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a swap. Rather, the midmarket value was the cumulative sum of
accruals plus revaluations which related to the swap.
C. Early Closing Date
FNBC did not value its swap portfolio as of its yearend (or
its last business day) but as of a date slightly before yearend
(early closing date). Typically, the early closing date was on
or about the 20th day of the month; e.g., FNBC determined the
value of its portfolio as of December 31, 1993, on the basis of
the midmarket values on December 20, 1993.36 FNBC adjusted its
books for periodic payments made during the period between the
early closing date and yearend, but did not adjust its books for
changes in valuation from the early closing date to yearend.
FNBC did not consider those changes in valuation material from
the viewpoint of the entire operations of FNBC (and not just from
the viewpoint of FNBC’s swaps operation).
FNBC had an internally imposed accounting schedule that
dictated its use of the early closing date. FNBC had a rigid
deadline under which it would close its books on the second
business day after the end of a month. In the early 1990’s, FNBC
attempted to value its swaps as of the last day of the month but
36 Significant valuation changes occurred from the close of
business on Dec. 20, 1993, through the close of business on
Dec. 31, 1993. In the case of one swap, for example, FNBC
reported that the midmarket value for that swap was $104,233 as
of Dec. 20, 1993. The swap had a midmarket value of $97,721 as
of Dec. 31, 1993, or, in other words, a decrease of 6.2 percent
in the 11 days.
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