Bank One Corporation - Page 251

                                        -91-                                          
               The adjusted midmarket method generally did not include an             
          adjustment for the dealer’s profit margin.  Nor did FNBC’s                  
          implementation of that method include such an adjustment.                   
          V.  Los Alamos Project                                                      
               In 1994, the Commissioner entered into a contract with the             
          Los Alamos National Laboratory under which the Los Alamos                   
          scientists (including quantum physicists and mathematicians) were           
          to develop in the form of software a sophisticated model to                 
          assist the Commissioner in valuing interest rate swaps, currency            
          swaps, and other financial derivative products for which mark-to-           
          market reporting was required under section 475.  This software             
          was intended to produce a narrow range of values for swaps that a           
          revenue agent could use as a litmus test for ascertaining whether           
          a more thorough audit would be necessary as to a dealer’s                   
          valuation of its swaps.  The Commissioner contemplated that a               
          more detailed audit would be required if the dealer’s valuation             
          fell outside the range of values.                                           
               The Los Alamos team was to address during the first 12                 
          months of the project the following nine issues:                            
               1.   Address security and disclosure issues. –- Some of                
                    the data required in the model development must                   
                    use sensitive unclassified information about                      
                    taxpayers’ market transactions.  Procedures must                  
                    be put in place to handle these requirements.                     
               2.   Determine how the various forms of tax information                
                    data are handled and its impact on models. –- For                 
                    example much of the data on transaction is only                   
                    available in paper format.  In this case                          





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