SPAN®
- The SPAN® (Standard Portfolio Analysis of Risk) system is a methodology that calculates risk-based margin developed by the Chicago Mercantile Exchange (CME) in 1988, and it is adopted by major futures and options exchanges as well as clearing institutions around the world. JSCC entered into a licensing agreement with CME and uses the original SPAN® system developed by CME to calculate Clearing Margin.
- Since SPAN® evaluates margin requirement based on overall portfolio risk of each account for futures and options rather than on each individual commodity, it becomes possible to offset risks between the following combinations:
（1）between different contract months;
Due to such risk offsetting effect, margin requirement for overall portfolio tends to be smaller than the aggregate amount of margin for each individual commodity.
（2）between futures and options;
（3）between different commodities.
※ Please note that whether margin requirement becomes smaller and how much is it depends on the positions held.
＜Please see here for Margin calculations using SPAN®＞
＜Please see here for examples of Margin calculations＞
＜Please see here for SPAN® FAQs＞
Margin calculations using SPAN®
- The margin requirement calculated via SPAN® is the worst possible portfolio loss that might reasonably incur by the next day (hereinafter referred to as "SPAN Risk") taking net option value into account.
Margin requirement = SPAN Risk ± Total net option value
- SPAN Risk
SPAN Risk is the worst possible portfolio loss arising from market fluctuation, etc. subtracting loss amounts that can be theoretically offset in that portfolio. - Total net option value
Total net option value is taken into account in order to cover risk arising from option exercise. The value is obtained by subtracting the gross short option value from the gross long option value.
The value of long options is the possible premium to be received upon offsetting sales or the possible payment to be received by option exercise. On the other hand, the value of short options is the possible premium to be paid upon offsetting purchases or the possible payment to be made upon assignment of exercised option.
Hence, in the case where the total net option value is positive, it shall be subtracted from the "SPAN Risk" while it shall be added where it is negative. - SPAN® and PC-SPAN® are registered trademarks of Chicago Mercantile Exchange Inc. (CME). All rights concerning SPAN® belong to CME, and JSCC is licensed by CME to use these products. The Chicago Mercantile Exchange assumes no responsibility in connection with the use of SPAN® by any person or entity.
Examples of Margin calculation
- Example 1. An investor's portfolio consists of 5 units of short and 10 units of long TOPIX Futures Contract Month June, as well as 5 units of short and 10 units of long TOPIX Futures Contract Month September. SPAN® calculates the required amount of Margin as follows:
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Portfolio TOPIX futures Contract Month June Contract Month Short Long Short Long 5 10 5 10 Net position of each Contract Month is as follows:
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Net position of each Contract Month Contract Month June Contract Month September Short Long Short Long － 5 － 5 The net position across Contract Months (June and September) is 10 units of long.
In this case, presuming SPAN parameters as follows:Price Scan Range: ¥500,000
Since Margin Requirement for one unit is equal to the Price Scan Range for the Futures concerned, in the above example, ¥500,000 is multiplied by 10 units: ¥500,000 x 10 units = ¥5 million, that is, the required amount of margin requirement is ¥5 million.
Example 2. An investor's portfolio consists of 5 units of short and 10 units of long TOPIX Futures Contract Month June, and 3 units of short TOPIX Futures Contract Month September. SPAN® calculates the required amount of Margin as follows:
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Portfolio TOPIX Futures Contract Month June Contract Month September Short Long Short Long 5 10 3 0 Net positions for each contract month are as follows:
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Net position by contract month Contract Month June Contract Month September Short Long Short Long － 5 3 － The net position across Contract Months (June and September) is as follows:
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Inter-month net position Contract Month June Contract Month September Short Long Short Long － 2 － － In addition, the number of Intracommodity Spread (the number of pairs of short and long contracts which can be offset against each other across Contract Months) is as follows:
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Number of Intercommodity Spread Contract Month June Contract Month September Short Long Short Long － 3 － In this case, presuming SPAN parameters as follows:
Price Scan Range: ¥500,000
Intracommodity Spread Charge per Net Delta: ¥50,000In this example, required amount of Margin shall be obtained by multiplying the inter-month net position by the Price Scan Range, then adding Intracommodity Spread Charge, which is obtained by multiplying the number of Intracommodity Spread Charge per Net Delta by Intracommodity Spread.
In short, the required amount of Margins is ¥500,000 x 2 units + ¥50,000 x 3 units = ¥1.15 million.
SPAN FAQs
- I have short (long) positions of TOPIX Futures. How is the required amount of Margin for my position calculated?
Ans. When you have only outright short (or long) positions for one Contract Month and do not have Options position, the required amount of Margin requirement will be the Price Scan Range of the Futures multiplied by the position (number of units).
- How is Price Scan Range (required amount of Margin per unit) determined?
Ans. It is stipulated that Price Scan Range is the smallest value of daily price fluctuation (the absolute difference of daily clearing price) of the Futures that exceeds the 99% of such value for the last 24 weeks. Price Scan Range as well as other SPAN Parameters are calculated and published on the first business day each week and applied from the first business day of the next week.
- I would like to calculate the SPAN Risk by myself.
Ans. The SPAN Risk Parameter File, which is daily published by JSCC, as well as the information on your Futures and Options position are necessary for calculating SPAN Risk. You will be able to calculate is by entering these into application software such as PC-SPAN®.
- Does JSCC provide Intercommodity Spread Credit between TSE TOPIX Futures and OSE Nikkei 225 Futures?
Ans. Since customer accounts shall be set up for each Exchange, Margin Requirement is also calculated for each Exchange. Therefore, currently there is no Intercommodity Spread Credit between TOPIX and Nikkei 225.
