The International Swaps and Derivatives Association, Inc. (ISDA) has launched a tender process to select a third party to build and operate a crowdsourcing utility for the ISDA Standard Initial Margin Model (ISDA SIMM™). The utility is intended to aggregate and compile risk data to enable market participants to implement the ISDA SIMM™ consistently.
The ISDA SIMM™ has been developed as part of ISDA’s Working Group on Margining Requirements (WGMR) implementation initiative to help market participants meet new margining rules for non-cleared derivatives. By using a common methodology to calculate initial margin, counterparties can avoid the potential for disputes. The ISDA SIMM™ can be used by any party subject to the non-cleared margin requirements.
In order to ensure a consistent implementation, the treatment of risk weights and correlation parameters to sensitivity values needs to be the same among ISDA SIMM™ users. Risk weights for certain asset classes are clear, and therefore treatment will be the same among ISDA SIMM™ users. However, the consistent allocation of net sensitivity values for other asset classes will require sensitivities generated to each risk factor to be mapped consistently to an ISDA SIMM™ risk bucket.
ISDA believes a centralized crowdsourcing solution 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. The utility will:
· Accept data from participants that are in scope for non-cleared margin rules;
· Analyze data and produce consensus results;
· Provide results reports to users;
· Establish policies and procedures for the utility;
· Ensure continuity and integrity of the utility and associated data.
The utility needs to be fully operational in time to allow for onboarding, connectivity and user testing prior toSeptember 1, 2016, the effective date for implementation of non-cleared margin rules for the exchange of both initial margin and variation margin. More detailed timelines are contained in the invitation to tender (ITT).
ISDA will provide an ITT document to parties interested in bidding to build and operate the ISDA SIMM™crowdsourcing utility. Firms interested in submitting a tender response should contact Tara Krusetkruse@isda.org and Eleanor Hsu ehsu@isda.org by July 8, 2015 to receive the ITT document. The deadline to submit a tender response is July 30, 2015. ISDA expects to announce the successful bidder by September 10, 2015.
