EUROPE - European pension schemes are likely to gain a full carve-out from proposed EU legislation requiring central clearing of derivatives deals - despite US pressure to scotch it.

Kay Swinburne, MEP and member of the Committee on Economic and Monetary Affairs in the European Parliament, told a conference in London yesterday that pension schemes - which had argued for exemption from higher trading fees and, as liquid investors, from the requirement for upfront posting of collateral to secure trades - could land themselves an exemption similar to that achieved by corporates.

In a speech on lobbying for the optimal regulatory structure on derivatives instruments, the Welsh former banker contrasted complaints from the financial community with "highly successful" interventions from the UK business lobby, which started pushing early in the process for a corporate carve-out from derivatives legislation.

The outcome was a full corporate exemption.

"You've got to be aware as practitioners that saying things don't work doesn't help," she said. "You have to come up with alternatives and examples of what will work."

Even within the EU, there has been some resistance to a proposed exemption for pension funds.

Last month, European Parliament rapporteur Werner Langen claimed no sector should be excluded from rules proposed last year governing clearing of derivatives transactions.

Langen argued that exempting some industry participants from the requirement to use a central clearing counterparty for derivatives trades could lead to a build-up of systemic risk.

He rejected the suggestion interoperability between clearers could mitigate this risk.

However, a panel session at the conference this week argued that interoperability was less of a concern for derivatives than for cash equities.

Paul O'Donnell, head of operations at trading firm BATS, pointed out that interoperability was "not so much a finish line as part of the process".

How clearers model themselves after the coming wave of consolidation will depend on whether or not they own downstream activities when they merge, according to Diana Chan, chief executive at EuroCCP, a clearing house.

For those that do, the temptation will be to adopt a vertical model - even though many market participants are concerned this will encourage monopolistic market characteristics, she said.

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