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Pension funds begin clearing swaps 

May 27, 2014
Christopher Whittall, IFR

European pension funds have begun clearing over-the-counter derivatives despite being exempt from the regulatory mandate for years to come.

Global pension assets totalled US$21.8trn at the end of 2012, according to the OECD, with a fair chunk of these residing in Europe: UK assets were US$2.3trn, Dutch US$1.3trn and Swiss US$700bn.

Moving this colossal industry – which includes some of the largest users of interest rate and inflation swaps in the shape of Northern European pension funds – into central clearing is no mean task.

As pension funds are hedging large and one-way liabilities, their positions attract huge amounts of collateral – or variation margin − to cover the daily mark-to-market fluctuation of the value of their swaps. Moreover, central counterparties only accept cash for variation margin, which causes a serious headache for pension funds that hold all of their assets in bonds, equities and other financial instruments.

Read more: IFR

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