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European authorities launch consultation on OTC derivatives directive

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EUROPE - Following the temporary exemption of pension funds from the EMIR directive on over-the-counter (OTC) derivatives, European authorities have launched a public consultation to develop regulatory technical standards on capital and collateral levels for counterparties.

The European Insurance and Occupational Pensions Authority, the European Securities and Markets Authority (ESMA) and the European Banking Authority have called for input on the regulatory and implementing technical standards ESMA is required to draft on OTC derivatives, central counterparties and trade repositories.

The authorities said they were particularly keen to gauge the costs and benefits those legal provisions might imply.

Stakeholders are invited to respond to the consultation paper before 2 April.

Following the discussion paper and on the basis of the input received, the three authorities will prepare draft technical standards to be included in the consultation paper of the EMIR directive, which will most likely be published this summer.

Last month, the European Parliament agreed to exempt pension funds from the new European Market Infrastructure Regulation (EMIR) directive for three years.

It is still unclear whether the reprieve will be extended for another three years.

The EMIR text states that pension schemes will have to clear their derivatives trades in future, but the main issue remains the requirement for cash variation margin and the drain that will have on pension funds.

The initial EMIR text said that, "to avoid a likely negative impact, the clearing obligation should not apply to pension schemes until a suitable technical solution for the transfer of non-cash collateral for variation margin is developed by the [central counterparties]".

Several pension experts have warned that the exemption might therefore vanish as soon as central clearing houses come up with a solution.

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