EU pension fund clearing exemption set to be extended

Extra 12 months’ grace from mandatory swap clearing, but some fear effect on EU CCP liquidity growth

European Commission
The European Commission proposed latest extension beyond June 2023
Photo: EmDee,

European regulators are set to extend the exemption for pension funds from mandatory swap clearing rules for another year, though some suggest this could further delay the build-up of liquidity at EU central counterparties (CCPs).

In February, the European Securities and Markets Authority (Esma) recommended to the European Commission that the exemption be extended to June 2023, and subsequently on June 9, the European Commission published a delegated act proposing to extend the exemption by a further year. Both the European Parliament and Council are now reviewing the delegated act.

The exemption, which has been extended numerous times since 2012, is expected to receive the final seal of approval from the European Parliament and Council in the coming weeks.

“I would deem it likely that the co-legislator will follow the advice given by Esma and the European Commission and extend the clearing exemption for one last time. At least, I have not heard anything to the contrary so far,” says Markus Ferber, a member of the European Parliament’s Committee on Economic and Monetary affairs.

The current exemption was due to come to an end on June 18, meaning a no-action letter from Esma was required to ensure continuation of the exemption in the intervening weeks before the Parliament and Council give their verdict. This was granted earlier today (June 16).

Esma declined to comment.

Under the 2019 update to the European Market Infrastructure Regulation, known as Emir Refit, the Commission has at its discretion been able to extend the exemption up to two times, each a year apart. This latest one-year extension is the final one possible under Emir Refit, an EC spokesperson confirmed.

“Pension scheme arrangements [PSAs] will continue benefiting from it until June 2023, after which they will clear, increasing the attractiveness of EU CCPs by deepening the liquidity pool and range of available collateral,” said an EC spokesperson in an email response to

In a June 9 report to the Parliament and Council, the EC cited ongoing concerns around pension funds’ access to cash to post as variation margin at clearing houses as a primary reason to push back the exemption.

“There is a risk that prematurely requiring pension scheme arrangements to clear over-the-counter derivative contracts centrally may lead to PSAs divesting a significant proportion of their assets for cash to build up capital buffers in order to meet possible margin requirements of CCPs, thus reducing resources allocated to investment that generates income to cover future pensions,” read the report.

Liquidity block

But some fear the move could put roadblocks in front of efforts to build liquidity in EU CCPs such as Eurex.

As part of its February consultation on enhancing the clearing framework in the EU, the EC asked respondents to consider what might encourage pension funds to clear their derivative trades in EU clearing houses.

A source at a trade body says ending the clearing exemption would be a sure way of building liquidity at EU CCPs.

“One of the measures that would add liquidity into the market – certainly for EU CCPs, but you could argue also UK CCPs, because clients have a choice – would be ending the [clearing] exemption for pension funds. That would provide liquidity into the market,” he says.

Though he agrees concerns remain around pension funds’ access to liquidity for margin calls during times of market stress, delaying the inevitable end to the exemption may not be productive in the long run.

“There maybe needs to be some kind of backstop liquidity from central banks for pension funds during times of stress,” he says.

“Some of our members would probably say that by delaying that exemption for another year, you’re just delaying the pension funds going out and finding those solutions,” he adds.

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