ESMA advises on OTC derivatives valuation under AIFMD

The European Securities and Markets Authority (ESMA) has published an updated questions and answers document (Q&A) on the application of the Alternative Investment Fund Managers Directive (AIFMD).

The updated Q&A clarify that AIFMs cannot rely on the valuation provided by the central counterparty (CCP) for OTC financial derivative transactions that are centrally cleared and subject to the reporting obligation of the European Market Infrastructure Regulation (EMIR).

 

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ESMA stated that the AIFMD framework requires AIFMs to have in place a process for proper and independent verification of the value of the OTC financial derivative transactions, even if they are centrally cleared. The valuation provided by the CCP can only serve as a point of reference for the verification performed by the AIFM. Nevertheless, the AIFM should be able to justify any deviation from the valuation provided by the CCP.

The purpose of the Q&A document is to promote common supervisory approaches and practices in the application of the AIFMD and its implementing measures. The ESMA statement and the updated Q&A are available here.