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To: Little Joe who wrote (44490)	11/2/1999 9:18:00 PM
From: Alex	Respond to of 116762

White House Opposes Derivatives' Regulation ------------------------------------------------------------------------ By Kathleen Day Washington Post Service ------------------------------------------------------------------------ WASHINGTON - The announcement by Chase Manhattan Corp. that an employee overstated the value of some of the bank's trading in financial contracts known as over-the-counter derivatives was made as the White House prepared to recommend that the $80 trillion OTC derivatives market does not need to be regulated. Chase has reportedly fired the employee responsible for the overstated values but has not determined whether his actions were unintended mistakes or a deliberate effort to pad trade values so that his end-of-the-year bonus would be bigger. An internal bank audit two weeks ago uncovered the inflated values on foreign-exchange forward contracts and interest-rate swap contracts. The bank has reported the problem to regulators at the Federal Reserve Board, sources said. The inflated values mean that the bank will reduce pretax earnings in the fourth quarter by $60 million, or $40 million after taxes. For the first nine months of 1999, the bank is reporting $2.2 billion in trading revenue. Sources at the bank say bank officials are confident that the employee's conduct was an isolated event and that the reduction in earnings, while significant, will not seriously hurt the bank or its profitability. The White House's recommendation will come in a report by the President's Working Group on Financial Markets, which has been studying derivatives of all types after the near-collapse of a giant hedge fund in Connecticut a year ago. Regulators feared then that Long-Term Capital Management LP's troubles could cause a meltdown of the entire U.S. financial system. The regulators will recommend that Congress formally declare that the Commodity Futures Trading Commission should not regulate over-the-counter derivatives, in part because the banks and securities firms that establish the OTC market already are regulated by the Fed, the U.S. Treasury and the Securities and Exchange Commission. iht.com