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Denmark's ATP can push for central clearing exemption

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Denmark’s largest pension fund, ATP, is allowed to request an exemption from central clearing after the European supervisor gave its consent.

The European Securities and Markets Authority (ESMA) issued a note on 3 August relating to Danish regulator Finanstilsynet’s concern that ATP would struggle to post cash as collateral when centrally clearing trades, a requirement introduced under the European Markets Infrastructure Regulation (EMIR).

The note went on to relay Finanstilsynet’s concern that requiring ATP to centrally clear trades would increase costs, thereby lowering the statutory pension fund’s investment returns.

It said requiring the fund to convert its assets into cash was inefficient.

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“In view of the above and on the basis of the information provided, ESMA is of the opinion that the reasons why an exemption is justified due to difficulties in meeting variation margin requirements for centrally cleared transactions for [ATP] are valid,” the supervisor’s note continued.

It will now be up to Denmark’s regulator to grant an exemption. 

Unlike several pension providers, such as Germany’s Pensions-Sicherungs-Verein and the UK’s Pension Protection Fund, ATP is not automatically exempt from central clearing but was allowed to apply for exemption.

The request for an exemption comes despite ATP’s backing of clearing.

It told the European Commission earlier this year it viewed the EMIR proposals for central clearing as a “reasonable initiative”, although it questioned the increasing reliance of central counterparties (CCPs) for such trades.

“CCPs should not be required to compensate for lack of financial stability outside the CCP system,” the fund’s submission to the Commission’s review of financial services legislation said, “as this will disproportionately allocate the risk between the financial institutions and potentially lead to unnecessary higher cost that might … undermine CCPs’ original objectives to increase financial stability.”

The former financial services commissioner, Jonathan Hill, hinted in May that a proposal to make EMIR’s application to the pension sector “proportionate” was being drawn up by the Commission.

Pension funds are exempt from central clearing until 2017, with the UK’s Pension and Lifetime Savings Association calling for an indefinite exemption.

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