The European Securities and Markets Authority (ESMA) has published an updated questions and answers document (Q&A) on the application of the Undertakings for the Collective Investment in Transferable Securities Directive (UCITS).
The Q&A provides clarification regarding the valuation of centrally cleared OTC derivatives by UCITS management companies. ESMA stated that for OTC financial derivative transactions that are centrally cleared and subject to the reporting obligation of EMIR, UCITS management companies cannot rely on the valuation provided by the central counterparty (CCP).
The UCITS framework requires UCITS management companies to have in place a process for accurate 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 UCITS management company. Nevertheless, the UCITS management company 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 UCITS and its implementing measures. The ESMA statement and the updated Q&As are available here.