Tokyo Stock Exchange Plans Introduction of SPAN(R) And Amendments To Futures & Options Margin System

The Tokyo Stock Exchange (TSE) plans to adopt the Standard Portfolio Analysis of Risk (SPAN) margin calculation method, as developed by Chicago Mercantile Exchange (CME), for calculation of margins for futures and options transactions as of October 2000. There will be no overlap with the current system. Brokerage margin is to be equal to or greater than the sum derived from SPAN based on the customer's futures and options open positions, less the total net option value of the open interest on options transactions. If the total net option value is positive it is subtracted, if it is negative the equivalent is added. This applies to all margin calculations below. 'Total net option value' is equivalent to the net of all long and short options and 'Net of all long and short options', where the open positions are for issues with excess long/short options, is calculated by multiplying the net long/short open positions for that issue by the standard price for margin calculation per transaction unit. The valuation method for deposited margin will remain unchanged. Members, including special participants, will implement SPAN in order to calculate brokerage margin, by installing a TSE-approved version of PC-SPAN on their computers. Members may also develop their own version. TSE will for a fee distribute PC-SPAN software to allow customers to check the suitability of their margins. This software can be used to calculate the net option value and the margin to be deposited by the customer. With TSE approval, customers may also develop their own version of SPAN on their systems. The clearing margin for brokerage transactions should equal or be greater than the total sum for all brokerage margins, as calculated based on the open position for each customer's futures & options transactions. Members should report the clearing margin for brokerage transactions to TSE that day, by a time specified by TSE. Reports are filed electronically. If required to by TSE, members must provided documents detailing the open position and margin on each product for each customer. However, there is no longer any need to give a total for the total open position on excess short/long positions for futures, and on excess short positions for options.df Clearing margin for proprietary transactions should be equal to or greater than the margin calculated using SPAN, based on the open positions for futures and options transactions, less the net option value for open positions on options transactions. TSE will notify members of clearing margins for proprietary transactions electronically after the close of the afternoon session. The emergency margin system will be introduced at a time to be determined by TSE. Members shall, when deemed necessary by TSE, deposit securities and cash with TSE as an emergency margin if there has been unusually huge movement in the market during the morning session. In principle emergency margin will not be required on half-days. The emergency margin is calculated by adding or subtracting as necessary the option premium (proprietary & brokerage) and the total net after marking to the market of futures transactions (proprietary & brokerage) from the re-calculated risk value of proprietary open position. TSE will determine the settlement index/price and standard price for emergency margin calculations, on a case by case basis, for options issues and futures contract months. TSE will notify members and give details of the amount as possible after the close of the morning session, either by fax or electronically. The SPAN and option value calculations for risk-recalculation use the emergency settlement index/price and the standard price for emergency margin calculations, instead of the settlement index/price and the standard price for margin calculations. In terms of emergency margin calculations, transactions taking place before the emergency margin was exercised will be considered as open positions. 'Re-calculated risk value' is calculated by subtracting the total net option value of open positions for options transactions from the SPAN sum for the open position on futures and options transactions at the time the emergency margin was exercised. 'Total net after marking to the market of futures transactions' is equivalent to the net of the sum marked to market based on the emergency settlement index/price for the open position for the day preceding the futures transaction (previous business day if a holiday) and transactions executed before the emergency margin was exercised. 'Option premium' is equivalent to the net of total receipts and payments for transactions executed before the emergency margin was exercised. Securities may be used as emergency margin in lieu of cash. The range of securities acceptable is as determined by TSE, and is the same as for ordinary margin. The value used is that of the day 2 days before the securities are deposited with TSE. When a member's proprietary margin is no longer sufficient for the emergency margin, the member must deposit securities or cash equivalent to the shortfall with TSE by 16:00 that day. However, there will be no refund if the member's margin exceeds the level required for the emergency margin. TSE will daily create and transmit to members and customers the necessary data for SPAN calculations. These SPAN risk parameter files will be transmitted electronically and posted on the TSE and CME websites after the close of trading. The parameters will be set according to a predetermined method. TSE will review and revise these parameters as and when necessary. SPAN(R) is a registered trademark of the Chicago Mercantile Exchange, used here under license. The Chicago Mercantile Exchange assumes no liability in connection with the use of SPAN by any person or entity.