Pension Scheme Arrangements (PSAs) in many Member States are active participants in the OTC derivatives markets. However, PSAs generally minimise their cash positions, instead holding higher yielding investments such as securities in order to ensure strong returns for pensioners. Entities operating pension scheme arrangements, the primary purpose of which is to provide benefits upon retirement, usually in the form of payments for life, but also as payments made for a temporary period or as a lump sum, typically minimise their allocation to cash in order to maximise the efficiency and the return for their policy holders. Hence, requiring such entities to clear OTC derivative contracts centrally would lead to divesting a significant proportion of their assets for cash in order for them to meet the ongoing margin requirements of CCPs.
CCPs interpose themselves between counterparties to the contracts traded on one or more financial markets. The credit risk of those counterparties is mitigated through the posting of collateral which is calculated to cover any potential losses upon a default. CCPs accept only highly liquid assets, generally cash, as collateral to meet variation margin (VM) calls in order to allow for a rapid liquidation in the event of a default.
The Commission concludes that the necessary effort to develop appropriate technical solutions has not been made at this point in time and that the adverse effect of centrally clearing derivative contracts on the retirement benefits of future pensioners remains unchanged.
In accordance with the findings of its report, the Commission considers that the necessary effort to develop appropriate technical solutions has not been made by CCPs at this point in time and that the adverse effect of centrally clearing OTC derivative contracts on the retirement benefits of future pensioners remains unchanged.
The three-year transitional period should be extended by two years. This Regulation should enter into force as soon as possible to allow the extension of the existing transitional periods to occur prior to or as soon after expiry as possible. A later entry into force could lead to legal uncertainty for pension scheme arrangements as to whether they need to begin preparing for upcoming clearing obligations.
Full Delegation Act
© European Commission
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