The Sept. 9 Category III clearing deadline is upon us. Pension funds, ERISA funds, and endowments will soon be mandated to centrally clear their over-the-counter (OTC) swaps.
The majority of Category III participants have already been on-boarded as part of the Category II onboarding of asset managers. Of the 2,000 US pension funds that fall under the Category III mandate, we estimate that 80% of them, or 1,600 institutions, are institutionally managed and will enjoy substantial relief from many of the pains associated with central clearing readiness. They will be able to leverage their managers’ pre-existing relationships with Futures Commission Merchants (FCMs) and Derivatives Clearing Organizations (DCOs), for example.
[For more on the Category III clearing deadline and its impact on the competitive clearing landscape, see TABB Group’s latest report, “Pension Fund Clearing: The Final Countdown.” Please contact TABB Group for details.]
There are still some obstacles, however, to their successful onboarding. Depending on whether a pension fund is self-managed or institutionally managed, there are degrees of documentation to complete. Know Your Customer (KYC) forms still require attention. Pension funds cannot expect FCMs to pull their original articles or authorization forms for derivatives trading out of the filing cabinet. They will need to provide all the necessary forms to ensure FCMs can fill in the KYCs required as part of the Business Conduct Standard (BCS) rules that came into effect for Swap Dealers on May 1.