The standard initial margin model (SIMM) is a common methodology to help market participants calculate initial margin on non-cleared derivatives under the framework developed by the Basel Committee on Banking Supervision and the International Organization of Securities Commissions.
The standardized margin methodology was developed by the International Swaps and Derivatives Association (ISDA) and is intended to reduce the potential for disputes and create efficiency through netting of exposures. The model applies a sensitivity-based calculation across four product classes: interest rates and foreign exchange (ratesFX), credit, equity and commodities.
The SIMM officially launched in September 2016 and an updated version, ISDA SIMM 2.0, became effective in December 2017 to include a range of clarifications, enhancements and additional risk factors.
An industry governance committee conducts an annual methodology review of the model and oversees any updates and recalibrations.
Independent consensus of risk weights for specific assets is determined by an ISDA SIMM crowdsourcing utility run by Ice Benchmark Administration. Participating banks vote on the appropriate risk buckets for positions on their books that are in scope for the non-cleared margin rules. The results are updated daily and used by market participants as inputs.
Kamakura is an ISDA SIMM licensed vendor which has certified to ISDA that KRM SIMM module has passed the Unit Test issued by ISDA for SIMM v2.2. KRM is a truly integrated risk management solution which provides a one-time process of data load, GL reconciliation, risk calculation, results generation and reporting.
ISDA SIMM requires sensitivity inputs to calculate initial margin. KRM’s powerful risk factor models and valuation engines generate the accurate sensitivity outputs for all different type of product classes and risk factors and the outputs can be directly used for SIMM inputs for KRM SIMM calculator. KRM also provides a flexibility to use risk sensitivities which the bank derived from its own source system. As all risk factors are parameterized within KRM, the SIMM calculation can be easily configurable by the clients. That means that the user is allowed to keep different sets of SIMM configurations so that user can compare different SIMM results by little changes of configuration setting. KRM’s market valuation and historical VAR module provide a back testing of assessment and monitoring of SIMM performance. Last but not least, KRM supports ISDA proposed Common Risk Interchange Format (CRIF) import/export for dispute resolution.
KRM SIMM solution will give more benefits to the clients. KRM is an open and transparency-based solution which provides clients with full access to the modeling details and the underlying mathematics. Kamakura provides the reconciliation templates at transaction cash flow level for all products to prove the analytical correctness and processing transparency. KRM’s enterprise-wide and integrated risk framework will give the clients with the low costs of operations and maintenance. KRM’s system architecture which is developed on C++ language, 64bit environment and open DB system will give an efficient and high speed of calculation.