EMIR is a European regulation that aims to increase transparency and resilience in the swaps market by requiring standardized derivatives to be cleared through central counterparties. This will make the swaps market more similar to the futures market. Pension funds have a limited exemption from clearing requirements until 2015 but will still be subject to new rules on margin requirements and trade reporting. Redington offers services to help pension funds analyze how EMIR will impact them and develop strategies to manage their collateral requirements and legacy derivative portfolios under the new regulations.

1. EMIR
European Market Infrastructure Regulations – An Introduction
11 December 2012
Private & Confidential European Market Infrastructure Regulations (EMIR) 11 December 2012 1

2. EMIR: Preparing for A Changing Market Environment
• In order to enhance the resilience of the financial system
to any future financial crisis and to increase
transparency, European policymakers are introducing
regulation (termed “EMIR”) to reform the swaps market.
The incoming changes will make the swap market more
similar to the futures market, with trades cleared through
a central counterparty (CCP).
• This introduces additional rules and constraints that
pension funds should be aware of and prepare for.
EMIR: Central Points
Non-cleared derivatives
All standardised OTC Harmonised framework will be subject to All OTC and exchange
derivatives will be cleared for the provision of strengthened management traded derivatives will be
through central clearing services within requirements, including the reported to trade
counterparties (CCPs) Europe need to collateralise repositories (TRs)
positions
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3. EMIR: Preparing for A Changing Market Environment
ESMA publication of Technical standards
draft technical standards come into force
Notification for the ESMA to submit draft
clearing obligation RTS on the clearing
obligation
Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014
CCP Application Reporting start date (all
Deadline other asset classes)
Key: Reporting start date NCA Authorisation of
(IRS, CDS) CCPs
Technical standards – overall set of rules and regulation
Over-the-Counter (OTC) derivatives clearing * Timeline based on ESMA estimates
Central Counterparty Clearing (CCP) entities
Trade Repositories (TR) – maintains trade records
Important information for pensions funds: Key questions for pension funds to consider:
• Pension Funds enjoy a limited exemption from EMIR’s headline • Are you going to use your exemption from EMIR?
measure – the requirement to clear OTC derivative contracts – until at
• Are your CSAs dirty or clean?
least August 2015. However, for new trades there is no exemption
from Initial Margin, providing more incentive for these trades to be • Have you considered your collateral adequacy under EMIR?
cleared early rather than make use of the pension fund exemption.
• Have you evaluated novation, rehypothecation and
recouponing as potential options to manage collateral
• The other key provision – reporting obligations – will apply to
adequacy?
pension funds. The EMIR obligations will take effect on a phased
basis from the beginning of 2013. • What are you going to do with your legacy book of
derivative trades?
• Initial Margin calculations are likely to be 5-10 day VaR to a high
confidence level of 99.5/99.7.
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4. EMIR: Redington Offering
We will guide your pension scheme into this new regulatory environment. Providing:
- An analysis of your legacy derivative portfolio.
- An analysis of your collateral requirements and adequacy under a variety of EMIR transition strategies.
- An analysis of your PV01 exposures under a variety of EMIR transition strategies.
- An analysis of your CSA positioning, where necessary managing the transition from dirty to clean.
- Regular scheme updates that inform you of how the regulations are going to affect your scheme.
- Following this analysis we will create and implement a bespoke strategy for your scheme in partnership with your LDI manager.
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5. 13-15 Mallow Street London EC1Y 8RD Telephone : +44 (0) 20 7250 3331 www.redington.co.uk
Contacts
Tom McCartan Kenny Nicoll Freddie Ewer
Associate Director Analyst
Manager Research Manager Research Investment Consulting
Direct Line: 020 3267 7139 Direct Line: 020 3267 7111 Direct Line: 020 3326 7133
mark.herne@redington.co.uk patrick.osullivan@redington.co.uk dan.mikulskis@redington.co.uk
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