Modified Split

Modified split allocation was developed to properly represent the risk of products whose prices are based on other products, typically a combination of other products or various calendar months of another product. The Modified Split Allocation approach helps better align available risk offsets between these products and their underlying contracts by “splitting” contracts into other contracts in the SPAN margining process.   The following are some examples of the logic:

Modified Split on a long August 2016 CS contract, splits into:  

1. Long 0.696 contracts of September 2016 CL
2. Long 0.304 contracts of October 2016 CL

Steps:

1. August 2016 CS expires 31^st of August
2. August has 23 business days in the month
3. September CL expires 22^nd of August, spanning 16 business days of August (16/23 = 0.696)
4. CS now continues to price off of October CL for the remainder of 7 business days in August (7/ 23 = 0.304)

CL Sep 16 margin = $3350
CL Oct 16 margin =  $3325

1. CL Sep 16 -  3350 * 0.696 = 2332; and CL Oct 16 - 3325 * 0.304 = 1011
2. 2332 + 1011 = 3342 will be the August 2016 CS outright margin

Modified Split on a long August 2016 RM contract, splits into:

1. Short 0.696 contracts of September 2016 CL contract
2. Short 0.304 contracts of October 2016 CL contracts

Steps:

1. August has 23 business days in the month
2. September RB expires 31^st of August, spanning all 23 business days of August (23/23 = 1)
3. September CL expires 22^nd of August, spanning 16 business days of August (16/23 = 0.696 CL contracts)
4. RM now continues to price off of October CL for the remainder of 7 business days in August (7/ 23 = 0.304)

RB Sep 16 margin = $4400
CL Sep 16 margin = $3350
CL Oct 16 margin = $3325
RB vs. CL Inter Spread Credit = 79%

1. RB Sep 16 -  4400 * 1 = 4400; and CL Sep 16 * 0.696 = 2332; and CL Oct 16 – 3325 * 0.304 = 1011
2. 4400 + 2332 + 1011 = 7743 – (7743 * Inter Credit of 0.79) = 1626 will be the August 2016 RM outright margin

All margin and credit rates on this page are for example purposes only.

Below you can find a comprehensive list of all products that are currently modified split.  For the most accurate margins for the below products please use CME Core or SPAN.