The EU financial markets watchdog has decided to launch a public consultation to collect more data as well as views from a wide range of stakeholders about issues surrounding potential central clearing solutions for pension schemes.
The consultation is on the basis of a report from ESMA reviewing the different solutions being explored to the problem that pension schemes would face difficulties providing cash as collateral – known as the variation margin – related to cleared derivative contracts.
For several years pension schemes have been exempt from a central clearing obligation for this reason, with the latest extension of this exemption running until June 2021.
An expert group including pension funds, banks, central counterparties, EU policymakers and other stakeholders has been working on solutions to facilitate pension schemes centrally clearing their over-the-counter trades.
According to ESMA’s report, the solutions being explored include relying on ancillary services of collateral transformation of clearing members, a market-based repo solution, or access to alternative emergency liquidity arrangements.
In its report to the European Commission, ESMA said it acknowledged that further information, for example more granular and comprehensive data to assess the materiality of pension funds’ liquidity needs, was needed from industry to make progress.
It said work was required to carefully analyse how the potential solutions would work in practice and what their implications would be, and that such analysis “should not be rushed”.
“Consequently, ESMA is taking advantage of this preliminary first report to consult stakeholders,” it said.
“This will allow ESMA to gather input and drill further down into the issues, collect useful data and get a better representation of the range of views from stakeholders beyond the ones actively participating in the expert group”.
In an initial reaction, Saïf Chaïbi, policy adviser at PensionsEurope, told IPE it was good news that ESMA’s report had been released, and that the work of the stakeholder group had been taken into account.