Netting problems will restrict pension funds, FCMs warn

Lawyers’ reluctance to grant netting opinions is hiking capital requirements for low-risk trades

David Felsenthal, Clifford Chance

Lawyers struggle to remember cases in which a pension fund has defaulted on its swaps, but this hypothetical question is taking on painfully practical significance for futures commission merchants (FCMs), which are looking for certainty on how an insolvent pension client would be treated.

"I am not actually aware of a pension plan defaulting on swaps because of bankruptcy. So it's hard to know how it would work," says David Felsenthal, a partner at Clifford Chance in New York.

Without that knowl

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