Tracey Adams of Lombard Risk examines examples of three challenges faced by market participants caught up on the first wave of SIMM.
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In September 2013, the Working Group on Margin Requirements (WGMR), a group mutually run by the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO), issued a final margin policy framework for non-cleared, bilateral derivatives. A key component of the WGMR implementation programme is the Standard Initial Margin Model (SIMM) project, which is focused on developing a common initial margin methodology that can be used by market participants globally.
While the industry has talked conceptually around SIMM for the last three years (indeed, it has been a topic that has consumed conferences and forums), it has only been since 1 September 2016, when SIMM went live for the largest derivatives users, that it has really shaken institutions into action. So, in a world where we have become so used to the regulatory environment, to the point of fatigue, why has the International Swaps and Derivatives Association’s (ISDA) SIMM caused so much of a flutter? More importantly, why and how is SIMM encroaching onto the processes and capacity of the securities lending environment?
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