Initial Margin is collected from Clearing Members to cover potential losses arising from an event of default. It is calculated using OTC Clear’s margin model - a scenario-based risk model. Clearing Members’ portfolios are evaluated using historical market data and hypothetical scenarios to estimate potential future exposures to OTC Clear throughout the liquidation period (the time interval between the declaration of an event of default and the close-out of the contracts of the Defaulting Clearing Member as estimated by OTC Clear). OTC Clear conducts independent validation of its risk management framework and measures annually.