-197-
of midmarket values with or without adjustment. The July 30,
1993, survey reveals that (1) 49 percent of the respondents
thereto used midmarket values for valuation and (2) of the
respondents thereto that used midmarket values with adjustments,
44 percent of them adjusted for credit and 54 percent adjusted
for administrative costs. The March 1994 survey reveals that (1)
31 percent of the respondents thereto still used midmarket values
without adjustments a year after the publication of the G-30
report and (2) of the respondents thereto using midmarket values
with adjustment, 32 percent adjusted for credit and 24 percent
adjusted for administrative costs.
Nor does the G-30 report contain a specific standard as to
the precise manner in which credit adjustments to midmarket
values must be computed. To the extent that the G-30 report sets
out general guidelines (e.g., recommendations as to netting,
dynamic computation of credit risk, expected versus maximum
exposure), FNBC’s methodology conflicts with each of these
guidelines. In fact, FNBC’s failure to take netting into account
deviated in significant respects from the industry’s consensus on
that subject. The CFTC viewed rationing via procedures such as
netting as widespread throughout the industry, and Duffie noted
that market participants placed significant emphasis on the use
of netting agreements. Duffie also concluded that the distorting
Page: Previous 187 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 NextLast modified: May 25, 2011