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17 May 2019

ISDA Letter to ESAs on IM Model Requirements

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The authors of the letter urge the European policy makers and national regulators to calibrate the EMIR implementing rules on the back-testing and internal governance requirements associated with the use of globally approved IM models and initial and on-going approval on initial margin models.

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.

The Associations 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.

Full letter

© ISDA - International Swaps and Derivatives Association

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