Following a November 2023 call for evidence, the UK government has decided to extend the exemption for pension funds to clear certain derivative contracts at a central counterparty (CCP) will be maintained.
Currently scheduled to end on 18 June, the exception will be maintained with no further time limit implemented. It has already been extended a number of times since its introduction as part of EMIR in 2012, when it was intended as a stopgap for regulators to find a long-term solution for pension funds to provide cash collateral to CCPs without negatively impacting investors.
Market response to the consultation noted that the exception is well-used by those eligible, and that while pension funds favour gilts over derivatives for hedging, this could change later down the line.
Bringing in mandatory clearing would limit pension funds’ abilities to invest in higher growth assets, as cash holdings would have to increase. It could also worsen liquidity pressures, enhancing market stress events and risking greater financial instability.
In total, 17 of the 26 responses to the call for evidence advocated for the exemption to be made permanent and four for it to be extended. Just two called for it to expire.
©Markets Media Europe 2024
