The CME’s SPAN 2 margin methodology is going through testing and should begin to be implemented later this year.  The new margin methodology is not only a significant change to how margin is currently calculated but is being deployed as an “evolutionary” change rather than a “revolutionary” change.

The new margin rules are intended to co-exist with current SPAN margin methodology as opposed to replacing them. The current SPAN methodology has been highly effective for many years.  When SPAN 2 is put in place it means members of the exchange will have new set of margin calculations which incorporate more product correlations and historical data– not necessarily better or worse, but different.  

The reason for this is simple – different periods of volatility equate with different results under different margin methods.  The introduction of Historical risk views (hVaR) into SPAN 2 is just one major change to the existing SPAN model.  Yet hVaR may not always have enough of a time horizon to foresee anticipated price movements or “vol shocks”.   By leveraging multiple methods, the CME and its members will have a more “holistic” way to see an account’s true risk.  

These changes are not new to KRM22.  The combination of using an exchange’s internal margin methodology and combining those calculations with custom “stresses” and hVaR is the most fundamental aspect of KRM22’s market risk solution.  Our At Trade and Post Trade Stress system was first introduced in 2020 as a complete “end to end” product that combines the three major elements of SPAN 2 directly to our customers.  

We are currently working with the CME to ensure our independent margin calculations will be SPAN 2 compliant as well as provide direct access to the CME’s API-based SPAN 2 margin calculators.  

KRM22 has always been committed to bringing our customers the optionality of importing margin calculations directly from the exchanges they are members of as well as providing an independent valuation of their margin through our powerful margin calculation engine.  We look forward to continuing this level of service to our customers who rely on the CME to support clearing and trading activities throughout this introduction of SPAN 2.  

For more information on KRM22’s margin systems please contact Stephen Casner, President KRM22 (stephen@krm22.com)  or David Zurkowski, Director of Market Risk Products (Dave@KRM22.com).

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