Central clearing houses (CCPs) have no interest in rehypothecating the non-cash margin calls posted by pension funds for derivatives trades, a number of market participants, including CCPs themselves, have claimed.
Renaud Huck, head of UK buy-side relations at Eurex Clearing in London, said that, in the worst-case scenario, if a clearing member were to default, Eurex would offer the possibility to port the positions and the collaterals of its clients. "We recognise sometimes the necessity for collateral transformation for financial needs", he said, "but the industry has to come up with better solutions than that, with solutions that are not to the detriment of the buy side".
The rehypothecation methods aim to provide counterparties with a broader array of collateral availability and the ability to enter into a wider breadth of trade types. Those methods are traditionally used in over-the-counter (OTC) trades, and benefit the end user by reducing the cost of derivative trades.
In the Netherlands, the Dutch Pension Federation warned that by not restricting rehypothecation, the non-cash collateral could be seen as being part of the bankruptcy estate of the CCP if it goes bankrupt.
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