Maria Levanti, Senior Director, Pricing & Analytics, ICE Data Services
This whitepaper examines the effectiveness of using the ISDA SIMM calculation for intra-day margin optimization.
- Initial margining for over-the-counter trades aims to mitigate counterparty risk exposure by having counterparties post collateral to account for potential future credit losses
- The push towards central clearing and the introduction of uncleared margin rules has changed the risk management landscape significantly for less sophisticated financial institutions
- ISDA identified the need for a uniform initial margin method and introduced the ISDA SIMM calculation, a common methodology for calculating initial margin for non-centrally cleared derivatives which reflects market risk inherent in a portfolio and helps minimize counterparty disputes
- The buy side no longer need to rely on counterparties, but can perform their own initial margin calculation by engaging with a licensed ISDA SIMM vendor such as ICE Data Services
- It has become increasingly clear that initial margin can be a valuable risk management tool for more than just regulatory compliance