Pension Derivative Exemptions Under Threat, Dutch Fund Says

(July 26, 2011) – Dutch pension giant APG is warning that planned exemptions to derivatives regulations for funds such as itself are under threat due to European politics. 

European pension funds are supposed to be exempt from rules that will force many derivatives transactions through clearinghouses. The logic behind the exemption is that using a clearinghouse adds costs to derivative use, and pensions, which use many such instruments to hedge their exposures, would be unnecessarily harmed. 

However, two separate bodies – the Council of Ministers, and the European Parliament – have proclaimed two different exemption durations. Until these time periods are reconciled, “it’s still a question of whether this regulation will be implemented at all,” Guus Warringa, chief counsel at the €277 billion (US$390 billion) APG, told a London-based conference, according to the Financial Times. “We are not confident that we will get there as long as this process is very politicized.” Any reconciliation is not expected to happen until later this year.

Warringa had harsh words for clearinghouses and the brokers who act as middlemen between them and pensions. “We may run the risk of being forced to deal with a handful of suppliers – the usual suspects,” he said, referring to banks who are preparing to act as brokers in this capacity. “We don’t like the idea of being compelled for legal reasons to [do] business with them. Clearinghouses are controlled by banks and exchanges and are heavily influenced by banks. It’s a bit scary.”