Bank One Corporation - Page 242

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          cashflows, (4) adjustment to reflect borrowing and lending rates            
          for in- or out-of-the-money positions, (5) liquidity, and                   
          (6) model risk.  We discuss the adjustments recognized by the               
          parties and/or experts.                                                     
               B.  Administrative Costs Adjustment                                    
                    1.  Overview                                                      
               The adjustment for administrative costs represented those              
          expenses which a dealer expected to incur in the future in                  
          holding, managing, and administering its existing swap portfolio            
          to maturity.  The adjustment reflected the dealer’s operation,              
          maintenance, and staffing of the support functions and limited              
          trading personnel, including the personnel needed to execute swap           
          transactions to service the existing portfolio, process payments            
          on the swaps, determine and execute the appropriate hedges as to            
          the swaps, and monitor the credit standing of counterparties.               
          The adjustment reflected the appropriate data feeds, software               
          licenses, activities needed to support the trading floor, and               
          associated space costs.                                                     
                    2.  Dealers’ Practice                                             
               Dealers did not take administrative costs into account for             
          purposes such as pricing and trading.  Negotiations among dealers           
          were over the total price of a swap, and dealers did not                    
          separately negotiate an administrative costs component of the               
          spread from midmarket value.                                                






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Last modified: May 25, 2011