Last week marked an important milestone for the ISDA Standard Initial Margin Model (ISDA SIMM), as we published the first recalibration under the new semiannual cycle. Agreed in coordination with global regulators, this shift will ensure the ISDA SIMM continues to appropriately reflect risk and is updated in a predictable and transparent way. However, the release also triggered a new requirement for EU counterparties to apply for regulatory authorization to use the model – a submission that must be complete before the revised version of the ISDA SIMM comes into effect on July 12.

The requirement to apply for authorization is part of the revised European Market Infrastructure Regulation (EMIR 3), which obliges EU entities to submit an application before using any new or modified initial margin (IM) model. The European Banking Authority (EBA) published a no-action letter in December 2024, which loosens some of the requirements until the EBA publishes detailed requirements in the form of regulatory technical standards and establishes a central validation function. For example, the no-action letter makes clear that national regulators shouldn’t prioritize any supervisory or enforcement action relating to the processing of applications for IM model authorization.

But this doesn’t mean EU entities don’t have to submit applications – they do, and they need to do so before ISDA SIMM version 2.7+2412 is implemented on July 12. Specifically, any EU financial or non-financial counterparty currently using the ISDA SIMM to exchange IM must submit an initial application to their national regulator (not the EBA), while ‘significant institutions’ also need to apply to the European Central Bank. Once the initial application is submitted, firms will need to notify regulators of subsequent model changes annually until the more detailed EBA rules are published. EU entities currently below the IM threshold for all portfolios are not required to apply now – but must do so if and when they exceed the threshold and before they start to use the ISDA SIMM to exchange IM.

Given this is the first time the application requirement will be in effect, we urge EU firms to act now. To support members in navigating this new process, ISDA will release practical guidance and educational materials to clarify the application requirements.

The publication of the latest version of the ISDA SIMM is a key part of regulatory and industry efforts to ensure margin models are responsive to any changes in market conditions. Going forward, there will be two calibrations each year: a primary and secondary calibration. The primary calibration will assess all ISDA SIMM parameters and will occur in the first half of each year, effective in July. The secondary review will run in the second half of the year and will evaluate the main delta risk weights, with implementation in December.

Since its launch in 2016, the ISDA SIMM has demonstrated resilience across multiple stress periods. The shift to a twice-yearly calibration ensures the model will remain current, stable and risk appropriate – reinforcing its role in promoting safe and efficient derivatives markets.