty Risk by UCITS for Cleared OTC Derivatives

The Asset Management Group of SIFMA ("SIFMA AMG") submitted a response to ESMA regarding its discussion paper considering the application of counterparty risk limits to undertakings for collective investment in transferable securities ("UCITS") in centrally cleared OTC derivatives transactions ("Cleared OTC Derivatives").

In its response, SIFMA AMG focused on the question of whether it is appropriate to introduce counterparty risk limits to central counterparties ("CCPs") authorized or recognized by ESMA under EMIR, or to clearing members of those CCPs ("CMs"), in relation to Cleared OTC Derivatives entered into by UCITS.

SIFMA AMG explained that:

• UCITS should not be subject to counterparty risk limits with regard to CMs or CCPs;
• to the extent that counterparty risk limits regarding CMs are considered necessary by ESMA in relation to Cleared OTC Derivatives with UCITS, the assessment of "counterparty risk" should be determined by the UCITS from a holistic perspective by reference to the guiding principle that counterparty risk limits are only needed if UCITS' assets are not otherwise adequately ring-fenced from the CM's insolvent estate; and
• there is no need to distinguish between Cleared OTC Derivatives and exchange-traded derivatives in this context.

See: SIFMA AMG Response to ESMA.