Position paper: European Market Infrastructure Regulation (EMIR)

The fundamental issue for pension funds in relation to central clearing remains their inability to post variation margin (VM) in cash. While we support voluntary clearing for pension funds and have demonstrated this by investing heavily in preparing for clearing, it is critical to find a solution for the cash VM issue that would work (a) in stressed market conditions and (b) without a material adverse effect on pensioners (including disproportionate risk or cost), before mandatory clearing is applied to pension funds.

Position paper

We agree with the European Commission that Central Counterparties (CCPs) and the relevant market participants need at least two more years to develop and implement solutions for the cash VM issue.

We propose a three step approach to address this issue: First, CCPs and all stakeholders need to find an appropriate solution for the posting of non-cash VM by pension funds for central clearing without introducing any material adverse effect on pensioners. Secondly, if that is not achievable, all stakeholders including policymakers need to identify and develop solutions that address the liquidity and transformation risks that arise in stressed market circumstances as a result of the cash collateral demand imposed on pension funds. One potential solution could be to explore the feasibility of a guaranteed repo facility that pension funds could access under extreme market conditions. Thirdly, if no such solutions are found for the cash VM problem, a permanent exemption needs to be considered.

We prefer options one and two rather than a permanent exemption.

Download the position paper 'European Market Infrastructure Regulation (EMIR): Pension fund exemption on central clearing' (pdf).

About PGGM

PGGM is a cooperative Dutch pension fund service provider. Institutional clients are offered: asset management, pension fund management, policy advice and management support. On June 30, 2015 PGGM had EUR 186,6 billion in assets under management. The PGGM cooperative has approximately 700,000 members and is helping them to realize a valuable future. Either alone or together with strategic partners, PGGM develops innovative future solutions by linking together pension, care, housing and work.

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