Hello All -- I intended to mention this issue on this morning's regulatory
call.

The following is background information on the Cary Oil Co., Inc. v. MG
Refining and Marketing case which has called into question the retroactivity
of the CFMA's non -repudiation provisions (Section 25(a)(4)).  The brief
must be filed by February 8, 2002 and is currently being prepared by Dan
Cunningham at Allen and Overy.

Request:
ISDA has asked the following organizations to join the brief: Bond Market
Association; Securities Industry Association, Futures Industry Association,
Financial Services Roundtable, American Bankers Association; ABA Securities
Association as we believe this is an important and necessary exercise to
preserve the intent of the nonrepudiation provisions of the CFMA.   We would
appreciate any efforts you might be able to make to encourage  the other
trade associations to join this effort.


> Background:
> CFMA - The provisions in question amended Section 22(a) of the CEA to
> provide a safe harbor so that excluded transactions would not be voidable
> based solely on the failure of the transaction to comply with the terms or
> conditions of an exclusion or exemption from the Act or CFTC regulations.
> The House Agriculture Committee included report language addressing these
> provisions; "The Committee acknowledges that categories of
> over-the-counter transactions, such as certain commodity swaps that may be
> traded under the current swaps exemption, have not been excluded or
> exempted under the terms of this Act.  The Committee intends that any
> failure to provide a statutory exclusion or exemption for these categories
> of swap transactions does not reflect, and should not be construed to
> reflect, a determination by Congress that these categories of swaps
> transactions are subject to the Commodity Exchange Act.  Also relevant is
> pre-existing language in Section 25 that states "the provisions of this
> section shall become effective with respect to causes of action accruing
> on or after the date of enactment of the Futures Trading Act of 1982."
>
>
> Cary Oil Co., Inc. v. MG Refining and Marketing
> Historically, the case arises out of petroleum contracts between the
> parties that included a pricing mechanism that allowed a counterparty to
> blow out of the contract when the NYMEX price exceeded the contract price.
> In hedging the transaction, MG became too exposed and word got out that
> they were seeking to renew their long-term contracts.  The market started
> to turn against them and ultimately, the transactions were unwound all at
> once.   MG now alleges that those contracts were off-exchange futures
> contracts and thus void.  At the time, NYMEX conducted an investigation
> and a consent order was issued. Now, a second suit has been initiated in
> which MG filed for summary judgment claiming that CFMA amendments to the
> CEA were not retroactive.
>
> Federal Magistrate Judge Eaton issued a decision in a civil action the
> week of January 7, 2002 recommending that Judge Marerro find that Section
> 25(a)(4) (enforceability of derivatives contracts) is prospective only.
> Specifically, Magistrate Judge Eaton held that since it was "unclear why
> Congress chose Section 25 as the place to insert (in the CFMA) the new
> sub-section about contract enforcement..." it should thus apply
> prospectively only.  Thus, the consideration of Section 25(a)(4) as an
> issue and the necessity to submit a brief supporting the retroactivity the
> CFMA's non-repudiation provisions. Submitting a brief to Judge Marerro
> would assist in emphasizing that market participants believed that this
> issue was put to rest with the passage of the CFMA in December 2000.
>
>
>
> Stacy Carey
> Policy Director
> International Swaps and Derivatives Association
> 600 5th Avenue, 27th Floor
> Rockefeller Center
> New York, NY  10020
> (212) 332-1202 ph
> (212) 332-1212 fax
> (917) 543-9622 cell
> scarey@isda.org
>
>
>
>