The European Commission has now acted to extend the transitional relief for EU pension funds, a decision informed by the report commissioned by the EC from Bourse Consult and Europe Economics (see posting of 4 February), which assessed the potential cost to pension funds’ investment returns of mandatory clearing of OTC derivatives.
The extension gives pension schemes an additional two years exemption (till August 2017) from the requirement to clear OTC derivatives. However, this is still transitional relief. Ultimately, pensions schemes will be obliged to clear derivatives.
The two year extension provides a breathing space for the industry to develop solutions to enable pension schemes to post variation margin at a lower cost to investment returns. A number of possible solutions are set out in the report, but so far there is little evidence that any investment is being made in developing them. The clock is now ticking.
On 3 February 2015, the European Commission adopted a report in accordance with Article 85(2) of EMIR, assessing the progress and effort made by CCPs in developing technical solutions for the transfer by Pension Scheme Arrangements (PSAs) of non-cash collateral as variation margin, as well as the need for any measures to facilitate such solution.
In order to assess the situation fully, the Commission ordered a baseline study on the subject which was prepared by Europe Economics and Bourse Consult. This report has now been published and can be downloaded here. As a result of this work the Commission has recommended a two year extension to the dispensation given to pension funds from meeting the EMIR clearing obligations for OTC derivative contracts.
This Bourse Consult report published by the City of London, provides the latest data on the development of the London renminbi (RMB) market and growth trends observed since 2012. It covers the first half of 2014 and gives an update on three principal RMB product and service categories: trade related services, foreign exchange (forex) and deposits. A report covering the full year 2014 and a wider set of data will be published in spring 2015.
The data is collected in a way designed to capture London’s identity as a leading centre for RMB business and is produced in connection with the City of London initiative ‘London as a centre for RMB business’.
There was an interesting discussion at the Global Custody Forum yesterday, where I chaired a panel session on settlement cycles. While the migration to T+2 in Europe has gone extremely smoothly, there is now a difference between settlement periods in Europe (T+2) and the US (T+3). This is likely to persist for a few years, even after the US decides to move to T+2. Clearly, there is a trade-off between reducing risk wherever possible by shortening settlement cycles, versus increasing costs and possibly risks by introducing inconsistencies between cycles in different markets. There was a poll of the audience on this question: Continue reading “Where next for settlement cycles?” »
The European CSDs Association (ECSDA) has published a very clear analysis of what happened when the European markets moved to T+2 settlement. The short answer is: Nothing. In most markets settlement performance continued unchanged or even improved during over the shortening of the settlement cycle. In only one out of the 17 markets did settlement performance deteriorate slightly but that was within the normal range of fluctuations.
Now attention turns to the US, where DTCC has just launched a new website to lead the move to T+2 settlement there.