Counterparty exposure

Counterparty exposure arises from contracts rather than securities: OTC derivatives, repo, securities lending, deposits and settlement. It is measured per legal entity or per group, against net asset value. Longs and shorts with the same counterparty both create exposure unless an enforceable netting agreement applies.

Under the UCITS Directive as it stood at UK exit, OTC derivative counterparty risk is capped at 10% of assets. That applies to eligible credit institutions; for other counterparties the cap is 5%. In the current EU text, amended by Directive (EU) 2024/2994, these limits apply only to derivatives not centrally cleared.

In Acclimetry’s counterparty concentration limit, exposure is the sum of absolute values facing each counterparty, netted only under an approved agreement. A rule may instead read the settlement exposure or potential future exposure stated on the position. A position stating none is disclosed, never treated as zero.