-72-
long position (swaps where the dealer received the fixed rate),
and ask prices were used to value a short position (swaps where
the dealer paid the fixed rate). The bid and ask prices were
both interdealer published quotes rather than the dealer’s own
quotes.
2. Midmarket Method
The industry practice from 1990 through 1993 was to use the
midmarket value to value portfolios and to report separately the
adjustments described below.29 As discussed above, the midmarket
value was the net present value (positive or negative) of the
anticipated cashflows which the parties had agreed to exchange.
A positive value meant that the dealer expected to be a net
receiver of future payments. A negative value meant that the
dealer expected to be a net payer.
3. Adjusted Midmarket Method
During the relevant years, the adjusted midmarket method was
a common method used by dealers to value their portfolios, and it
was recognized as a valid method by the G-30. Under this method,
a dealer calculated the midmarket value of the swaps in its
portfolios and then made certain adjustments. The type of these
adjustments varied between and among dealers. Depending on the
dealer, adjustments were made for factors which included credit
29 Most people in the industry during the relevant years
referred to the midmarket value of a swap as its “market value”.
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