Bank One Corporation - Page 250

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                    2.  Closeout Costs (Liquidity)                                    
               The G-30 report recommended an adjustment for closeout                 
          costs.  The closeout costs (liquidity) adjustment reflects the              
          cost to buy out, assign, or otherwise unwind one or all of the              
          reporting entity’s swaps.                                                   
               The need for a closeout costs adjustment is relatively                 
          strong in some cases.  Midmarket pricing from models based on the           
          prices of benchmark instruments that are liquid overstates the              
          pricing of assets that are exotic, or infrequently traded, or               
          have a limited set of potential buyers.  Such assets should be              
          marked down for their liquidity.                                            
               During the relevant years, no sound or implementable                   
          approaches existed as to close out costs adjustments.  Nor did              
          many entities (including FNBC) make closeout costs adjustments              
          during those years.                                                         
                    3.  Dealer Margin                                                 
               The fair market value of a swap (inclusive of profit) is not           
          normally zero at inception.  Dealers capture profits on the                 
          origination of swaps, especially swaps with end users.  As a                
          result, the fair market value of a swap between a dealer and an             
          end user is generally positive at origination.  The midmarket               
          value of a swap at origination often includes the present value             
          of the dealer’s expected profit on the transaction.                         








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Last modified: May 25, 2011