Spread Order Calculations

GC2 nets out the working exposure for both positions as long as both Buy/Sell sides exist for the spread, and applies a Spread Adjustment Factor to all working spread orders.

Contents

Spread Adjustment Factor

The Spread Adjustment Factor (10%) is applied to all qualifying spreads and only applicable to working spread orders. The spread’s working margin value is “unwound”, or recalculated, if the spread order’s open quantity matches partially. The Spread Adjustment Factor:

  • available for intra-commodity, calendar, option strategy spreads
  • is calculated to a maximum of two decimals places
  • is always a positive value

Conditions for Spread Adjustment Factor Application

All of the following conditions must be valid before the Spread Adjustment Factor is applied:

  1. The spread legs are in the same Product Complex. Current Product Complexes include Agriculture, Energy, Environmental, Equity Index, FX, Interest Rates , Metals, and Weather.
  2. The spread legs are all within the same Product Type, which is either "all futures" or "all options".
  • The Spread Adjustment Factor is not applied to spread types that have both Futures and Options, for example Covereds.
  1. For futures spreads, the spread contains at least one buy leg and one sell leg.
  2. For options spreads, the spread contains at least one buy leg and one sell leg and/or one call and one put.
  3. All the spread legs are within the same exchange group; the product / Legal Clearing Entity relationship defined by the Risk Administrator.
  4. In conditions where a spread has some legs which qualify for the Spread Adjustment Factor and some leg(s) do not:
  • For the legs which do qualify, the Spread Adjustment Factor and the resulting working margin will be applied to the associated group, Executing Firm ID / Exchange.
  • For the leg(s) which do not qualify, GC2 applies the full margin rates to the associated group, Executing Firm ID / Exchange.

Spread Adjustment Factor Application and Exception Examples

Intra-Commodity Future Spread

For a Secured Overnight Financing Rate (SOFR) bundle, the Spread Adjustment Factor does not apply because all the future legs are on the same side.

Intra-Commodity Covered (single option leg and single future leg)

For 10-yr Note option call covered by the 10-yr Note future, the Spread Adjustment Factor does not apply because the spread crosses over futures and options Product Types.

Inter-Exchange Future Spread across exchange groups

For Gulf Mercantile Exchange (GME) / NYMEX energy future calendar spread, the Spread Adjustment Factor does not apply if the Risk Admin defined the GME and NYMEX across two exchange groups.

If the Risk Admin has grouped them in the same exchange group, then the Spread Adjustment Factor would apply.

 

Note: GC2 enforces Inter-Exchange Spreads (IES) at the leg-level. Breach of the exposure limit on one or more of the exchange groups, results in the rejection of the IES order.

Working Order Spread Calculation

When a spread meets the criteria specified above, the following calculations are applied:

Calculate Value A = Spread’s total margin

Value A is the sum of:

  • the spread order quantity (+/- for buy/sell)
  • multiplied by each leg’s buy/sell ratio (+/- for buy/sell)
  • multiplied by each leg’s maintenance margin rate

Calculate Value B = Spread's total margin in absolute value (abs) terms

Value B is the sum of:

  • the spread order quantity
  • multiplied by each leg’s buy/sell leg Ratio
  • multiplied by each leg’s maintenance margin rate

Calculate Value C = Value B multiplied by the Spread Adjustment Factor (10%)

Determine the spread’s working long value

  • If Value A is positive then the working long value is Value A + Value C
  • If Value A is zero or negative then the working long value is Value C

Determine the spread’s working short value

  • If Value A is negative then the working short value is the absolute Value of A + Value C
  • If value A is zero or positive then the working short value is Value C
Working Summary
 

Working Long

Working Short

If Value A is positive

Value A + Value C

Value C

If Value A is negative

Value C

absolute Value of A + Value C

If Value A is zero

Value C

Value C

Spread Calculation Examples

Following are examples for intra-commodity, calendar, user defined spreads. Use these examples as a guide for GC2 exposure / max quantity limit risk settings. The below values are in USD.

Example 1 - Intra-Commodity Spread with equal margin rates

(Buy) 1 UBU4 - (Sell) UBZ4 spread (Ultra U.S. Treasury Bond Sep 2024 - Dec 2024) with equal margin rates

 

  • Leg 1: One contract UBU4 - Maintenance Margin (MM) $5500

  • Leg 2: One contract UBZ4 - Maintenance Margin (MM) $5500

Value A = [ qty * MM leg 1 - qty * MM Leg 2]

1 qty * 5500 MM - 1 qty * 5500 MM = $0

Value B = absolute value [qty * MM leg 1) + abs (qty * MM leg 2]

(1 qty * 5500 MM) + (1 qty * 5500 MM) = $11000

Value C = Value B * 0.10 (spread adjustment factor)

$11000 (value B, above) * 0.10 (spread adjustment factor) = $1100

  • GC2 Working Long Exposure = $1100

  • GC2 Working Short Exposure = $1100

 

Example 2 - Intra-Commodity Spread with different margin rates

Buy 1 CLN5-CLZ5 (Crude Oil Future Jul 2025 - Dec 2025) with different margin rates

 

  • Leg 1: One contract CLN5 - Maintenance Margin (MM) $4000

  • Leg 2: One contract CLZ5 - Maintenance Margin (MM) $3600

Value A = [ qty * leg 1 - qty * leg 2]

1 (qty) * 4000 MM - 1 (qty) * 3600 MM= $400

Value B = absolute value (qty) * leg 1 + absolute value (qty) * leg 2

1 (qty) * 4000 MM) + 1 (qty) * 3600 MM = $7600

Add sum of the Maintenance Margin of the legs and multiply by 10% - spread adjustment factor, then apply to the applicable working long and short

 

Value C = Value B * 0.10

$7600 (value B, above) * 0.10 (spread adjustment factor) = $760

  • GC2 Working Long Exposure = A ($400) + C ($760) = $1160

  • GC2 Working Short Exposure = C = $760

 

 

Example 3 - Option Strategy Spread

User defined spread - 10-Year U.S. Treasury Note spread - Sep 2024 109.50 / 112.00 call option spread

 

  • Underlying future maintenance margin of ZNU4 = $2000

  • Risk value = Maintenance Margin (MM) of underlying future (ZNU4) * delta of OZNU4

    Risk values are calculated using prior end of day (eod) delta

     

  • Leg 1: Buy - One contract OZNU4 - Sep 2024 Call Option -109.5 strike - MM $2000 * (prior-eod) delta 0.755 =$1510

  • Leg 2: Sell - One contract OZNU4 - Sep 2024 Call Option - 112.0 strike - MM $2000 * (prior-eod) delta 0.279 = $558

Value A = [ qty * leg 1 risk value - qty * leg 2 risk value]

1 qty * $1510 risk value - 1 qty * $558 risk value = $952

Value B = absolute value [qty * leg 1 risk value + absolute value qty * leg 2 risk value]

$1510 + $558 = $2068

Multiply sum of risk values by spread adjustment factor

 

Value C = Value B * 0.10

2068 * 0.10 (spread adjustment factor) = $207

  • GC2 Working Long Exposure: A ($952) + C ($207) = $1159

  • GC2 Working Short Exposure: C = $207