ICE selected to operate ISDA margin utility

The International Swaps and Derivatives Association has selected the ICE Benchmark Administration to build and operate a crowdsourcing utility for the ISDA Standard Initial Margin Model.

The International Swaps and Derivatives Association (ISDA) has selected the ICE Benchmark Administration to build and operate a crowdsourcing utility for the ISDA Standard Initial Margin Model (SIMM). 

The ISDA SIMM has been developed to help market participants meet new margining rules for non-cleared derivatives, which are set to come into force on 1 September 2016. 

ISDA said it selected ICE after an in-depth selection process.

Anywhere between $150 -$300 trillion in notional outstanding will need to be repapered, margined and collateralised under the requirements for non-cleared OTC derivatives. The framework identifies the main asset classes to be covered as credit, equities, rates, FX and commodities.

According to ISDA, the SIMM can be used by any party subject to the non-cleared margin requirements. ICE’s role will be to define infrastructure needs, processes and controls, with the aim of ensuring the utility is operational ahead of the September 2016 implementation date. It will also build and run a centralised crowdsourcing solution that is needed to achieve this consistent mapping.

“The value of crowdsourcing is that parties will use the consensus results instead of their own internal determination of risk buckets and weightings,” ISDA said in a statement.

Margin requirements do not apply to all OTC counterparties but to financial institutions and the larger non-financial counterparties deemed ‘systemically important non-financial entities’.

For end-users the practical tasks facing them to comply with the new margin rules are daunting. New documentation which clarifies a string of issues, such as margin rates and payment frequencies, tri-party involvements, collateral agreements and dispute resolution will have to be put in place. But the documentation only describes what will also physically need to be in place in terms of support technology and margin transfer mechanisms. For buy-side firms with no previous experience of margining and collateralising OTC activity, this represents a major challenge. 

Read more on our guide to non-cleared margin requirements for the buy-side here.

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