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According to Jeremy Taylor, an operational processing and derivates specialist at consultancy Rule Financial, pension funds trading inflation swaps and interest rate swaps (IRS) as part of LDI strategies will be able to combine them into a single pool of collaterals under current credit support annex (CSA) agreements signed for OTC derivatives trades.
Taylor went on to say that using a two-level approach between bilaterally traded swaps and centrally cleared traded swaps would therefore represent an additional cost burden for pension funds. The European Securities and Markets Authority has yet to determine which swap contracts should be cleared.
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