Concentration Risk Margin ECC*
The SPAN® initial margin is calibrated to fulfill article 26 RTS 153 which requires a liquidation period of at least two days. If the real liquidation period in narrow markets exceeds this regulatory minimum requirement an additional concentration risk margin is charged. The liquidation period of a position within a given market is the ratio of the net position size (“net quantity times contract value”) and the daily market capacity.
Concentration risk margin on account level
The concentration risk margin is calculated and charged on account level
where the effective liquidation period l per account is the position weighted liquidation period per market.
Concentration risk margin on Clearing Member level
To take into account any remaining or through the aggregation of positional volumes of different accounts resulting concentration risk an analogues calculation is performed on Clearing Member level based on the net position. If the resulting concentration risk on Clearing Member level is not covered by the sum of the accounts concentration risk margin requirements and an available margin buffer an additional margin requirement for the Clearing Member arises. The margin buffer considers a share of the difference between the gross margin requirement for all accounts and the hypothetical margin requirement for the Clearing Member’s net position.
Caps and floors
To consider the time needed to identify a default and design the close out strategy the calculation of the liquidation period takes an additional add-on of 0.3 days into account.
On account level the final liquidation period is capped at 3 days. On Clearing Member level the concentration risk margin is capped at 50% of the gross margin requirement for all accounts.
ECC validates the adequacy and, if necessary, adjusts the caps and floors on a regular basis.
*) The concentration risk margin will be effective in September 2019.