ISDA launches margin model licensing program

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mike kentz

Swaps market participants are now able to legally license a newly formed ISDA Standard Initial Margin Model (SIMM) for calculating margin requirements on uncleared swaps under an incoming set of Basel III margin requirements.

The industry group announced the licensing program on Monday. The SIMM will help the market standardise the calculation and exchange of initial margin for uncleared swaps.

Market participants expect the model to save the market trillions in margining costs compared to an alternative table-based calculation also offered by Basel regulators – and ISDA expects its use to markedly reduce the potential for margin disputes between coutnerparties. (See story ‘Trillions saved as swaps margining standards agreed’)

“The purpose of ISDA SIMM is to establish a single model that meets regulatory standards, which all authorized licensees can use to exchange collateral in a manner that is consistent with margin requirement rules,” said ISDA in a release.

“By using a single framework to calculate initial margin, licensed counterparties can reduce the potential for disputes. A common methodology also permits timely and transparent dispute resolution and allows consistent regulatory governance and oversight.”

The implementation of the licensing programme is part of a multi-legged effort to come into compliance with Basel rules by September 2016. At that time, about 30 to 40 major derivatives users – each holding swaps notionals of over US€3trn – are expected to be required to comply.

The deadline was recently extended from December 2015 to September 2016 following a raft of industry complaints that the timeline was too short.

Use of the ISDA SIMM model will be free of charge to market participants.

ISDA - IFRe