Securities

Initially, SPAN® was developed for derivatives margining and has become a well-known standard in this domain. Since 12th of January 2001, SPAN® method is used for securities margining (equities and bonds) as well.

SPAN® Cash Brochure - English Version

SPAN® Cash Brochure - French Version

Positions used for calculation

• Calculation of a net position for each security. For each account, a single net buying or selling position is calculated for all the settlement dates of each security.

Example : Calculation of the net position for a given security and clearing member‘s accounts

we therefore have respectively a net selling position of 15 and a net buying positions of 5.

• Valuation of net positions per security. The buying/selling position calculated is valuated with :

  • the reference settlement price for equities

  • the settlement price times the modified duration for bonds

For a given account and a given security i position, there is a valuated buying position (BPi) or selling position (SPi).

Example :

• Determination of the basis for the risk calculation : each security is linked to a so-called "Business Function Combined Commodities" (1) ("BFCC") ; the basis for the liquidation risk calculation is the sum of the valuated net buying positions and selling positions per BFCC .

= 5 500 euros and = 2 350 euros

If the bonds belong to the same BFCC, we have :

= 8 500 euros and = 0

Liquidation risk calculation

The algorithm for calculating the liquidation risk for each BFCC (and for a given account) is the following :

Liquidation risk =

The coefficients x% (specific or credit risk) and y% (general market or interest rates shift risk) are determined per BFCC.

Additional coefficients are available to take into account :

• risks offsetting between different BFCC made up of similar securities (risk decrease coefficients called INTER) ;

• the need to cover yield curve twist risk (residual risk) between bonds belonging to the same BFCC (risk increase coefficients called : INTRA). This coefficient is only used for bonds.
  All coefficients are parameters that can be reviewed depending on market conditions.

Example: calculation for bonds (modified duration method)

Step 1: Calculation of Liquidation Risk for each BFCC using the coefficients y% (general variation of the interest rate) and x% (specific risk).

Example:

	(x%; y%)					LR
BFCC1	(0%; 1%)	50,000	120,000	700	0	700
BFCC2	(1%; 2%)	130,000	100,000	600	2,300	2,900
BFCC3	(1%; 3%)	190,000	90,000	3,000	2,800	5,800

Step 2 : Calculation of the Residual Risk. The risk is calculated by applying an increase coefficient INTRA to the positions in a single BFCC that have been offset in step 1.

Residual Risk =
INTRA coef. x Min (, )

Example:

INTRA	Coefficient	Min(,)	RR	LR + RR
BFCC1	0.5%	50,000	+250	950
BFCC2	1%	100,000	+1,000	3,900
BFCC3	0.5%	90,000	+450	6,250

Step 3 : Risk decrease calculation between different BFCC (INTER coefficient).

Decrease (BFCC1/BFCC2) =
INTER coef. x Min (,)

Example:

	Side (B/S)		Priority 1	Priority 2	Priority 3	Decrease	LR + RR - Decrease
BFCC1	S	70,000	1%*30,000		0.5%*40,000	-500	450
BFCC2	B	30,000	1%*30,000			-300	3,600
BFCC3	B	100,00			0.5%*40,000	-200	6,050