Acadia expects reduced ISDA SIMM™ requirements for many industry participants following publication of SIMM 2.7

Acadia expects reduced ISDA SIMM™ requirements for many industry participants following publication of SIMM 2.7

• Significant reductions in Risk Weights across Equity, Credit Qualifying, Credit Non-Qualifying and Commodity according to data from Acadia’s IM Recalibration Analytics service
• Outliers include High Yield & Non-Rated RMBS/CMBS which sees an 123% increase 

ISDA has published the latest version of its ISDA SIMM™ methodology, version 2.7, which marks the first release since 2021 that does not include the full impact of the financial stresses due to COVID-19 lockdowns of Spring 2020 and financial crash of 2008/09. 

Analysis through Acadia’s IM Recalibration Analytics (IMRA) module shows a significant reduction in Risk Weights for the many asset classes, and a marked reduction in the volatility risk weight across all asset classes. IMRA enables firms to predict future changes in their Initial Margin exposure, therefore providing certainty of future funding requirements. The drop in volatility risk weight for each asset class is:

• Interest Rate: Falling – 13%
• FX: Falling -27%
• Equity: Falling – 45%
• Credit Qualifying: Falling – 58%
• Credit Non-Qualifying: Falling – 59%
• Commodity: Falling – 38%

Interest Rate and FX risk are largely flat, albeit with a continuing increase in the FX risk associated with HighVolatility currencies (limited to Russian Rubles, Argentinian Pesos and Turkish Lira). Equity, Commodity and Credit Qualifying risk weights are down substantially, with only a few exceptions. The largest falls are seen in:

• Equity Bucket 10 – Small Cap, Developed Markets (Falling 22%)
• Equity Bucket 7 – Large Cap, Developed Markets, Basic Materials, Energy Agriculture Manufacturing, Mining and Quarrying (Falling 24%)
• Qualifying Credit Bucket 9 – High Yield & Non-Rates, Basic Materials, Energy, Industrials (Falling 38%)
• Commodity Bucket 10 – Freight (Falling 30%)

In contrast one bucket is significantly increasing for Credit Non-Qualifying 

• High Yield & Non-Rated RMBS/CMBS (Increasing 123%)

Stuart Smith, Co-Head of BusinessDevelopment at Acadia commented:‍

" The significance of this latest version of ISDA SIMM is that it represents the first release since 2021 that does not include the full impact of the financial stresses caused by the COVID-19 lockdowns of Spring 2020 and the financial crash of 2008/09.

Based on Acadia’s analysis, the effect of this is that with the exception of some high-yield credit, we can expect to see a reduction in ISDA SIMM for many industry participants of between 5% and 20%, particularly those trading in non-linear derivatives. "