CME SPAN®
Standard Portfolio Analysis of Risk®

© 2019 CME Group. All rights reserved.

CME SPAN® - Standard Portfolio Analysis of Risk
• Developed in 1988 by Chicago Mercantile Exchange Inc. to effectively assess
risk on an overall portfolio basis.
• SPAN is a market simulation based Value At Risk system which has beenreviewed and approved by market regulators and participants world wide.

• SPAN is the official Performance Bond mechanism of 54 exchanges andclearing organizations world-wide, making it the global standard for portfoliomargining.
• SPAN’s risk based margin requirements allows for effective margin coverage
while preserving efficient use of capital.
• SPAN assesses risk for a wide variety of financial instruments including:futures, options, physicals, equities, or any combination.
© 2019 CME Group. All rights reserved.

CME SPAN® - Objectives• SPAN assesses the risk of a portfolio by calculating the maximum likely loss
that could be suffered by the portfolio based on parameters set by the marginsetting authority, usually an exchange or clearing organization.
• The core of SPAN risk analysis is to simulate potential market moves andcalculate the profit or loss on individual contracts given the market moves.
• Exchanges may determine any number of market scenarios to be included inthe SPAN analysis.

• Most SPAN exchanges and clearing organizations use 16 scenarios.

© 2019 CME Group. All rights reserved.

CME SPAN® - Methodology• SPAN groups together financial instruments with the same underlying foranalysis.
• For example, Futures on an Equity Index and Options on the Equity Index
would be grouped together for analysis.

• Each product is referred to as a Combined Commodity.
• SPAN uses parameters set by the exchange or clearing organization toevaluate a portfolio with the following two step analysis:➢Step 1: SPAN first analyzes the risk of each Combined Commodity in isolation fromother Combined Commodities.
➢Step 2: SPAN then seeks risk reducing offsets between Combined Commodities.

© 2019 CME Group. All rights reserved.

Scan Risk Arrays© 2019 CME Group. All rights reserved.

CME SPAN® - Scan Risk
• The core of SPAN risk analysis to simulate potential market moves andcalculate the profit or loss on individual contracts.
• Exchanges or clearing organizations may determine any number of market
scenarios to be included in SPAN analysis.

• Most SPAN exchanges or clearing organizations use 16 scenarios.
• The 16 scenarios are referred to as SPAN Risk Arrays.

© 2019 CME Group. All rights reserved.

CME SPAN® - Scan Risk Arrays• SPAN Risk Arrays represent a contract's hypothetical gain/loss under a specific
set of market conditions from a set point in time to a specific point in time in thefuture.
• Risk Arrays typically consist of 16 profit/loss scenarios for each contract.

• Each Risk Array scenario is comprised of a different market simulation, moving
the underlying price up or down and/or moving volatility up or down.
• The risk array representing the maximum likely loss becomes the Scan Risk forthe portfolio.

© 2019 CME Group. All rights reserved.

CME SPAN® - Scan Risk Arrays• Below is an example of the 16 Scan Risk Arrays used by CME.
Scenario
123456789101112131415
16

Underlying Price Change as %Volatility Moveof Price Scan Range
UNCHANGEDUPUNCHANGEDDOWN
UP 33%
UP
UP 33%DOWN
DOWN 33%UP
DOWN 33%
DOWN
UP 67%
UP
UP 67%DOWN
DOWN 67%UP
DOWN 67%
DOWN
UP 100%UP
UP 100%DOWN
DOWN 100%UP
DOWN 100%
DOWN
UP 300%UP
Down 300%
UP© 2019 CME Group. All rights reserved.

CME SPAN® - Scan Risk Example• The next slide demonstrates the Scanning Risk calculation for an S&P 500
portfolio:➢Long 1 MAR 2019 SP Future (price is 2,790)➢Short 1 MAR 2019 SP 2825 Call Option (implied volatility is 16%)

• The Price Scan Range is $30,000 or 120 points (CVF for SP 500 is $250,$30,000/$250 = 120 points)• The Volatility Scan Range for SP 500 is 35%© 2019 CME Group. All rights reserved.

