Investment & Pensions Europe
As part of a special report on regulation from Dodd-Frank and EMIR, Anthony Harrington at IPE looks at whether the complex and costly requirements in order to comply with the new collateralisation rule in the OTC market will provoke more risk seeking practices in the pension funds space.
Reflecting on the current exemption period set for pension funds to implement the collateralisation rule, Jamie Lake, Principle Consultant, GreySpark, explains that regulators have adopted a “wait-and-see” approach. He points out that in practise, the value of this extension may be zero.
Even if pensions are granted further exemptions, Lake goes on to explain they may be more likely to seek alternative forms of hedging rather than take on the extra administration that comes with compliance. This may push pension funds to use inferior alternatives to hedging risk or perhaps even not at all, thus increasing risk elsewhere in the markets.
The article goes on to assess how the investment banks may adapt their trading decisions as EMIR develops and how increased risk management is set to become a further headache for pension funds.