The initial margin will be computed using SPAN®* (Standard Portfolio Analysis of Risk) which is portfolio based margining system. The SPAN®* identifies overall risk in a portfolio of contracts for each client of a member.
SPAN®* is a registered trademark of the Chicago Mercantile Exchange, used herein under License. The Chicago Mercantile Exchange assumes no liability in connection with the use of SPAN®* by any person or entity.
SPAN®* calculates margin requirements of a portfolio of contracts; the prime objective of SPAN®* is to determine the largest loss that a portfolio might reasonably be expected to suffer from one day to the next day.
SPAN®* constructs scenarios of probable changes in prices and volatilities (i.e. Risk Arrays) in order to identify the largest loss a portfolio might suffer from one day to the next. It then sets the margin requirement at a level sufficient to cover this one-day loss.
Members can apply the data contained in the Risk parameter files, to their specific portfolios of contracts, to determine their SPAN®* margin requirements.
SPAN®* will estimate risk of portfolios, and re-value the same under various scenarios of changing market conditions.
Calendar Spread or Intra-commodity Charge
As SPAN®* scans futures prices within a single instrument, it assumes that price moves correlate perfectly across contract months. Since price moves across contract months do not generally exhibit perfect correlation, SPAN®* adds a Calendar Spread Charge (also called the Inter-month Spread Charge) to the Scanning Risk to cover the calendar basis risk that may exist for portfolios containing contracts with different expirations.
Computation SPAN®* Portfolio Margin Requirement
The total margin requirements for a member for a portfolio of contracts will be computed as follows:
SPAN®* will add up the Scanning Risk Charges and the Intra commodity Spread Charges and
Total Initial Margin requirement is equal to SPAN®* Risk Requirement (as per i above), less Inter-commodity Spread credits.
Updation of risk parameters:
The parameters for computation of SPAN®* margin shall be updated as decided by the Exchange/ Clearing Corporation from time to time. To start with, the parameters shall be updated 8 times in a day during trading, based on the prices calculated at 10:30 a.m., 01:30 p.m., 5:00 p.m., 7:00 p.m., 8:30 p.m. and 10.30 p.m., apart from End of the trading and Beginning of the trading.. Risk Parameters File (RPF) generated based on such updated parameters will be available to members for download in the path as follows
Download Risk Array Files
In case of additional volatility, a Special or/and Additional margin at such percentage, as deemed fit by the Exchange or as decided by the FMC, will be imposed immediately on all outstanding position of the contract.
Extreme Loss Margin
Extreme Loss Margin (ELM) is levied to cover the expected loss in situations that lie outside the coverage of the SPAN based initial margin.
Margins imposed on both long and short sides over and above the other margins, would be called additional margin.
The margins which are imposed only on one side, i.e. either on long side or short side would be called as special margin.
Tender Period Margin
Tender period margin is imposed at such percentages as defined in the product/ contact specification. Such margin is imposed on incremental basis and applicable on both outstanding buy and sales side, which continues up to the expiry of the contract.
Tender Period margin is released for the position when Delivery Period Margin is imposed.
Delivery Period Margin
When a contract enters the delivery period at the end of its life cycle, delivery period margin is imposed as per contract specification. Such margin is applicable on all outstanding buy and sales side and continues up to the settlement of delivery obligation.
When a seller submits delivery documents alongwith surveyor’s certificate, his position is treated as settled and his delivery period margin to such extent is reduced. When a buyer pays money for the delivery allocated to him, his delivery period margin is reduced on such quantity for which he has paid the amount.