Dear Sally,

From what I understand, the SO2 issue relates to how we price our curves (which is based on the last trade done) vs what the deal terms were in the Barclay's deal (which is calculated using a formula based on the Bloomberg & Air Daily price).  Risk believes that the marking the curves based on last Enron trades is a better way to mark the curve.  The discrepancy came when Barclay's tried to margin Enron based on Bloomberg prices (which was incorrect - it should have been the Bloomberg/Air Daily formula).

In the illiquid SO2 market it is hard to say what is the better methodology.  Risk has decided that keeping the curves marked against the last trade more accurately reflects market, but to ensure that credit knows what they will be margined against, Risk is going to send a file with the deal formula prices to Debbie each time Bloomberg quotes come out so she knows what the margining should be for the Barclays deal (I believe Bloomberg quotes SO2 weekly).

Since curve validation looks at both last trades and market prices, the difference in prices would be noted, but the curves would not be changed to the Bloomberg quotes. I've asked Michelle Bruce to send you the curve val to support this.

Regards

Shona

 -----Original Message-----
From: 	Beck, Sally  
Sent:	Tuesday, November 27, 2001 12:33 PM
To:	Wilson, Shona
Subject:	SO2

Bradford called last night - some problem with SO2 marks.  Bill thought that our curves were way off.  Sounds as if that is not the problem but instead that the book in which these deals were put had previously housed only intercompany deals and not third party deals.  Book wasn't picked up in Credit's exposure, making it look as if we were off on our mark versus Barclay's mark by $20MM.  I have gotten one story from Brent.  What do you know about this?  --Sally