CME SPAN® - Scan Risk Example
Scenario

SP Underlying
Price Move

Volatility MoveSP Future
Gain/Loss

SP Option
Gain/Loss

Portfolio
Gain/Loss

1

UNCHANGEDUP$0$1,994$1,9942345

UNCHANGEDUP 33%UP 33%DOWN 33%

DOWN
UP
DOWN
UP

$0
-$9,999-$9,999$9,999-$1,517$6,291$2,178-$714-$1,517-$3,708-$7,821$9,285

6789

DOWN 33%
UP 67%
UP 67%DOWN 67%

DOWN
UP
DOWN
UP

$9,999-$20,001-$20,001$20,001-$2,876$12,281$8,818-$2,183$7,123-$7,720-$11,183$17,818

10111213

DOWN 67%
UP 100%UP 100%DOWN 100%DOWNUPDOWNUP$20,001-$30,000-$30,000$30,000-$3,179$19,772$17,607-$2,857$16,822-$10,228-$12,393$27,143

141516DOWN 100%
UP 300%
Down 300%

DOWN
UPUP

$30,000-$29,700$29,700-$3,218$25,503-$1,063$26,782-$4,197$28,637Largest Potential Loss = SPAN Risk

$28,637© 2019 CME Group. All rights reserved.

CME SPAN® - Scan Risk Extreme Scenarios• Deep out-of-the-money short options may pose significant risk, as unusuallylarge price changes may result in unexpectedly large losses, particularly asexpiration nears.
• SPAN accounts for this risk by including Extreme Scenarios in the Risk Arrays.

• Extreme Scenarios may be used to simulate a significant market move
designed to shock deep out-of-the-money options.
• Extreme Scenarios are determined by the Exchange or Clearing Organization.

• CME uses a market move equal to 3x Price Scan Range and 1x Vol Scan for agiven product. The resulting gain or loss is then multiplied by 33% to determine
the potential exposure.

© 2019 CME Group. All rights reserved.

CME SPAN® - Composite Delta Scenarios• Composite Delta is derived as the weighted average of the deltas, where theweights are associated with each underlying price scan point.
• Below is an example of the 7 Delta Points used by CME:
Scenario

Underlying Price Change as % ofPrice Scan Range

Probability Weight1UNCHANGED0.273

UP 33%0.217

5

DOWN 33%0.217

7

UP 67%0.11

9

DOWN 67%0.11

11

UP 100%0.037

13DOWN 100%0.037© 2019 CME Group. All rights reserved.

SPAN® Analysis
Spread Types & Formations
Short Option Minimum & Delivery Add-On Charge
Net Option Value© 2019 CME Group. All rights reserved.

CME SPAN® - Spread Types & Formation• Intra-Commodity Spread: Evaluate the basis risk between contract periods with different
expirations within the same product. Spreads are prioritized by lowest charge.
• Inter-Commodity Spread: Evaluate credit available for offsetting positions in related
instruments. Spreads are prioritized by greatest total savings.
• SPAN forms Intra-Commodity Spreads before Inter-Commodity Spreads.
• Super Inter-Commodity Spread: Allows Inter-Commodity Spreads to be evaluatedbefore Intra-Commodity Spreads.
• Inter-Exchange Spread Credit: Allows spreads to be formed for portfolios containing
products listed on multiple Exchanges, as defined by the Exchange.
➢The formation of Inter-Exchange Spreads is similar to process of forming Inter-Commodity Spreads,
however each Exchange can only provide a credit for its own products.

© 2019 CME Group. All rights reserved.

CME SPAN® - Intra-Commodity Spread Risk
• Since futures prices do not correlate exactly across contract months, a gain in one month may
not exactly offset losses in another month.

