On December 9, 2013, ISDA® published a report that sets out its proposals for a standard initial margin model (SIMM®) for uncleared derivatives. The SIMM aims to provide a common methodology for the calculation of initial margin in compliance with proposed new global margin requirements for non-centrally cleared derivatives. The requirements were set out in a policy framework (BCBS261) that was produced jointly by the International Organization of Securities Commissions (IOSCO) and the Basel Committee on Banking Supervision (BCBS) in September 2013 (BCBS framework) (see Legal Update, IOSCO and BCBS Release Global Margin Proposal for Uncleared Derivatives).

The report outlines some of the issues that ISDA's SIMM Committee considered, including the mathematical structure of a SIMM, how a margin coverage standard must be interpreted and how to combine models for both margin and collateral.

The report includes a set of specific formulae for asset-class-specific initial margin in four identified asset classes (currency/rates, equity, credit and commodities), which accounts for the following factors:

The ISDA SIMM Committee identified nine criteria that would have to be satisfied by a prospective SIMM, which are:

The margin requirements under the BCBS framework are expected to be phased in over a four year period beginning, in December 2015, with the largest, most active and most systemically important derivatives market participants. For information on the BCBS framework, see Legal Update, Final Global Margin Rules for Uncleared Derivatives Released by International Regulators.

For details on swaps and derivatives margin collateral rules under the Dodd-Frank Act, see Practice Note, The Dodd-Frank Act: Derivatives Margin Collateral Rules.