The CME SPAN methodology 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 CME 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 the CME SPAN methodology will determine for themselves the following CME SPAN parameters, reflecting their desired degree of risk coverage:
At least once every business day, each exchange or clearing organization using the CME SPAN methodology calculates risk arrays for all of its products and prepares a CME SPAN risk parameter file (also called a CME 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 the CME PC-SPAN software, calculating performance bond requirements for portfolios is quick and easy.
The CME SPAN methodology 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, the CME SPAN methodology 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. The CME SPAN methodology next compares the resulting value with the short option minimum; whichever value is larger is called the CME SPAN methodology 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, the CME SPAN methodology has evolved into a suite of three software products designed to meet the needs of a wide range of customers: CME PC-SPAN, CME SPAN Risk Manager, and CME SPAN Risk Manager Clearing.
The CME PC-SPAN software, a single-user desktop application that offers margin calculation across multiple exchanges, provides a quick, inexpensive, and simple way to calculate CME SPAN margin requirements.
How it works:
CME 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.
CME SPAN Risk Manager:
CME SPAN Real-Time Component Interface (RTCI) is a software module containing a Com API which interacts with the CME PC-SPAN software to deliver near real-time margin calculations.
CME SPAN Real-Time Component Interface:
Our most powerful product, CME SPAN Risk Manager Clearing is an institutional-level program used by exchanges, clearing organizations, service bureaus, and regulatory agencies. It provides all capabilities of the CME PC-SPAN software and CME SPAN Risk Manager, and adds features enabling exchanges and clearing organizations to implement the CME SPAN methodology in a rapid and cost-effective manner.
Advanced functions provide the ability to:
Complimentary copies of the PC-SPAN® software can be downloaded through CME Core by all users. To download a copy, log on to CME Core with your CME Group Login, or create a new one, and download the software.
Please note SPAN Risk Manager is now complimentary and available via instant download from CME CORE
For questions about downloading the software from CME CORE, please contact the CME CORE Support Team:
+1 312 580 5353
To purchase other versions of the CME SPAN software (CME SPAN Real Time Component Interface) or CME SPAN Risk Manager Clearing) contact the SPAN Licensing team:
SPAN has been an industry standard for margining for decades; but in recent years, the demands on margin methodology have increased. The SPAN 2TM framework will maintain SPAN’s current calculations and functions while incorporating new modelling, reporting, and margin replication enhancements.
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 CME 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, the CME SPAN methodology is the official performance bond (margin) mechanism of more than 50 registered Exchanges, clearing organizations, service bureaus, and regulatory agencies throughout the world. The CME 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.