The European Association of CCP Clearing Houses (EACH) welcomes the opportunity to respond to the ESMA First Report for Consultation “Central Clearing Solutions for Pension Scheme Arrangements”. Some of the highlights of the EACH response include:
- In favour of providing the right CCP clearing solutions to PSAs – EACH is in favour of providing the right solutions for Pension Scheme Arrangements (PSAs) to benefit from the robust and efficient CCP clearing environment. However, we also recognize that the application of a requirement for PSAs to clear through CCPs should be preceded by a thorough analysis of the possible regulatory and market developments enabling market participants to develop appropriate technical solutions to be considered eligible for accessing clearing services.
- Challenges could be mitigated by accessing centrally cleared repo market – EACH believes that the challenges met by PSAs to post variation margin could be mitigated by accessing centrally cleared repo markets. PSAs are currently using clearing members to access CCPs addresses the liquidity problem as they can use a clearing members’ balance sheet capacity to satisfy their cash variation requirements. Additionally, sponsored clearing models can provide PSAs access to the repo market directly by getting sponsored into the service by a bank who acts as its sponsoring agent to enable them to turn non-cash into cash collateral for their variation margin purposes.
- Further delay could be detrimental – Further delaying the application of clearing obligations for OTC derivatives by PSAs would mean that PSAs remain continuously exposed to counterparty credit risk. As the clearing obligation is a two-way street, PSAs are today exposed to the potential default of typically larger and more systemic counterparties.
For more information, please find attached the EACH response or visit our website www.eachccp.eu
