What is the ISDA SIMM?

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Published on LexisPSL on 27/07/2016

The following Banking & Finance Q&A provides comprehensive and up to date legal information covering:

  • What is the ISDA SIMM?
  • What is the background to the ISDA SIMM?
  • Why are margin requirements for non-cleared derivatives seen as beneficial?
  • What does the framework set out?
  • What is the ISDA SIMM?

What is the background to the ISDA SIMM?

The financial crisis of 2007 exposed significant weaknesses in the resiliency of banks and other financial institutions. As a result of this, the G-20 initiated a reform programme in 2009, including to over-the counter (OTC) derivatives. The suggested reforms in 2009 focused on certain OTC derivatives being subject to central clearing and for non-cleared derivatives to be subject to higher capital requirements. In 2011, they added to their reform programme margin requirements for derivatives that were not subject to mandatory clearing. The Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) in consultation with the Committee on Payment and Settlement Systems (CPSS) and the Committee on the Global Financial System (CGFS) set up a Working Group on Margin Requirements (WGMR) to address this requirement.

In September 2013, the WGMR issued a margin policy framework for non-cleared bilateral derivatives. This framework was updated in March 2015 and is available here. Since the publication of this framework, regulatory authorities have had to develop margin rules which are consistent with it, so that the requirements can be fully implemented in their own jurisdictions. The International Securities and Derivatives Association, Inc. (ISDA) set up a methodology, the ISDA SIMM, designed to help counterparties calculate initial margin. More information on this methodology is set out in What

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