• An Intra-Commodity Spread Charge can be set in SPAN to cover the risk of calendar spread
positions.
• The Intra-Commodity Spread Charge can be tailored for contract pairs or specified groups ofcontracts.

• There is no limit to the number of contract legs that can be specified in an Intra-CommoditySpread, also known as tiered intra-commodity spreading.
• The Intra-Commodity Spread Charge can also be tailored to specific calendar months.
• For example, a March versus April calendar spread can have a different charge rate than aMarch versus September calendar spread. This is also known as series specific intracommodity spreading.
• The next slide shows an example of an Intra-commodity Spread for a portfolio with 1 long Mar
2019 Eurodollar and 1 short April 2019 Eurodollar.
© 2019 CME Group. All rights reserved.

CME SPAN® - Intra-Commodity Spread Example• The Intra-Commodity Spread Charge for Mar 2019 vs. Apr 2019 is $70.
• Since the gains on Mar ED exactly offset the losses on Apr ED, the Scan Risk is $0.
• Therefore, the Intra-Commodity Spreadcharge of $70 becomes SPAN Risk.

Scenario

123456789101112131415
16

ED Underlying PriceMar ED
Volatility Move
Move
Gain/Loss

UNCHANGEDUNCHANGEDUP 33%UP 33%DOWN 33%
DOWN 33%
UP 67%
UP 67%DOWN 67%
DOWN 67%
UP 100%UP 100%DOWN 100%
DOWN 100%
UP 300%
Down 300%

UP
DOWN
UP
DOWN
UP
DOWN
UP
DOWN
UP
DOWN
UPDOWNUPDOWN
UPUP

$0
$0
-$60-$60$60
$60
-$120
-$120
$120
$120
-$180
-$180
$180
$180
-$178
$178

Apr ED
Gain/Loss

Portfolio
Gain/Loss

$0
$0
$60
$60
-$60
-$60
$120
$120
-$120
-$120
$180
$180
-$180
-$180
$178
-$178

$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0

© 2019 CME Group. All rights reserved.

CME SPAN® - Inter-Commodity Spread Risk
• To recognize the risk reducing aspects of portfolios containing off-setting positions inhighly correlated instruments, SPAN forms Inter-Commodity Spreads.
• Inter-Commodity Spreads produce credits which reduce the overall performance bond or
margin requirement.

• The universe of recognized spreads, rates, and priority are determined by the Exchange.
• Below is an example of 1 Long SP future and 5 Short Nasdaq futures. The recognizedspread ratio is 1 SP vs. 5 NQ and the spread credit is 75%Combined
CommodityPosition

Outright PB Requirement

SPLong 1$30,000

NQ

Short 5$7,600 x 5 = $38,000

Total$68,000

RecognizedSpread Credit

SPANRequirement

X 75% = $51,000$17,000© 2019 CME Group. All rights reserved.

CME SPAN® - Inter-Commodity Delta Based Spreading• Delta Based Spreading is performed after the Scan Risk or Scanning process.
• One result of the Scanning process for each Combined Commodity is a Net Delta
position, which is an estimate of market exposure that has not been offset within theCombined Commodity, which is available to be offset between CombinedCommodities.
• Each exchange defines a table of recognized Inter-Commodity Spread formations
and the margin credit to apply for such formations.
• SPAN takes the Inter-commodity spread table and seeks out the defined spread
formations, giving margin credit for each spread formed.
• A Delta based spread may contain any number of spread legs. Any remaining deltas
are margined at the outright rate.

© 2019 CME Group. All rights reserved.

