What is standard initial margin model?

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.

What is UMR regulation?

Regulation around UMR came about as a response to the financial crisis of 2008-2009. One of the reforms that was recommended was the implementation of margin requirements for non-centrally cleared derivatives. The in-scope OTC derivatives include FX options, NDFs, physical FX forwards, swaptions and hedging trades.

What are non-centrally cleared derivatives?

Non-centrally cleared derivatives are defined as derivatives that are not cleared through a central counterparty. Non-centrally cleared derivatives between a Covered FRFI and its affiliates (i.e. intra-group trades) are not subject to the margin requirements of this Guideline.

How do you calculate initial margin?

The total Initial margin requirement or credit for the product group is calculated by summing algebraically the total of the product group spread margin, the product group MTM margin, the product group premium margin and the total additional margin (or minimum margin) for the product group.

What is IM and SIMM?

Initial Margin (IM) is the amount of collateral required to open a position with a broker or an exchange or a bank. The Standard Initial Margin Model (SIMM) is very likely to become the market standard. It is designed to provide a common methodology for calculating initial margin for uncleared OTC derivatives.

What is AANA margin?

AANA (Average Aggregated Notional Amount) is a gross notional calculation across all uncleared OTC trades per firm, for a three-month regulatory calculation period, to determine the Initial Margin phase that firm is in-scope for.

What is IA in derivatives?

In the context of collateral arrangements, dealers often require end users to provide collateral in an amount which exceeds the amount of the dealer’s credit exposure. This is commonly achieved by requiring end users to deliver independent amounts (“IA”).

What is the difference between cleared and non-cleared derivatives?

When an OTC derivative has been cleared, margin must also be posted to the CCP, and the clearing member is required to collect margin from its client. Non-cleared transactions are agreed bilaterally between a buyer and seller.

What is OTC in derivatives?

An over-the-counter (OTC) derivative is a financial contract that does not trade on an asset exchange, and which can be tailored to each party’s needs. A derivative is a security with a price that is dependent upon or derived from one or more underlying assets.

What is VaR and Elm margin?

These margins are in the form of VaR (Value at Risk) and ELM (Extreme loss margin). VaR margin is linked to volatility and is updated six times a day. Higher the volatility, greater the VaR, and by extension, higher the VaR margin as well. ELM is the fixed additional margin charged.

What does a 50% initial margin mean?

This original loan amount as a percentage of the investment amount is called the initial margin. So if a broker has an initial margin requirement of 50%, that means you must pay 50% of the total investment before the lender will let you borrow the other half.