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Spanish pension schemes to be exempt from central clearing under EMIR

The European Securities and Markets Authority (ESMA) has issued an opinion that will exempt Spanish pension schemes from central clearing under the European Market Infrastructure Regulation (EMIR).27 Jan 2017

Under EMIR, certain classes of over-the-counter (OTC) derivatives trades, such as interest rate and credit default swaps, must be centrally cleared. Central clearing involves another entity interposing itself between the two parties to the initial contract. The third entity is known as the central clearing counterparty (CCP). As part of this arrangement the CCP will require the posting of two types of collateral: variation collateral, and upfront or ‘initial’ collateral.

EMIR came into force in August 2012, but occupational pension schemes using OTC derivatives to reduce investment risks relating to the financial solvency of the scheme were granted a three year exemption from the requirement to mandatorily clear certain classes of OTC derivatives. The initial exemption has since been extended and expires on 16 August 2018.

Pensions schemes have to ask their national competent authority to be exempted from the clearing obligation, and the competent authority needs to obtain the opinion of ESMA before deciding on the exemption.

ESMA's opinion will now allow the Comisión Nacional del Mercado de Valores, the competent authority for securities markets in Spain, to grant an exemption.

The European Commission is working on changes to EMIR to mitigate the impact on the pensions industry when the exemption to the clearing obligation comes to an end in 2018.