The ETD markets have understandably been concentrating recently on the volatility caused by the Russian invasion of Ukraine. This has added to the pressure that they were already seeing based on the recovery from COVID.

However, in the background, work has been continuing on the move from SPAN to new VaR based algorithms. We are now live with the first CCP to make the move – ICE Clear US.

So what is currently happening and when are the next key dates?

ICE

ICE Clear US went live with IRM 2.0, the ICE VaR based methodology, on 24th January.  At the moment this is just for their equity products consisting of various futures on MSCI and Russell Indices. No date has been given for when this will be extended to their other markets; Agriculture, Credit, FX, Metals and Digital Assets.

Similarly, there is no confirmed date for the similar move to IRM 2.0 for ICE Clear Europe, which covers Agriculture, Energy, Financial and Equity futures and options. The same is true for the ICE Clear Netherlands Equity derivatives and the ICE Clear Singapore Digital Assets, Energy, FX and Equity markets.

It looks as though ICE are taking the upgrade from IRM 1.0 to IRM 2.0 slowly, waiting to see what happens on one of their smaller markets before moving onto their more significant products, such as Energy and Financials cleared through ICE Clear Europe.

CME

There has been a further delay in the launch of SPAN 2 at CME. Given that this upgrade was to move their main Energy products onto their new VaR based algorithm, this is probably a good thing in the current circumstances. The combination of highly volatile markets and a new methodology was never going to end well.

Following customer feedback, it looks like the go-live will now be towards the end of the year, although no actual date has been confirmed. And as with ICE, this is just for one section of the markets that they clear, so it will be quite a while yet before all products are covered by SPAN 2.

Other CCPs

ICE and CME are not the only CCPs looking to move to new VaR based models.

LME is still working on their upgrade. Although they have published plenty of details and have publicly announced their intention to go live, there has been no date specified. And given the recent issues at LME, particularly in the Nickel market, it is likely that any launch will be delayed.

We do know of other CCPs that are similarly working on their SPAN to VaR migration, although these have not yet gone public with details or dates. It is likely that they will all wait to see how the upgrades bed in for the initial CCPs. In this way they can make sure that the market has a better understanding of the changes involved when it comes to their turn.

What Next

Despite the focus on other issues, work is continuing in the background on changing the way that ETD margin is calculated. There have been a number of sudden changes in margin requirements over the last few weeks caused by the increase in volatility, but if the CCPs had  already gone live with their new algorithms these same jumps would not have happened. Instead a more continuous increase in margin would have been observed, based on the increase in volatility and the introduction of new, more extreme VaR scenarios.

Although there have been delays, firms still need to find time to be ready for the change. The pace may have slowed but the upgrades from SPAN to VaR are very much still happening.