APG is studying the possibility of using swap futures – a derivative instrument under development in the US – as a means of cutting the cost of initial margins in central clearing.
Thijs Aaten, managing director of treasury and trading, said the central-clearing requirements set under EMIR, the new EU regulation for over-the-counter (OTC) derivatives, could lead to much higher initial-margin costs for end-user clients such as APG.
Aaten added that even though it is still "cheaper" to continue trading OTC derivatives bilaterally due to the European Commission's temporary exemption for pension funds, APG sees potential benefits in swap futures. "At the moment", he said, "swap futures are not an attractive alternative because of the exemption from clearing requirements, which means no initial margin requirements currently apply to bilateral OTC derivatives. However, looking forward, if pension funds no longer benefit from the clearing exemption, then it will all go down to an economic choice where you have an exposure you want to hedge, and you have to look at the different alternatives available in the market."
Banks and end-user clients such as pension funds and asset managers have complained about the "unfavourable" initial-margin requirements set for swaps compared with futures under regulations in the US and Europe.
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