KDPW_CCP uses the SPAN® methodology to calculate the margin requirements for positions of a clearing member arising from transactions concluded in organised trading.
SPAN® (The Standard Portfolio Analysis Of Risk) is a methodology of risk estimation and margin calculation for positions on the derivatives and cash markets. Designed and implemented by the Chicago Mercantile Exchange (CME) in 1988, it was the first portfolio margin calculation methodology. It is currently used by around 50 exchanges, clearing houses, calculation service providers and market regulators around the world. The methodology is continuously developed and supports a broad range of products on the derivatives and cash markets. The methodology is accompanied by a family of IT products including PC-SPAN, SPAN Risk Manager and SPAN Risk Manager Clearing.
How a brokerage house can apply the SPAN® methodology to calculate margins for its clients
To use the SPAN® methodology, brokerage houses may:
Some of the software is free of charge. Users must register in the system.
- buy and use the applications PC-SPAN, PC_SPAN-RM and integrate them with the brokerage house’s internal systems;
- develop proprietary software under the SPAN® methodology licence;
- request a specialty service provider to calculate margins.
Some of the software is free of charge. Users must register in the system.
Margin configuration and calculation in PC-SPAN® (quick introduction)
- Install PC-SPAN and set it up. In the top menu Tools/Preferences/Calculation Parameters/Currency, set “Native currency” and “Conversion currency” to PLN.
- Download the RP file (RPNJE.ZRS or RPNJI.ZRS) from the available source (ESDI, www, FTP).
- Load the RP file (File/Load in the top menu, arrow key). No spaces are allowed in the file path.
- Create a portfolio (File/New Portfolio, N key). Enter the name of the Clearing Firm. Enter positions under Positions, sale positions as a negative figure.
- Calculate the margin requirement (File/Calculate Portfolio Requirements, +/- key).
Automation of margin calculation using the PC-SPAN® application
The calculation of margins can be fully automated by means of the SPAN® application. Automation is possible based on SPAN® input file processing in the available SCRIPT FILE control programme or by developing API library software. The PC-SPAN® application requires input files (RISK PARAMETERS FILE and POSITION FILE). KDPW_CCP provides the RISK PARAMETERS FILE which includes characteristics of cleared instruments, their prices and risk parameters. The member has to prepare the POSITION FILE which provides the PC-SPAN® application with portfolio position data. To enable translation of instruments into a POSITION FILE readable to the PC-SPAN application, KDPW_CCP provides an LQF file, which contains information necessary to map the instruments. After margin calculation is initiated in the PC-SPAN application, the results can be saved in the RISK REPORT FILE (XML file), which can be read in order to transfer the data to the internal system of the brokerage house.
KDPW_CCP calculates SPAN® model risk parameters as follows
| Parameter | Value parameter |
|---|---|
| Confidence level | 99% with the exception of VSR, parameters for classes of debt instruments, and classes of instruments with a history of prices smaller than the observation window, where the confidence level is 99.5% |
| Liquidation period | 2 days– cash instruments in liquidity class 1 and 2, debt instruments and derivative instruments 3 days – cash instruments in other liquidity classes |
| Observation window | 10 years |
| Weights | equal (all historical observations have the same weights) |
| Netting | Limited under Article 27 (4) of Regulation (EU) No 153/2013 in the calculation of specific risk parameters and the inter-class credit for liquidity classes and the inter-class spread credit for index derivatives |
KDPW_CCP calculates risk parameters based on an analysis of one-day changes of relevant data/market parameters scaled with the root of the liquidation period. To limit the procyclicality of margins, KDPW_CCP follows the approach defined in Article 28(1c) of Regulation (EU) No 153/2013 and determines margins based on a 10-year lookback period.
KDPW_CCP publishes a set of risk parameters at least once a day, or at the end of a stock exchange session. The new set of risk parameters remains in force until it is replaced by a new set.
Risk parameters messages
* Last message update: 2024-04-19
Margin calculation automation tools
* Last message update: 2024-04-19
