NETHERLANDS - The three main lobbying organisations for pension funds in the Netherlands have asked the European Commission for a "special position" with respect to proposed EU legislation on derivatives and market infrastructure.
In a joint letter to the Commission, TVB, OPF and UvB said they were worried the proposals for a mandatory central clearing system, as well as a standard collateral per transaction, would seriously harm the interests of pensioners.
They argued that pensioners would ultimately be the ones to pay for a safety device to protect financial markets from high-risk investors through increased risk and additional costs.
They also said Dutch pension funds were concerned a central clearing with few counterparties - rather than the safeguarded bilateral arrangements used at present - would expose them to risks created by less conservative, less solvent parties.
They said Dutch schemes should therefore be able to participate in a central clearing on a voluntary basis.
The lobbying organisations also asked the Commission to include mandatory portability of money and assets in the legislation.
They said central clearing partners and clearing members, under the current proposals, would have too much freedom for their account structures.
They also argued that pension funds, as long-term and low-risk investors, should not have to pay a standard rate for collateral per transaction.
They said: "As schemes commonly use long-term interest rate swaps to hedge the interest risk on their liabilities or their currency risks, high amounts of margin will have to be provided to cover these positions."
They said the beneficiaries of the current proposals would be the clearing members and leveraged market users, which would pay "a close-to-zero initial margin".
And because pension funds apply conservative strategies aimed at the long term - with low risk and low turnover - to ensure a stable position in distressed markets, their use of derivatives is diametrically opposed to the methods of high-risk trading firms, they added.
In a separate letter to the Commission, the €245bn asset manager APG - a subsidiary of the large civil service scheme ABP, wrote: "We fear our solvency will be absorbed by less conservative, more risk-seeking and less solvent partners in the clearing system.
"As a very large market player, we have 30 bilateral structures, with many different counterparties, while our risk exposure is diversified through contracts with a wide range of participants with a high credit standing."
To minimise risks, APG suggested the introduction of central clearing parties set up as utilities with a revenue-sharing model, rather than as a party established by commercially active market participants.
According to the asset manager, government bonds should also be allowed as collateral in a central clearing system to lower the cost of raising mandatory cash.
"However," APG added, "the returns should not be affected by posting bonds and cash as a margin."
Just last month, the European Federation for Retirement Provision (EFRP), whose 26 member associations represent more than €3.5trn of assets, expressed similar concerns.
It claimed the Commission's proposals on derivatives could increase costs and risk for pension funds and lead to lower retirement benefits for plan members.
The EFRP also objected to mandatory participation in a central counterparty, which, it said, posed a "real danger" of increasing counterparty risk.