Updated ISDA SIMM model coming later this year

See the announcement below – any firm having to exchange IM for uncleared margin will need to have the 2.0 model implemented on the same day as their counterparties to avoid disputes.

The International Swaps and Derivatives Association, Inc. (ISDA) has announced the launch of the latest version of the Standard Initial Margin Model (ISDA SIMM), which incorporates a number of enhancements to further develop the methodology.

Among the changes, ISDA SIMM 2.0 includes new risk factors for three product types – volatility indices, quanto credit default swaps and municipal swaps. The modifications meet a request from US prudential regulators to develop enhancements for these product types, and follow extensive industry analysis to identify product sub-types that require revisions.

The new version of the ISDA SIMM also incorporates several other changes requested by the industry, including clarification of certain definitions and enhancements to the treatment of vega margin and commodity indices.

“The ISDA SIMM has become the industry standard for calculating initial margin as part of non-cleared derivatives margining rules. These changes are part of a continual process of review and assessment, overseen by an inclusive and transparent industry governance committee, which ensures the model continues to be fit for purpose,” said Scott O’Malia, ISDA’s Chief Executive.

The changes will come into effect on December 4 in order to give industry participants time to build and test the changes and obtain any necessary regulatory approvals. ISDA has liaised with regulators to agree the implementation timetable.

The ISDA SIMM is a common methodology for calculating initial margin requirements on non-cleared derivatives, and launched in September 2016 in response to new margin rules. An industry governance committee monitors and assesses the model and oversees the process of updates and recalibrations. As part of this process, the governance committee conducts an annual recalibration of the ISDA SIMM parameters and an annual methodology review to consider recommendations from users of the model.