Stock Futures Margin Calculation Methodology
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1 Stock Futures Margin Calculation Methodology RM Office Version 1.3
2 Summary Foreword Variation Margin Initial Margin Futures Straddle Margin Additional Margin Mark-to-Market Margin Stock Futures with Physical Delivery Final settlement of differentials Stock Futures with Cash Settlement... 4 Page 2 of 4
3 Foreword This document is a guide to the calculation of Margins for the stock futures. The margining methodology foresees the following types of Initial Margins: a) Futures Straddle Margin, calculated on futures positions of opposite sign, different maturity and referred to the same underlying (futures straddle positions). The Margin is equal to the number of futures straddle positions 1 multiplied by the unitary Futures Straddle Margin. b) Additional Margin, calculated on the non straddle futures positions. It represents the highest reasonable loss in case of underlying price variation within the margin interval. c) Mark to Market Margin, calculated on the futures positions that have been expired and have not yet been settled during the three days previous the settlement. It reevaluates the theoretical settlement gain/loss to the current market values; it represents a theoretical credit (debit) for the member who bought the futures if the settlement price is lower (higher) than the current market value, set equal to the reference price of the of the underlying, and viceversa for the member that sold the futures. 1 Variation Margin In the period comprised between the trading date and the expiration (9.05 a.m.: end of trading) included, Variation Margins are calculated with the same methodology currently utilized for FTSE- MIB. 2 Initial Margin 2.1 Futures Straddle Margin The Futures Straddle Margin is calculated only for those futures positions of opposite sign on different maturities, that refer to the same underlying asset (futures straddle positions). It is equal to the number of futures straddle positions multiplied by the future straddle margin set by CC&G. 2.2 Additional Margin The Additional Margin is calculated assuming that in each scenario the futures price variation is equal to the underlying reference price multiplied by the Margin Interval. In other words: 1) The Margin Interval is applied to the underlying reference price; 2) Theoretical settlement gain/loss for the underlying are determined in each scenario; 3) A variation of the same amount (unit per unit) is assumed for the futures price. The Margin Interval for the futures contracts shall not necessarily be the same applied to the options on the same underlying. 2.3 Mark-to-Market Margin Stock Futures with Physical Delivery The mark-to-market margin is applied to physically delivered Stock Futures. 1 The number is equal to the lesser one between the long and short positions. Page 3 of 4
4 In the period comprised between the expiration date and the settlement date, the stock futures positions with physical delivery are marked to the market as the tender/assigned options with physical delivery with the daily adjustment of the Mark-to-Market margin, equal to the difference between the settlement price and the reference price of the underlying. Therefore, on the expiration day both Variation Margins (positions re-valued at the settlement price determined at the end of trading at 9.05 a.m.), and Mark-to-Market Margins, (positions re-valued from the settlement price to the reference price of the underlying asset at the end of the day) are calculated. 3 Final differential settlement Stock Futures with Cash Settlement Cash-settled Stock Futures are not settled with the exchange of the asset underlying the futures contract, but with a final differential settlement. The amount of the final settlement is equal to the difference between: - the Settlement Price and the trading price, in case positions refer to operations of the last trading day; - the Settlement Price and the daily settlement price of the previous trading day, in case positions refer to operations of previous trading days. * * * The annexed examples show how the stock futures margin calculation operates. Page 4 of 4
