FYI
---------------------- Forwarded by Martin Rosell/OSL/ECT on 04/10/99 11:59 
---------------------------


Martin Rosell
04/10/99 12:59
To: Magnus Groth/OSL/ECT@ECT, Brynjar Wiersholm/OSL/ECT@ECT, Jan-Erland 
Bekeng/OSL/ECT@ECT, Didrik Thrane-Nielsen/OSL/ECT@ECT, Frank 
Overli/OSL/ECT@ECT, Morten E Pettersen/OSL/ECT@ECT, Bjarne 
Schieldrop/OSL/ECT@ECT
cc: Matthew Landy/LON/ECT@ECT, Tomas Valnek/LON/ECT@ECT 
Subject: Deliberations of the Norwegian Commodity Derivatives Committee

Please find attached a summary in English of the deliberations of the above 
Committee (Section 1.4 of its report).  Currently, dealing in or otherwise 
offering investment services related to commodity derivatives is unregulated 
in Norway.  From the report released by the Committee, it should be noted 
that it:

(1)  proposes to make market making and dealing in, and portfolio management 
services relating to, commodity derivatives subject to (i) the licensing 
requirements set forth in the Norwegian Securities Trading Act 
(Verdipapirloven) (the "Act") and (ii) the supervision of the Norwegian 
Credit Supervision (Kredittillsynet) (the "Supervision");

(2)  proposes that entities engaged or anticipating to engage in the 
marketing of investment services in Norway solely relating to commodity 
derivatives (and no other financial instruments) -  referred to as "commodity 
derivatives companies" (verdipapirforetak) by the Commission - are to apply 
for a limited licence for that particular activity;

(3)  points out that an ISD licence may not be relied upon by entities that 
desire to market investment services in Norway relating to commodity 
derivatives;

(4)  proposes that the dealing in commodity derivatives in Norway is to be 
carried out from a Norwegian public or private limited liability company 
unless carried out from an EU/EEA entity (non-EU/EEA entities (such as 
ECTRIC) will have to apply for a special governmental permit);

(5)  proposes that the provisions of the Act are to be made generally 
applicable to investment services in Norway relating to commodity derivatives 
(unless otherwise is specified in the Act);

(6)   proposes to expand the close-out netting provisions of the Act to also 
cover positions in commodity derivatives; and

(7)  holds that the provisions of CAD I (as implemented) and CAD II (to be 
implemented) should not automatically be made applicable to (non-ISD) 
commodity derivatives firms but that the Supervision should be given a 
mandate to impose the said provisions on individual entities.

The legal technique proposed by the Commission to accomplish the foregoing is 
an expansion of the definition of "financial instrument" in the Act to also 
include commodity derivatives (whereby the Act will become generally 
applicable to commodity derivatives operations).  It should be noted, 
however, that the Commission suggests that only cash- or physically-settled 
future and option contracts in commodities which are "marketable" in nature 
should be deemed "financial instruments" under the Act.  The Commission sets 
out a few criteria to determine when a commodity derivative should be 
considered marketable,  Among other things, the Commission points out that 
the fact that a derivative contract is not freely transferable should not by 
itself be determinative in this respect.  Instead, it holds that standardised 
instruments and instruments traded on a market place should be viewed as 
marketable; as should also cash-settled commodity derivatives while contracts 
intended to lead to a physical settlement should not.  In my view, this 
unnecessary complicated approach may lead to difficulties in determining 
whether a particular commodity derivative falls within or outside of the 
scope of the regulations proposed by the Committee.  Most importantly, it may 
serve to offer a bankruptcy trustee a needless opening to question whether 
derivatives, for which there exist no liquid market (longer-term deals, 
temperature deals, etc.), should be made part of any close-out netting 
arrangement. 

Lastly, it should be stressed that the Commission's report is not a bill 
presented to Parliament.  Whether it'll lead to legislation remains to be 
seen.  The position will be monitored.

Martin