NISM VIII — Equity Derivatives ~5 min read

SPAN Margin and Position Limits

SPAN (Standard Portfolio Analysis of Risk) is the portfolio-based margining system used by Indian clearing corporations. It calculates worst-case one-day loss a...

Definition

SPAN + Exposure + Position Limits

SPAN (Standard Portfolio Analysis of Risk) is the portfolio-based margining system used by Indian clearing corporations. It calculates worst-case one-day loss across 16 scenarios of price and volatility moves. Plus Exposure Margin is charged on top to cover tail risks. Position limits cap concentration.

In Simple Words

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SPAN simulates 16 scenarios combining spot price shifts and volatility shifts, and the largest loss among these becomes the SPAN margin requirement. On top, an Exposure Margin (typically 3% of contract value for index futures; higher for stocks) covers gap risk. Position limits exist at three levels: (a) client-level — max open interest allowed per client; (b) member-level — max per trading member; (c) market-wide — across all participants. Breaching market-wide limit puts the stock in "ban period" (new positions blocked). Violations carry penalties escalating from warnings to suspensions.

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16 Scenarios

SPAN stress-tests your portfolio against 16 market shocks

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Exposure Margin = Buffer

Extra cushion on top of SPAN for gap/tail risk

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Position Limits

3 levels: client, member, market-wide

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Ban Period

When market OI > 95% of market-wide limit — no fresh positions

Real-Life Scenario

A Practical Example

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You

Real-Life Scenario

You hold 5 lots Nifty 22,500 Apr long + 10 lots Nifty 22,800 Apr short calls. SPAN:
• Scenario 1: spot +3.5%, IV up 25% → loss ₹18,000
• Scenario 2: spot −3.5%, IV up 25% → loss ₹22,500
• … run all 16 …
• Worst case: scenario 7 → loss ₹34,000
SPAN margin = ₹34,000.
Exposure margin (≈ 3% of net notional ₹35 Lakh) = ₹1,05,000.
Total margin = ₹34,000 + ₹1,05,000 = ₹1,39,000.
If your account balance drops below this, broker issues a margin call within 24 hours; otherwise positions auto-squared off.

Key Points to Remember

What Makes This Important

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SPAN = 16-scenario stress test; margin = worst-case one-day loss

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Exposure margin (≈ 3–5% of notional) stacks on top of SPAN

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Position limits: client + member + market-wide

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Market-wide limit breach ≥ 95% → stock enters ban period

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Margin calls must be met same day or T+1

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Penalties: financial levy → trading restrictions → member suspension

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Cross-margin benefit: offsets between correlated positions reduce total margin

The Formula

Total Margin Composition

Total Margin = SPAN Margin + Exposure Margin (+ Additional Margins if applicable)

FAQs

Frequently Asked Questions

If you hold opposing positions on related underlyings (e.g., long Nifty futures + short Nifty Bank futures), the clearing corp recognises partial offsetting risk and reduces total margin. This is configured as "inter-commodity spread credit" in SPAN.

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