Chile Tightens Derivative Restrictions for Pension Funds Ahead of New Risk Framework

Chile's pension regulator is intensifying its oversight of derivative trading among the country's pension fund administrators, known as AFPs. In a recent notice, the regulator clarified that these funds are now restricted to using swaps solely for the purpose of reducing existing risk, rather than increasing their market exposure. This directive serves as a precursor to a broader transition toward a new risk-based regulatory framework scheduled for implementation later this year. The move signals a cautious approach by the regulator to ensure stability within the pension system as it prepares for a systemic shift in how risk is measured and managed. According to sources familiar with the matter, the memo explicitly prohibits AFPs from utilizing interest rate swap positions to expand their exposure. Instead, all trading activity must be focused on mitigating previously assumed risks. The restriction comes as funds enter a six-month adjustment window to align their portfolios with the upcoming guidelines. This tightening is expected to influence how Chilean institutional investors hedge interest rate volatility and may lead to a temporary reduction in derivative trading volumes within the local market.