Open Source Margin Model for OTC Derivatives
OpenGamma, a leading provider of OTC market structure solutions, is working with dealers and other OTC derivatives market participants to deliver an open source model to calculate the margin on bilateral derivatives trades. The solution will implement the final Standard Initial Margin Methodology (“SIMM”) being developed by ISDA, which will meet the requirements set by the Basel Committee and due to be implemented by December 2015.
Full transparency and open access to source code for margining will for the first time empower industry participants to have an independent and verifiable calculation framework that is not controlled by any one entity.
Ensuring Transparency and Independence in Margining
The source code used for calculation of margin will be fully available to all market participants to plug into their respective utilities and proprietary trading systems, enabling a consistency of calculations across the industry that was not previously possible.
Model Releases and Industry Collaboration
The first release will be the HVaR-based model from the original ISDA SIMM paper but will be quickly followed, pending industry approval, by the current version of the model, which is based on a different methodology.
OpenGamma will release the source code to all iterations of the model on Github.com, an open source, collaborative software development environment. Having all open source models in one location will facilitate the evaluation and verification of the different methodologies and their inherent tradeoffs. In addition, having many eyeballs reviewing the code will lead to a verification of the precise assumptions made in the actual code implementation of the models.
Industry Impact and Executive Commentary
“With capital scarce, financial firms are more focused than ever on developing high-value, proprietary innovations rather than re-creating industry-standard methodologies,” said Mas Nakachi, CEO of OpenGamma. “That’s why we’re working with the industry to streamline and democratize the development of market structure solutions, which also fundamentally reduces operational and systemic risk through the inherent transparency of open source code. We believe the future of OTC market structure will be driven by the need for transparency and will therefore be based on open standards.”
OpenGamma’s Role in Market Structure Solutions
OpenGamma’s background in delivering flexible risk and margin calculation solutions positions the firm as an ideal solutions provider for issues that encompass all OTC derivatives market participants and asset classes. OpenGamma for Margining was added to its product line In November 2013, complementing its existing open-source market risk platform.
Online Resources
Access the OpenGamma SIMM implementation on GitHub
Learn more about OpenGamma Market Structure solutions
