Dutch pension group warns proposal on derivatives could hurt pension funds’ returns
A Dutch pension federation, which represents pension funds with a combined a €1.4 trillion ($1.5 trillion) in assets warned that the latest European proposal on central clearing of derivatives could lead to lower investment returns.
Under the latest proposal to amend the European Market Infrastructure Regulation, the European Commission wants market participants to have an active account with a central counterparty, or CCP, inside of the European Union and wants to define a minimum share of transactions that would have to be cleared in the EU.
But Pensioenfederatie wants Dutch pension funds to have access to best execution — meaning markets with largest liquidity such as the U.K.
By forcing pension funds to clear derivatives at an EU venue, the EC could make pension funds enter into derivative contracts with a less attractive swap rate, which could lead to poorer investment results, the federation said.
“Legislation should therefore not impose a minimum percentage,” it said in a news release.
The federation also said it supports pension funds spreading the risk by clearing trades through multiple CCPs.
European pension funds will start clearing transactions centrally after June 2023 when the current exemption expires.
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