ESMA · ESMA_QA_1195 Answer Published

Risk Measurement and Calculation of Global Exposure and Counterparty Risk for UCITS - Hedging strategies

Name: Risk Measurement and Calculation of Global Exposure and Counterparty Risk for UCITS - Hedging strategies: ESMA Q&A — EU Financial Regulatory Q&A
Creator: European Securities and Markets Authority
License: https://creativecommons.org/licenses/by/4.0/

Regulation: Undertakings for Collective Investment in Transferable Securities Directive (UCITS) Directive 2009/65/EC
Topic: UCITS global exposure
Submitted: 2012-07-01
Answered: 2012-07-01

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Question

Can the following strategy be qualified as a hedging strategy as defined in CESR’s guidelines? A portfolio management practice which aims to reduce the credit risk of a corporate or government bond portfolio through purchased Credit Default Swaps (CDS). Note that in this case the portfolio interest rate risk would remain un-hedged.

Answer

[ESMA 34-43-392 UCITS Q&A, section 5, Q&A 1b] Yes, but only if the corporate or government bond and the purchased CDS relate to the same issuer.

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This Q&A is published by European Securities and Markets Authority and is non-binding. It does not constitute legal advice. Updated weekly from official ESA sources.

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