Previously, we have written about the impact of the European regulations for derivatives, EMIR, on pension funds. Within EMIR, pension funds currently are exempted from central clearing (i.e. the settlement of derivatives transactions through central counterparties). The European Commission has taken steps to extend this exemption again for two years, providing central counterparties the necessary time so they are able to develop and implement appropriate solutions for pension funds.
The fact is that the basic problem for pension funds with regard to mandatory central clearing remains unsolved. With the current rules it is specifically not possible to post collateral (Variation Margin (VM)) other than in cash (cash VM)). Pension funds do not hold a lot of cash because the entire pension capital is invested. Holding additional cash adds extra costs, which has a negative impact on pension participants. Moreover, we are concerned about central clearing in stressed market conditions.