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28 May 2013

IPE: Pension funds lack discipline in derivatives


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Euroclear has warned that new rules in Europe will force pension funds and assets managers to be more disciplined with their derivatives trades in future.


Jo van de Velde, managing director and head of product development at Euroclear, said the new rules set by Brussels in the European Market Infrastructure Regulation (EMIR) would not necessarily lead to a shortage of collateral, contrary to what a number of market players have argued recently. "I don't believe there will be a crunch of collateral in the future", he said. "There is enough collateral, with €1 trillion of quality collateral currently available to be lent. But it is simply a question of ensuring you have the right collateral at the right time and at the right place."

He went on to say that the real issue lay in the operational process, as a large number of new parties would now be involved in derivatives trades, ultimately requiring greater discipline from market participants.

Van de Velde pointed out that the clearing house – also called a central counterparty (CCP), standing in the middle of the derivatives trade between the bank and the pension funds or asset manager – will often require initial margins within the day, with mark-to-market valuation call. Pension funds will also have to mark-to-market outstanding contracts on a daily basis while segregating their collateral, and have sufficient amounts of capital to ensure their collateral exchange.

Full article (IPE registration required)



© IPE International Publishers Ltd.


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