The Standard Portfolio Analysis of Risk (SPAN) system is a sophisticated methodology that calculates performance bond requirements by analyzing the "what-ifs" of virtually any market scenario.
Continually enhanced and elaborated, the SPAN methodology can be used to evaluate risk for the broadest possible range of derivative and physical instruments. Although originally designed for use with derivatives, its extraordinary capabilities have led to its extensive use in assessing risk for many different types of financial instruments.
As the industry standard for portfolio risk assessment, SPAN is the official performance bond (margin) mechanism of more than 50 registered Exchanges, clearing organizations, service bureaus, and regulatory agencies throughout the world. SPAN software is utilized by a wide range of end-users, including futures commission merchants (FCMs), investment banks, hedge funds, research organizations, risk managers, brokerage firms, and individual investors worldwide.
SPAN evaluates overall portfolio risk by calculating the worst possible loss that a portfolio of derivative and physical instruments might reasonably incur over a specified time period (typically one trading day). This is done by computing the gains and losses the portfolio would incur under different market conditions.
At the core of the methodology is the SPAN risk array, a set of numeric values that indicate how a particular contract will gain or lose value under various conditions. Each condition is called a risk scenario. The numeric value for each risk scenario represents the gain or loss that particular contract will experience for a particular combination of price (or underlying price) change, volatility change, and decrease in time to expiration.
Exchanges and clearing organizations using SPAN will determine for themselves the following SPAN parameters, reflecting their desired degree of risk coverage:
At least once every business day, each SPAN-using exchange or clearing organization calculates risk arrays for all of its products and prepares a SPAN risk parameter file (also called a SPAN array file) containing all of the above data. These files are then published to clearing firms and other market participants. Using these freely-available files and inexpensive software such as PC-SPAN, calculating performance bond requirements for portfolios is quick and easy.
SPAN divides the instruments in each portfolio into groupings called combined commodities. Each combined commodity represents all instruments on the same ultimate underlying – for example, all futures and all options ultimately related to the S&P 500 index.
For each combined commodity in the portfolio, SPAN evaluates the risk factors described above, and then takes the sum of the scan risk, the intra-commodity spread charge, and the delivery risk, before subtracting the inter-commodity spread credit. SPAN next compares the resulting value with the short option minimum; whichever value is larger is called the SPAN risk requirement. The resulting values across the portfolio are then converted to a common currency and summed to yield the total risk for the portfolio.
Now in its fourth generation of functionality, SPAN has evolved into a suite of three software products designed to meet the needs of a wide range of customers: PC-SPAN, SPAN Risk Manager, and SPAN Risk Manager Clearing.
PC-SPAN, a single-user desktop application that offers margin calculation across multiple exchanges, provides a quick, inexpensive, and simple way to calculate SPAN margin requirements.
How it works:
SPAN Risk Manager integrates risk management features with core margin calculation abilities to deliver a flexible and intuitive system for full portfolio risk management. Its powerful features and intuitive design allow for true portfolio analytics through multi-variant stress testing and option exposures.
SPAN Risk Manager:
SPAN Real-Time Component Interface (RTCI) is a software module containing a Com API which interacts with PC-SPAN to deliver near real-time margin calculations.
SPAN Real-Time Component Interface:
Our most powerful product, SPAN Risk Manager Clearing is an institutional-level program used by exchanges, clearing organizations, service bureaus, and regulatory agencies. It provides all capabilities of PC-SPAN and SPAN Risk Manager, and adds features enabling exchanges and clearing organizations to implement SPAN in a rapid and cost-effective manner.
Advanced functions provide the ability to:
Complementary copies of PC-SPAN software can be downloaded through CME Core by all users. To download a copy, log on to CME Core with your SMARTClick ID, or create a new one, and download the software.
You can purchase single copies of SPAN Risk Manager through our software vendor SWREG. The software is downloaded electronically via CME Core once payment has been confirmed. SWREG accepts electronic payment via Mastercard, Visa, American Express, Discover, and PayPal and will accept orders via phone, fax, or check for a nominal fee. The base price for electronic delivery is $3,000 USD for SPAN Risk Manager.
For bulk purchases or to purchase other versions of SPAN (SPAN Real Time Component Interface or SPAN Risk Manager Clearing) contact the CME CORE Support Team:
+1 312 580 5353