ISDA Letter to ESAs on IM Model Requirements

The International Swaps and Derivatives Association, Inc. (ISDA), the Securities Industry and Financial Markets Association (SIFMA), the Securities Industry and Financial Markets Association’s Asset Management Group (SIFMA AMG) and the Association of the Luxembourg Fund Industry (ALFI) (hereinafter the Associations) support the efforts of regulators to help the industry in the implementation of the initial margin (IM) rules applicable to non-centrally cleared derivatives.

In September 2018, ISDA, SIFMA and other industry associations submitted a letter to the Basel Committee on Banking Supervision (BCBS) and the International Organization of Securities Commissions (IOSCO) to raise issues associated with the final stages of the uncleared margin rules, particularly with the introduction of IM requirements for a large universe of counterparties as of September 1, 2020.

On 5 March 2019, BCBS and IOSCO published a joint statement on the final implementation phases of the margin requirements for non-centrally cleared derivatives where they note that: ‘In the remaining phases of the framework’s implementation in 2019 and 2020, initial margin requirements will apply to a large number of entities for the first time, potentially involving documentation, custodial and operational arrangements. The Basel Committee and IOSCO note that the framework does not specify documentation, custodial or operational requirements if the bilateral initial margin amount does not exceed the framework’s €50 million initial margin threshold. It is expected, however, that covered entities will act diligently when their exposures approach the threshold to ensure that the relevant arrangements needed are in place if the threshold is exceeded.

The Associations welcome this statement but advise that regardless of whether counterparties coming into scope of the initial margin requirements in 2019 (phase 4) and 2020 (phase 5) are able to delay some of their documentation, custodial and operational requirements because they will not immediately have to exchange IM, these counterparties will still face substantial burden to implement and maintain an IM calculation method in order to monitor their IM amounts and/or calculate IM for exchange.  This burden is due primarily to regulatory requirements for the approval to use a quantitative IM model and the governance requirements associated with its initial and ongoing use.

In this context, we urge the European policy makers and national regulators to appropriately calibrate the EMIR implementing rules on:

  • The back-testing and internal governance requirements associated with the use of globally approved IM models, including the ISDA SIMMTM (SIMM);
  • The initial and on-going approval on initial margin models under article 11 paragraph 15 of EMIR (as modified by EMIR Refit), for which the ESAs shall draft Regulatory technical standards (RTS).

Click on the PDF below to read the full letter.

Documents (1) for ISDA Letter to ESAs on IM Model Requirements

Expanding the Universe of Eligible VM

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ISDA Response on Hedge Accounting Guidance

On August 14, ISDA responded to an exposure draft from the Financial Accounting Standards Board (FASB). ISDA broadly supports the FASB’s proposed targeted improvements to hedge accounting, including allowing interest rate hedging of held-to-maturity (HTM) debt securities, recognizing all Secured...

Joint Response to EBA Consultation

On August 12, ISDA and the Association for Financial Markets in Europe (AFME) responded to the European Banking Authority’s discussion paper on certain taxonomy key performance indicators (KPIs) and other aspects of the Disclosures Delegated Act  under Article 8 of...

Response to JSCC on Clearing Fund Consolidation

On August 12, ISDA responded to the Japan Securities Clearing Corporation’s (JSCC) consultation on its proposal to consolidate clearing fund consumption, calculation and deposit segmentation across six clearing qualifications under the Financial Instruments and Exchange Act. ISDA members broadly support...