Source: Chicago Mercantile Exchange
The Chicago Mercantile Exchange (CME) and the MICEX have signed a license agreement allowing the MICEX to use SPAN methodology.
Alexander Potemkin, President of the MICEX, and Kimberly Taylor, Managing Director & President, CME Clearing House signed the agreement during the MICEX delegation's visit to the CME.
SPAN system is used to evaluate possible losses in all positions of a trader in the derivatives market (the so-called "portfolio approach") and calculate the initial margin requirement. Besides, SPAN enables to determine the size of the guarantee fund, which is necessary to cover risks of operations in derivatives not covered by the initial margin.
According to the MICEX President Alexander Potemkin, this methodology will be the main part of the modernized system of risk management in the derivatives market, which is now being developed by the MICEX and which will meet world standards. The modernized system of risk management is to be launched in the first half of 2006. Later, this methodology may be used in other markets of the MICEX Group in the framework of the National Clearing Center. At the signing ceremony, both parties noted the growing interest of international investors and infrastructure organizations of the world market of futures and options in the Russian derivatives market.
SPAN (Standard Portfolio Analysis of Risk) was developed by CME in 1988. This system analyses the risks of a portfolio which may include derivatives (futures and options) and underlying assets. SPAN takes into account the functional and statistical relationships between different components of a portfolio and implements the so-called portfolio approach to risk evaluation, which enables to make well-grounded calculation of the initial margin.
At present, there are over 1500 users of SPAN in the world, among them largest banks, investment companies, mutual funds and hedge funds. It is used by about 40 exchanges and clearing organizations.
Originally developed for the derivatives market, SPAN is now adapted for spot markets and universal exchanges and clearing organizations, which combine spot and derivatives markets.
"SPAN" is a registered trademark of Chicago Mercantile Exchange Inc., used herein under license. Chicago Mercantile Exchange Inc. assumes no liability in connection with the use of SPAN by any person or entity.