CME SPAN® - Delta Based Spread Example• Long 50 Soybean (S) futures & Short 50 Corn (C) futures

Spread Position

ProductPosition

Outright PB
Requirement

Spread Ratio

Spread Credit

S

50$1,750

1C-50$700

2ProductPosition

Outright PB
Requirement

Position x Outright
PB

Spread Credit

S25$1,750$43,750C50$700$35,000$78,750 x .60 =$47,250

Product

Position

Outright PB
Requirement

Position x Outright
PBS

25$1,750$43,750

C0$700$0Remaining Delta
PB Requirement

Spread Req (40%)

Total PB
Requirement$43,750$31,500$75,250

60%

Spread Credit

Remaining Delta

Delta-Based Total
Requirement© 2019 CME Group. All rights reserved.

CME SPAN® - Inter-Commodity Scanning BasedSpreading• Another method of recognizing offsetting positions between Combined
Commodities is Scanning Based Spreading.
• Scanning Based Spreading allows Combined Commodities which are part ofthe spread to go through SPAN’s 16 scenarios simultaneously, ensuring they
are subject to the same worst case loss scenario and that offsetting futures andoptions delta positions between them automatically offset.
• In recognizing that the correlations between Combined Commodities may not
be perfect, the gains in the Scanning process may be limited by a gain
allowance factor set by the exchange.

© 2019 CME Group. All rights reserved.

CME SPAN® - Scanning Based Spread Example• Long 90 Bond futures & Short 90 10yr futures.

Scenario
12345678910111213141516

Underlying Price
Volatility Move
Move
UNCHANGEDUPUNCHANGEDDOWN
UP 33%
UP
UP 33%DOWN
DOWN 33%UP
DOWN 33%
DOWN
UP 67%
UP
UP 67%DOWN
DOWN 67%UP
DOWN 67%
DOWN
UP 100%UP
UP 100%DOWN
DOWN 100%UP
DOWN 100%
DOWN
UP 300%UP
Down 300%
UP

Portfolio
Gain/Loss$0$0-$15,255-$15,255$54,095$54,095-$30,420-$30,420$108,131$108,131-$45,675-$45,675$162,225$162,225-$45,202$160,619

Scanning Based PB Requirement$162,225© 2019 CME Group. All rights reserved.

CME SPAN® - Short Option Minimum• Deep out-of-the-money short options may show zero or minimal Scan Risk given theprice & volatility moves in the 16 market scenarios.
• However, in extreme events these options may move closer to-the money or in-themoney, thereby generating potentially large losses.
• To account for this potential exposure, a Short Option Minimum can be set for eachproduct.

• If the Scan Risk is lower than the Short Option Minimum, then the Short Option Minimumis charged.
• The next slide shows an example of the Short Option Minimum using a deep out-of-themoney short put.
➢Short 1 SP 500 Mar 2019 1750 Put (underlying price is 2790)➢Short Option Minimum on 1 SP 500 is $240

© 2019 CME Group. All rights reserved.

CME SPAN® - Short Option Minimum Example• Scan Risk is $228, however SOM is $240, so the requirement is $240.
.
Scenario
12345678910111213141516

Underlying Price
Volatility Move
Move
UNCHANGEDUPUNCHANGEDDOWN
UP 33%
UP
UP 33%DOWN
DOWN 33%UP
DOWN 33%
DOWN
UP 67%
UP
UP 67%DOWN
DOWN 67%UP
DOWN 67%
DOWN
UP 100%UP
UP 100%DOWN
DOWN 100%UP
DOWN 100%DOWN
UP 300%UP
Down 300%
UP

Portfolio
Gain/Loss
$52
-$1
$38
-$1
$70
-$1
$28
-$1
$95
-$1
$20
-$1
$127
-$1
$1
$228

Scanning Based PB Requirement$228© 2019 CME Group. All rights reserved.

