Pension funds were about to celebrate their exemption from the costly clearing of OTC derivatives trades, when the banks pointed out the increasing costs of non-cleared trades that were heading their way finds Dan Barnes.
Having temporarily escaped the costs of the European markets
and infrastructure regulation (Emir), pensions funds will be
hit, indirectly, by the Capital Requirements Directive 4 (CRD
4). Although Emir is still not finalised –
negotiations between the European Commission (EC), European
Parliament and the Council of the European Union continue
– as it stands, it will impose central clearing for
the vast majority of over-the-counter (OTC) derivatives
The regulation supports the Group of 20 (G20)
countries’ resolution to centrally clear OTC
derivatives to reduce the systemic risk it felt exists in the
bilateral trading model.
However, in recognition of the lack of risk that pension
funds pose to the market through their use of derivatives
purely as hedging against their one-way, long-only investment
strategies, the transactions of these funds have been granted
an exemption, for three years, from having to be centrally
"Risk will not become systemic when one is...
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