In preparation for the final global phase of the initial margin, on 1 September 2021 (Phase 5) and 2 September 2022 (Phase 6), during which more companies are expected to fall within the scope of the initial margin rules, ISDA has put in place an optimized licensing process for its SIMM ISDA™ to ensure that your company can use the model to prepare for these deadlines. For the use of THE ISDA SIMM, ISDA is not billed by ISDA. To access ISDA SIMM licensed materials, please fill in the necessary information and accept the standard license agreement on the next page. After receiving the RQV, the deposit bank checks the existing balance of the separate account, looks at the long field of the Pledgor to see the available securities and determines which securities can be mortgaged in the long box for this agreement before calculating the amount of the guarantee to be carried forward to obtain the necessary credit. Customers must each maintain a “long box” of potential collateral with the Triparty deposit bank. After agreement of the IM-Margin call, each party must appeal to the custodian of the RQV (guarantee credit required). This goes against the traditional VM resolution, in which each party has also agreed on the collateral to be mortgaged before charging the custodian bank. For more information about licensing, see Licensing and Data. We see most of the challenges posed by the first and final part of the process. Sensitivity generation requires the ability to project and calculate sensitivities on different predefined risk factors (interest rates, loans, currencies, stocks, and commodities).
This is a difficult task due to the diversity of products that need to be hedged and validated, and it requires trading and risk platforms: for ISDA SIMM, margin calculations depend on the appropriate ISDA SIMM Risk Buckets identification for each underlying asset. If companies do not agree on the buckets of risk for assets, they fail to agree on the margin to be traded. While the need to calculate and publish the initial Margin is almost making headlines when it comes to the priorities of companies wishing to comply with the Fuzzy Margin Rules (UMR), there are many other issues that companies need to consider. The last part of the process, the margin call processing, has similarities with the variation-margin process, but it has some peculiarities: in particular, once companies have agreed with their counterparties on the amount of initial margins and additional guarantees, they usually rely on tri-party agents to meet their security requirements. While the VM process is primarily a two-way cash-based process, IM is security-based and involves a third party. Today, if you use a third-party structure to separate The Variation Margin or Independent Amount, you probably already have a process to support non-cash guarantees. Your experience with these processes as well as your relationship(s) with existing deposit banks can make a third-party model a natural choice….