Friday December 2 2011
News Source: Fund Regulation
Focus: UCITS
Type: General
Country: European Union
Relevant Directive Rule
The relevant UCITS Directive article for this rule ((Article 52.1 (a) & (b)) for which a link is provided below.
Overview
Most national interpretations of this article state that the netting of counterparty transactions can only be applied where the netting of the transactions can legally be enforced via a contractual arrangement with that counterparty. If no netting can be enforced via contractual arrangement then the limits apply to the individual transactions. It would not be unusual where a counterparty engages in differing OTC’s with a counterparty to have such netting arrangements in place so that only a single reset amount needs to be paid on variation margin at reset date.
Where netting is enforced, the exposure limits apply to all the derivative transactions with that counterparty. In other words if I have a forward, a future and a CFD with a single counterparty it is the cumulative exposure as a result of all of these transactions which will determine if I’m within the 5% or 10% exposure limits.
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