Bank One Corporation - Page 232

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          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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Last modified: May 25, 2011