EMIR and collateral costs for pension funds: new framework

There’s good news and more clarity for pension funds reviewing their derivatives investment strategy in the light of the European Market Infrastructure Regulation (EMIR). The final framework for margin requirements for non-centrally cleared derivatives confirms thresholds and relaxations, which, if adopted by the joint European supervisory authorities for EMIR, should go some way to reduce the potential increase in the cost of transacting in non-centrally cleared derivatives.

EMIR imposes clearing requirements in relation to over-the-counter derivative contracts and reporting requirements in relation to derivative contracts and sets requirements for non-centrally cleared contracts, including in relation to collateral. Most pension funds have a three-year partial exemption from the central clearing requirement (which may be extended for a further two years after review) but are subject to collateral requirements for non-centrally cleared derivative contracts. These collateral requirements have been a cause of concern for pension funds.

Initial margin requirements could increase costs: pension funds are not normally required to post initial margin (which protects transacting parties from the risk of counterparty default) by virtue of their low counterparty risk status. High levels of mandatory initial margin would require funds to set aside large reserves, potentially reducing returns and restricting the effectiveness of hedging. Restrictions on the types of asset required to be posted as either initial or variation margin could have an impact on funds’ investment strategies…

If you are registered and logged in to the site, click on the link below to read the rest of the Allen & Overy briefing. If not, please register or sign in with your details below.

Sign in or Register to continue reading this article

Sign in


It's quick, easy and free!

It takes just 5 minutes to register. Answer a few simple questions and once completed you’ll have instant access.

Register now

Why register to The Lawyer


Industry insight

In-depth, expert analysis into the stories behind the headlines from our leading team of journalists.


Market intelligence

Identify the major players and business opportunities within a particular region through our series of free, special reports.


Email newsletters

Receive your pick of The Lawyer's daily and weekly email newsletters, tailored by practice area, region and job function.

More relevant to you

To continue providing the best analysis, insight and news across the legal market we are collecting some information about who you are, what you do and where you work to improve The Lawyer and make it more relevant to you.

Analysis from The Lawyer

  • Panel reviews

    Panel reviews 2014: The chosen ones

    Which firms are cutting it in this era of slimline rosters, and who are the GC new brooms making clean sweeps? The Lawyer can reveal all

  • training

    Accutrainee: Revolution postponed

    At the time of its launch Accutrainee was described as a revolutionary change to the training model. Has it proved to be so? Not really.

View more analysis from The Lawyer


One Bishops Square
E1 6AD

Turnover (£m): 1,234.30
No. of lawyers: 2,194 (UK 200)
Jurisdiction: UK
No. of offices: 11
No. of qualified lawyers: 369 (International 50)
No. of partners: 81