ISDA SIMM, the standard initial margin model for non-cleared derivatives, is now approved by regulators in more than 40 countries, used by over 440 groups of entities and supported by 70 vendors — figures ISDA Chief Executive Scott O'Malia cited as the model marks its tenth anniversary this month.

Speaking at the ISDA Derivatives Trading and Treasury Forum in London on September 30, O'Malia noted that the industry has shipped 17 updates to SIMM since launch, keeping margin exchange efficient at scale through volatile markets. But his opening remarks ranged well beyond initial margin, targeting three efficiency fronts for trading and treasury desks: the Basel capital framework, tokenized collateral and artificial intelligence in mutualized industry utilities.

Capital: PRA progress, US calibration gaps

Earlier this month ISDA submitted a response to the UK Prudential Regulation Authority's latest consultation on Basel 3.1. O'Malia said the PRA's proposed adjustments make several important changes that reduce the penalty on banks using internal models for market risk capital — a long-standing ISDA ask. Internal models, he argued, produce greater risk sensitivity, letting banks allocate capital more efficiently and avoid the herd behavior that comes from a single standardized model.

One fault line remains timing. The PRA has held its January 2028 deadline for the internal models approach, but the US go-live date is still unknown. ISDA is recommending flexibility to align implementation across major jurisdictions and avoid fragmentation.

On the US side, revised proposals published in March improved incentives for internal models, but O'Malia flagged calibration problems in SA-CCR, the standardized approach for counterparty credit risk. The latest proposal permits cross-product netting for certain repo and derivatives trades, including clearing member–client transactions — a change ISDA has sought. But the proposed methodology, in his words, is "overly blunt and would result in excessive capital requirements that don't accurately reflect the economic risk of well-hedged portfolios." ISDA's response to the US consultation recommends a methodology change to align capital with risk.

The timing matters for clearing desks. Mandatory clearing of US Treasury cash transactions is set for the end of this year, with repos to follow from mid-2027. Participants are already looking at cross-margining programs run by CME Group and the Fixed Income Clearing Corporation to cut margin requirements across Treasury cash, repo and futures portfolios. O'Malia warned that without similar recognition of risk offsets in the capital framework, cross-margining efficiencies could perversely force banks to hold more capital, restricting balance sheet capacity and impeding clearing services.

ISDA also claimed wins on leverage and funding rules: it successfully pushed changes to the US enhanced supplementary leverage ratio so it serves primarily as a backstop, and advocated removal of an SFT minimum haircut floor from the Basel III endgame proposal. It is now engaging with the Bank of England on calibration of haircutting for gilt repo.

Tokenization: a $50 billion problem

Collateral infrastructure remains "overly complicated, slow, expensive to maintain and prone to errors," O'Malia said. A study by Nasdaq and ValueExchange, in which ISDA participated, estimates that as much as $50 billion of collateral is either posted in excess or not remunerated.

Tokenized assets, he argued, could enable near-instantaneous settlement, intraday liquidity management and greater collateral mobility, while unlocking a broader asset pool — including money market funds, currently all but unusable as margin due to operational complexity. In July, ISDA published a report with Global Digital Finance on the legal, regulatory and operational viability of tokenized money market funds in the US. A follow-up paper on how ISDA documentation can support tokenized money market funds as derivatives collateral is due soon. Tokenized collateral, he suggested, offers a near-term route to continuous margin movement supporting the transition to 24/7 trading.

AI: audit trails and rule translation

O'Malia made no predictions about AI's ultimate market impact. What ISDA has measured is its own deployment: the Digital Regulatory Reporting solution already supports nine sets of reporting rules worldwide, converting a golden-source industry interpretation of rules into machine-executable code via the Common Domain Model.

Two AI agents are in build. A tracer agent reconstructs the history of ISDA DRR decision-making, producing an audit trail that links every reporting outcome back to the rule and the working group consensus behind it. A translator agent interprets new or updated reporting requirements and supports conversion into code, cutting the time, effort and cost of keeping pace with evolving rules.

O'Malia closed by framing SIMM, the LIBOR transition and the ISDA DRR as proof of ISDA's convening model — spot the problem, build a mutualized solution, deploy it globally — and said that same approach will drive the association's next wave of work on capital, collateral and automation.