CME SPAN® - Summary of SPAN Analysis• Scan Risk: Evaluate the directional market risk.
• Intra-Commodity Spread Charge: Evaluate the basis risk between contract periods withdifferent expirations within the same product.
• Inter-Commodity Spread Credit: Evaluate credit available for offsetting positions in related
instruments.
• Delivery Add-On Charge: Evaluate contract periods for increasing volatility during delivery.
• Short Option Minimum: Evaluate short option positions for potential increased risk, using thegreater of the Scan Risk or Short Option Minimum.
• SPAN Requirement for a Combined Commodity is the greater of:➢(Scan Risk + Intra Commodity Spread Charge + Delivery Charge – Inter Commodity Spread Credit)➢Short Option Minimum• The Total SPAN Requirement for a portfolio is the sum of the SPAN Requirement for all
Combined Commodities.
© 2019 CME Group. All rights reserved.

CME SPAN® - Net Option Value• Mark-to-market of options is reflected in the Net Option Value component of SPAN.
• The Total Performance Bond Requirement for a portfolio reflects the Total SPAN
Requirement and the Net Option Value of the portfolio.
• The Net Option Value (NOV) of a portfolio is equal to the Long Option Value minus theShort Option Value.
• Long Option Value (LOV): The total value of all the long options in the portfolio.
• Short Option Value (SOV): The total value of all the short options in the portfolio.
• LOV reduces the overall Total Performance Bond Requirement.
• SOV increases the overall Total Performance Bond Requirement.

© 2019 CME Group. All rights reserved.

CME SPAN® - Net Short Option Value• The portfolio below includes:➢Long 1 Mar 2019 SP Futures (price is 2,790)➢Short 1 Mar 2019 SP 2750 Call Option (price is $51.36, option value is $11,975)➢Long 1 Mar 2019 SP 2650 Put Option (price is $5.94, option value is $1,825)

SPAN Risk = $13,037
LOV = $1,825
SOV = $11,975
ANOV = ($10,150)
SPAN Risk - ANOV = Total Requirement$13,037 - ($10,150) = $23,187© 2019 CME Group. All rights reserved.

CME SPAN® - Net Long Option Value• The portfolio below includes:➢Short 1 Mar 2019 SP Futures (price is 2790)➢Long 1 Mar 2019 SP 2750 Call Option (price is $51.36, option value is $11,975)➢Short 1 Mar 2019 SP 2650 Put Option (price is $5.94, option value is $1,825)

SPAN Risk = $3,992
LOV = $11,975
SOV = $1,825
ANOV = $10,150
SPAN Risk - ANOV = Total Requirement$3,992 - $10,150 = ($6,158)© 2019 CME Group. All rights reserved.

Disclaimer
Neither futures trading nor swaps trading are suitable for all investors, and each involves the risk of loss. Swaps trading should only be undertaken
by investors who are Eligible Contract Participants (ECPs) within the meaning of Section 1a(18) of the Commodity Exchange Act. Futures andswaps each are leveraged investments and, because only a percentage of a contract’s value is required to trade, it is possible to lose more than
the amount of money deposited for either a futures or swaps position. Therefore, traders should only use funds that they can afford to lose without
affecting their lifestyles and only a portion of those funds should be devoted to any one trade because traders cannot expect to profit on every
trade.
CME Group, the Globe Logo, CME, Globex, E-Mini, CME Direct, CME DataMine and Chicago Mercantile Exchange are trademarks of Chicago
Mercantile Exchange Inc. CBOT is a trademark of the Board of Trade of the City of Chicago, Inc. NYMEX is a trademark of New York Mercantile
Exchange, Inc. COMEX is a trademark of Commodity Exchange, Inc. All other trademarks are the property of their respective owners.
The information within this communication has been compiled by CME Group for general purposes only. CME Group assumes no responsibility forany errors or omissions. Additionally, all examples in this communication are hypothetical situations, used for explanation purposes only, andshould not be considered investment advice or the results of actual market experience. All matters pertaining to rules and specifications herein are
made subject to and superseded by official CME, CBOT, NYMEX and COMEX rules. Current rules should be consulted in all cases concerning
contract specifications.
Copyright © 2019 CME Group Inc. All rights reserved.

© 2019 CME Group. All rights reserved.