What's New in ISDA SIMM Version 2.7: Key Updates and Implications
The International Swaps and Derivatives Association (ISDA) has released version 2.7 of its Standard Initial Margin Model (SIMM), a crucial framework used by market participants to calculate initial margin requirements for non-cleared derivatives. Notably, the new version builds on 2.6.5, which had been submitted for regulatory approval prior to its finalisation.
In this blog, we will dive into the specific changes introduced in version 2.7, providing a comprehensive analysis of adjustments to risk weights, correlations, delta and vega concentration thresholds, as well as updates to correlations between risk classes within product classes.
ISDA SIMM v2.7 vs v2.6: What’s Changed?
This latest update update introduces notable changes across various risk factors, with the most significant impacts observed in the foreign exchange, credit non-qualifying, and commodity sectors.
Developed by Cumulus9, this tool highlights the impact of SIMM parameter changes. Use the dropdown menu to explore the impact across various risk factors, and interact with the charts and buttons to further analyze the results.
- The inflation risk weight rate is updated to 52 from 61
- The cross-currency basis swap spread risk weight remains unchanged to 21
- The vega risk weight is updated to 0.2 from 0.23
- The historical volatility ratio is updated to 0.69 from 0.47
| 2w | 1m | 3m | 6m | 1y | 2y | 3y | 5y | 10y | 15y | 20y | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| 2w | -0.02 | 0 | -0.02 | -0.05 | -0.06 | -0.06 | -0.06 | -0.06 | -0.06 | -0.05 | |
| 1m | -0.02 | +0.01 | -0.02 | -0.04 | -0.05 | -0.06 | -0.07 | -0.07 | -0.07 | -0.07 | |
| 3m | 0 | +0.01 | 0 | -0.02 | -0.03 | -0.03 | -0.03 | -0.04 | -0.04 | -0.04 | |
| 6m | -0.02 | -0.02 | 0 | 0 | 0 | -0.01 | -0.01 | -0.02 | +0.01 | 0 | |
| 1y | -0.05 | -0.04 | -0.02 | 0 | 0 | -0.01 | -0.01 | -0.01 | +0.01 | 0 | |
| 2y | -0.06 | -0.05 | -0.03 | 0 | 0 | 0 | -0.01 | 0 | +0.01 | 0 | |
| 3y | -0.06 | -0.06 | -0.03 | -0.01 | -0.01 | 0 | 0 | -0.01 | 0 | 0 | |
| 5y | -0.06 | -0.07 | -0.03 | -0.01 | -0.01 | -0.01 | 0 | -0.01 | 0 | 0 | |
| 10y | -0.06 | -0.07 | -0.04 | -0.02 | -0.01 | 0 | -0.01 | -0.01 | 0 | 0 | |
| 15y | -0.06 | -0.07 | -0.04 | +0.01 | +0.01 | +0.01 | 0 | 0 | 0 | -0.01 | |
| 20y | -0.05 | -0.07 | -0.04 | 0 | 0 | 0 | 0 | 0 | 0 | -0.01 |
- Between any two sub-curves is updated to 0.99 from 0.993
- Between the inflation rate and any yield is updated to 0.26 from 0.24
- Between the cross-currency basis swap spread and any yield or inflation rate is updated to -0.05 from 0.04
- Between different currencies is updated to 0.3 from 0.32
| Tenor | v2.7 | v2.6 | Change |
|---|---|---|---|
| High volatility | 29m | 30m | -1m |
| Regular volatility (well-traded) | 340m | 330m | +10m |
| Regular volatility (less-traded) | 61m | 130m | -69m |
| Low volatility | 150m | 61m | +89m |
Conclusion
The updates in ISDA SIMM version 2.7 represent significant shifts in risk assessment and margin calculation across various asset classes. These changes underscore the importance of staying informed and adapting risk management strategies to align with the evolving regulatory landscape. Market participants may experience increased initial margin requirements and should consider reassessing their portfolios and hedging approaches.
New Calibration Cycles
It is worth reminding readers that ISDA is moving to a semi-annual calibration cycle for the SIMM model in 2025. This change means that market participants can now expect updates to the SIMM parameters twice a year, allowing the model to better reflect the current market environment and enhance risk sensitivity. This shift ensures that the SIMM framework remains responsive and up-to-date, particularly in volatile or rapidly changing markets.
Cumulus9, specialising in risk analytics, offers sophisticated tools to help you navigate these complex changes. As an ISDA SIMM licensed vendor, we provide detailed analysis and insights into how these updates may impact your specific portfolios. If you would like to learn more or access our advanced risk management solutions, we invite you to reach out to us. Let Cumulus9 assist you in effectively managing your risk in this dynamic market environment.
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