New Central Bank Guidance For UCITS Using VaR

On 9 July 2012, the European Securities and Markets Authority ("ESMA") published a Questions and Answers paper (the "Q&A") on Risk Measurement and Calculation of Global Exposure and Counterparty Risk for UCITS.

ESMA confirmed that UCITS which use Value at Risk methodology ("VaR") to calculate global exposure are required to make a disclosure as to leverage.  It has been clarified that calculation of global exposure cannot be made on a net basis (after netting / hedging arrangements are taken into account). Leverage should instead be calculated as the sum of the notionals of the derivatives used. Disclosure of leverage can also be based on the Commitment Approach.

Further to the ESMA Q&A and following feedback from the Industry, The Central Bank of Ireland (the "Central Bank") has clarified its leverage rules for UCITS using VaR to calculate global exposure.