EUROPE - Asking market participants to post a minimum percentage of cash as collateral in centrally cleared over-the-counter (OTC) derivatives trades would be "reasonable", as this would enable counterparties (CCPs) to meet intraday flows, according to the Dutch Pension Federation.
The federation's position - a response to a consultation paper on the EMIR Directive's draft technical standards - was at odds with a number of other industry organisations.
Several respondents to the paper have argued that pension funds are "low-risk" counterparties in OTC derivatives trades and should therefore be exempted from having to post cash as collateral.
Question number 50 of the consultation - launched by the European Securities and Markets Authority (ESMA) last month - asked market participants whether a minimum percentage of collateral received from a clearing member should be provided in the form of cash.
The Dutch Pension Federation, which also agreed that requiring a large amount of cash as collateral would deeply impact pension funds' returns, insisted that this issue had already been recognised by the European Parliament and had led to a temporary exemption for pension schemes from the EMIR Directive.
It also pointed out that, from an operational perspective, using cash instead of securities would be preferable for intraday margin calls.
A spokesman from the federation said: "We expect that intraday collateral requirements will be far smaller than the overall collateral amount required.
"To our view, this does not interfere with our position that requiring large amounts of cash for margin purposes would lead to a drag on pension investments."
Last week, in its response to the consultation paper, the Association of British Insurers pointed out that pension funds did not have unlimited resources.
"If margin requirements are too high," it said, "the cost consequences would not be just the actually monetary amount payable, but also the lack of returns from assets tied up in margin requirements."
BlackRock echoed those concerns in its response, adding that the additional cash requirements would require a very significant proportion of investment portfolios to raise cash, resulting in lower returns - "and hence savings and pensions, for European citizens".
A joint discussion paper to develop regulatory technical standards on capital and collateral levels for counterparties was launched by ESMA alongside the European Insurance and Occupational Pensions Authority (EIOPA) and the European Banking Authority (EBA) last month.
Stakeholders had until yesterday to provide feedback on the regulatory and implementing technical standards ESMA is required to draft on OTC derivatives, central counterparties and trade repositories.
ESMA is expected to publish the responses received to this second consultation paper in the next few days.