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[Music] welcome to Episode four of our series initial margin for unclear derivatives in 2019 and 2020 calculating initial margin in Episode one we looked at the global rules for I am their progressive implementation and scope how I am is held the documentation architecture supporting legal opinions and technology solutions in Episode two Jonathan Martin the CEO of alternative legal services provided TRS and I focused on successfully navigating negotiating and executing the legal documentation in an IM project in Episode three we considered the margin segregation options available for phase 4 and phase 5 counterparties when I was joined by Mark Higgins of BNY Mellon today I am joined by Hiroshi Tennessee executive director and product manager of PI HS market a global leader in information analytics and solutions both for major industries and markets and for initial margin in Episode four we provide an overview of the initial margin calculation from the fundamental definition of initial margin through to the specific calculation methodologies in the context preparing for regulatory compliance we look in greater detail at the definition of I am and its characteristics the I am calculation methodologies how to perform the calculation how to implement a solution and sim validation and back testing let's cast our mornings back to Episode one up on the diagram here is an illustration of how I am is held this diagram will apply for each pairing between counterparty groups we have two counterparties looking here at the top part of the diagram party a post sits I am amount to a secured account with its custodian party a is called the pledge or or charge or the amount of I M which must be posted is determined under either an approved model such as sim or by the regulatory prescribed table which is known as the grid or the schedule sim the standard initial margin method is a scalable and stress tested model which involves calculating the margin to be posted based on risk factors and agreed data sources Hiroshi I am calculation is a key component of the work required to attain regulatory compliance given the complexity certain fundamental aspects of the ion calculation and not I think fully on step understood by many what would you say is the fundamental definition of I am and what are its principal characteristics Eid let's take a step back first and examine I am in relation to VM or variation margin VM is meant to give you protection against the current exposure if you have a portfolio facing a counterparty and the market to market a portfolio is positive to you then you have credit risk of the counterparty you need collateral in the amount of the market the market to cover the exposure you have so you will call your counterparty for margin conversely if the market market of the portfolio is negative to you your counterpart is exposed to your credit risk and you will receive a margin...