ISDA SIMM at 10: Scale, Stress Performance and the Next Margin Challenges

Ten years after its launch, the ISDA Standard Initial Margin Model (ISDA SIMM) has become core infrastructure for derivatives counterparties. It is used by more than 400 groups of entities worldwide and supports calculations across more than 21,000 portfolios. ISDA estimates that approximately $1 trillion in initial margin has been collected using the framework, which is permitted for use in more than 40 countries.

Those figures reflect a practical achievement: counterparties can calculate initial margin using a shared method, reducing the scope for disputes and operational friction. The model’s reach also makes its upkeep consequential. Changes must account for evolving market risks while preserving a common approach that firms of different sizes can apply.

On Episode 60 of ISDA’s The Swap podcast, titled Modelling Margin, Eduardo Epperlein, managing director at Nomura International, and Tomo Kodama, managing director at Bank of America Merrill Lynch, discussed the model’s creation, performance in periods of stress and possible areas for future development.

A common method for a fragmented market

When margin requirements for non-cleared derivatives took effect in September 2016, firms faced a choice between using a standard margin grid developed by regulators and building proprietary models. Kodama said the grid did not adequately capture offsets between risks within a portfolio. Proprietary approaches, meanwhile, could produce materially different margin calls for the same positions.

That divergence would have mattered well beyond model design. Counterparties using different methods could have faced repeated reconciliation disputes, less predictable demands for liquidity and greater operational costs. Smaller firms, Kodama added, might have found it difficult to reproduce calculations made by larger institutions. “The alternative world would be much more expensive, more uncertain, less transparent, and more operationally difficult,” he said.

Industry participants began raising these concerns in 2013 and eventually asked ISDA to coordinate a shared framework. Kodama said the goal was a method that was transparent, sensitive to risk and reproducible across firms of different sizes. He recalled that the group expected SIMM could be used around the world, provided its governance remained fair and responsible.

ISDA Chief Executive Scott O’Malia said coordination and transparency helped the industry implement the margin rules without market disruption. The work extended beyond the calculation itself: participants had to align documentation, data formats, reconciliation processes and operational standards. ISDA formed committees to address documentation, margin operations, risk data and methodology.

Epperlein said some firms initially preferred their own models, but a shared approach was needed to limit inconsistencies between counterparties. SIMM drew on sensitivity-based methods used in regulatory frameworks, then adapted and calibrated those methods to measure counterparty exposure.

Monitoring performance and filling model gaps

SIMM’s governance includes weekly industry meetings to review performance and consider updates. Epperlein said regulators receive detailed calibration, backtesting and monitoring information. Participants also built a common backtesting process, with firms contributing data to an industry-wide monitoring framework rather than relying only on separate assessments at each institution.

Quarterly backtesting reports give regulators a view of whether the model continues to meet its intended risk coverage. Yet no single mathematical method can capture every possible portfolio without becoming unwieldy. SIMM therefore includes a process to identify portfolios that need additional margin or adjustments.

In the latest quarterly monitoring exercise Kodama cited, 13 of more than 11,000 portfolios reviewed needed remediation to meet the 99% risk coverage standard. That could involve changing a portfolio or posting additional collateral. The result offers a snapshot of model coverage, while also showing why ongoing monitoring and exceptions remain part of the framework.

O’Malia said SIMM has been changed 17 times over its first decade to incorporate market developments and lessons from periods of volatility. He credited its continued relevance to that ongoing maintenance. The number of revisions points to a model that has evolved through repeated adjustments rather than a one-time design.

Margin stability under stress

Limiting procyclicality has been a central design aim. Procyclical margin requirements rise sharply as markets become unsettled, potentially adding to firms’ liquidity needs when funding is already under pressure. Epperlein said SIMM’s calibration uses at least four years of historical data, with a stressed period accounting for 25% of the sample. The intent is to keep short-lived volatility from driving abrupt changes in requirements.

Epperlein described SIMM’s performance during the March 2020 dash for cash and the 2022 UK gilt crisis as strong, with relatively limited adjustments needed. He also said central counterparty margin models can show greater procyclicality. “SIM is designed to be less pro-cyclical, a bit conservative, but that’s its strength,” he said.

For firms managing funding and liquidity, predictable margin demands can matter as much as lower requirements in calm markets. Kodama said low margins in good conditions offer limited comfort if requirements then surge during stress. The framework’s conservative design is intended to moderate that swing, though it cannot remove the need for firms to plan for collateral calls.

ISDA shifted from annual to semiannual calibration in 2025. O’Malia said the change allows more frequent responses to market conditions while retaining a regular update schedule. Epperlein added that, when the underlying method stays the same, recalibration can now proceed as routine maintenance without separate pre-approval.

Where the framework may expand

Kodama pointed to additional jurisdictions, including China, and to new currencies, yield curves and financial products as possible areas for further work. He also named tokenization and cryptocurrencies as subjects that may need closer attention if their use becomes more widespread. But expansion carries a trade-off: changes made without enough evidence could weaken consistency across the framework. “We want to be careful as we make changes,” he said.

The surrounding services market has grown alongside SIMM. ISDA figures cited in the discussion put the number of vendors offering related services at nearly 70. Standard risk data and exchange formats have helped providers build tools for reconciliation, portfolio optimization and collateral management. Kodama described the model as an industry utility intended to serve participants broadly.

Epperlein, who began his career studying extreme behavior in laser fusion, called SIMM a living model that must adapt as risks change. For Kodama, its September 2016 launch marked an emotional milestone and a chance to contribute something constructive to the market. The next test is whether its governance can preserve comparability as new products, currencies and markets enter its scope.