5 Cassa di Compensazione e Garanzia SpA 3 long positions on futures exp. JN02, trading price 12,0877; reference price 12, short positions on futures exp. SP02, trading price 12,1869; reference price 12,126 Variation Margins (Settle-to-Market) (Reference Price - Trading Price) x Numb. Positions x Numb. Underlying ( 12, ,0877 ) x 3 x ,50 Debit ( 12,126-12,1869 ) x -2 x ,80 Debit -59,70 Debit Futures Straddle Margins (Straddle Positions) x Straddle margin 2 x ,00 Debit -800,00 Debit DOWNSIDE Margin Interval -10,00% -8,00% -6,00% -4,00% -2,00% 2,00% 4,00% 6,00% 8,00% 10,00% Securities Theoretical Value 10,746 10,985 11,224 11,462 11,701 11,940 12,179 12,418 12,656 12,895 13,134 Futures Theoretical Value 10,833 11,072 11,311 11,550 11,788 12,027 12,266 12,505 12,744 12,982 13,221 Closing Price 12,027 12,027 12,027 12,027 12,027 12,027 12,027 12,027 12,027 12,027 Futures Theoretical Value -1,194-0,955-0,716-0,478-0,239 0,239 0,478 0,716 0,955 1,194 X 1 Long Positions -1,194-0,955-0,716-0,478-0,239 0,239 0,478 0,716 0,955 1,194 Unitary settlement gain/loss Futures (Euro) , , , , , , , , , ,000 Settlement gain/loss Total (Euro) ,00-955, ,40-477,60-238,80 238, , , , ,000 Largest Theoretical loss ,00 Debit Additional Margins ,00 Debit Futures Straddle Margins -800,00 Debit Total Initial margins - Class Group ,00 Debit Market Value UPSIDE Annex 1
6 Cassa di Compensazione e Garanzia SpA 3 long expiring futures positions; settlement price 12,00; underlying reference price 11,94 Settlement Balance Settlement Price x Numb. Positions x Numb. Underlying 12 x ,00 Securities net amount 3.000,00 Collect Cash net amount ,00 Pay Mark-to-Market Margin (Reference Price - Settlement Price) x Numb. Positions x Numb. Underlying ( 11,94-12 ) x ,00 Debit -180,00 Debit Downside Margin Interval -10,00% -8,00% -6,00% -4,00% -2,00% 2,00% 4,00% 6,00% 8,00% 10,00% Securities Theoretical Value 10,746 10,985 11,224 11,462 11,701 11,940 12,179 12,418 12,656 12,895 13,134 Reference Price 11,940 11,940 11,940 11,940 11,940 11,940 11,940 11,940 11,940 11,940 Theoretical settlement gain/loss (Euro) X 3000 securities long positions , , , ,80-716,40 716, , , , ,00 Settlement gain/loss Total (Euro) , , , ,80-716,40 716, , , , ,00 Largest Theoretical loss ,00 Debit Additional Margins ,00 Debit Futures Straddle Margins 0,00 Credit Mark to Market Margins -180,00 Debit Total Initial margins - Class Group ,00 Debit Market value Upside Annex 2
7 Cassa di Compensazione e Garanzia SpA 2 long positions options call 11,00 exp. SP 02, trading price 2,216; closing price 2,176 2 short positions futures exp. JN02, trading price 12,0877; closing price 12,0272 Variation Margins (Settle-to-Market) (Reference Price - Trading Price) x Numb. Positions x Numb. Underlying ( 12, ,0877 ) x -2 x ,00 Credit 121,00 Credit Premium Options (Trading Price x Numb.Positions x Numb. Underlying) 2,2162 x 2 x ,40 Collect 4.432,40 Collect Premium Margins (Closing Price x Numb. Positions x Numb. Underlying) 2,1755 x 2 x ,00 Credit 4.351,00 Credit Margin Interval -10,00% -8,00% -6,00% -4,00% -2,00% 2,00% 4,00% 6,00% 8,00% 10,00% Securities Theoretical Value 10,746 10,985 11,224 11,462 11,701 11,940 12,179 12,418 12,656 12,895 13,134 Theoretical Value Option Call 11 set-02 1,436 1,573 1,715 1,863 2,017 2,176 2,339 2,508 2,681 2,858 3,039 Closing Price 2,176 2,176 2,176 2,176 2,176 2,176 2,176 2,176 2,176 2,176 Settlement gain/loss (Euro) -0,740-0,603-0,461-0,312-0,159 0,164 0,332 0,505 0,683 0,864 X 2 Long Positions -1,479-1,206-0,921-0,625-0,318 0,327 0,664 1,010 1,365 1,728 Settlement Theoretical gain/loss (Euro) Call 11 set , , , , , , , , , ,800 Futures Theoretical Value 10,833 11,072 11,311 11,550 11,788 12,027 12,266 12,505 12,744 12,982 13,221 Closing Price 12,027 12,027 12,027 12,027 12,027 12,027 12,027 12,027 12,027 12,027 X 2 Long Positions 2,388 1,910 1,433 0,955 0,478-0,478-0,955-1,433-1,910-2,388 Settlement gain/loss Futures (Euro) 2.388, , , , , , , , , ,000 Settlement gain/loss Total (Euro) 909,00 704,60 511,80 330,60 160,00-150,20-290,80-422,40-545,40-660,20 Largest Theoretical loss Additional Margins Option Premium Margin Total Initial margins - Class Group -660,20 Debit -660,20 Debit 4.351,00 Credit 3.690,80 Credit Downside Market Value Upside Annex 3
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