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the basis of supply and demand. They gauged the market by
looking at various sources (e.g., yields on Treasury securities,
broker quotes of swap spreads over relevant Treasury instruments,
and Eurodollar futures prices) to determine points on the
interest rate yield curve. Some of the requisite information
underlying these sources was reflected in FNBC’s Devon system.
FNBC’s traders often used the information provided by the Devon
system as a starting point in pricing.
d. Risk Management Responsibility
Each FNBC trader was responsible for maintaining his or her
aggregate positions within various market risk parameters. The
traders risk-managed their portfolios subject to the trading
limits set by those market risk parameters. In risk-managing
their portfolios, the traders used daily risk profiles and
Devon-system-generated daily profit and loss statements for
swaps. These profiles and statements listed midmarket values and
did not include administrative costs adjustments or credit
adjustments. FNBC’s traders were limited on the amount of
interest rate exposure that they could assume on behalf of FNBC
by a risk point system. That risk point system was based upon
the profit/loss estimates that FNBC’s Devon system provided given
a certain basis point movement in interest rates.
Whenever FNBC and a counterparty reached agreement on the
price of a new swap, the trader would begin the process of
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