ION Boosts XTP Risk JANUS With AI for Improved Pre-trade Risk Management

ION, a global leader in trading and workflow automation software, high-value analytics and insights, and strategic consulting to financial institutions, central banks, governments, and corporates, has enhanced its XTP Risk JANUS solution with AI to optimize pre-trade risk management. This innovation improves the accuracy of CME’s SPAN2 Approximation, enabling traders to obtain faster and more precise margin estimates for better decision-making and risk control.

This AI-enhanced model, developed by LIST, an ION company, is integrated with XTP Risk JANUS and its Margin Engine, which are often used for pre-trade order validation  in cleared derivatives trading. To calculate CME margin requirements, they integrate the CME SPAN 2 deployable library and also provide the option to use CME SPAN2 Approximation when fast calculations are required. SPAN2 is a margin calculation model designed by CME to evaluate risk for futures and options portfolios by estimating the worst possible loss a portfolio could face over a specified period, typically one trading day.

CME SPAN2 uses a historical value at risk model (HVAR) with many risk scenarios. The complexity of this methodology makes it unsuitable for fast real-time calculations and application to pre-trade order validation. CME Group developed an algorithm called SPAN2 Approximation for quicker calculations. However, initial margins (IM) calculated by SPAN2 Approximation often differ from the original model.

ION addressed this challenge by applying AI to enhance SPAN2 Approximation’s accuracy. The results closely match the original model while maintaining the speed required for efficient pre-trade validation.

Riccardo Bernini, Head of the Financial Engineering Team at LIST, said, “We explored the possibility of using AI to apply a correction factor to SPAN2 Approximation  to bring it closer to the original SPAN2 calculations. The outcome is surprisingly good and gives our clients faster, more precise margin estimates. It ensures that they can effectively manage risk and make informed trading decisions with the speed required for pre-trade validation.”