Mark,

Further to Mark Haedicke's e-mails, for your information please see below my 
e-mail of yesterday evening to Mark Haedicke and Scott Sefton re the impact 
of English law on a potential Equity trading desk based in London.

Kind regards

Mark  
---------------------- Forwarded by Mark Elliott/LON/ECT on 02/03/99 11:41 AM 
---------------------------


Mark Elliott
02/02/99 06:33 PM
To: Mark E Haedicke/HOU/ECT@ECT, Scott Sefton/LON/ECT@ECT
cc:  
Subject: Proposed London Equity Trading Desk

I have reviewed the above proposal (which includes having had some in-depth 
conference calls with Slaughter & May, London) and conclude that the project 
is technically and legally viable provided that the points listed below are 
dealt with.  Mark, once you have read this note, if you would like to discuss 
the contents with Scott and me, please do not hesitate to give us a call.

SFA Authorisation and Structure

On account of the potential frequency and size of trading (even on an 
execution-only basis for ECT Investments Inc), the London Desk should be 
authorised by the SFA.  The personnel involved in the activity should be 
registered with the SFA as, at least, Securities Representatives, and 
preferably as General Representatives.   

Accordingly, subject to Tax Department's input, the London traders should be 
located in EEFT (already SFA-regulated) which would act as arranger or agent 
for the existing Houston-based equity trading corporation, ECT Investments, 
Inc (the latter as principal).

Subject to Tax and other internal considerations, it would also be possible 
for EEFT to act as agent to do this business for, as principal, either 
ECTRIC, the proposed replacement vehicle for ECTRIC,  or a new UK unregulated 
entity (the latter would apply if a UK book was required).  A UK entity, as 
principal, would be "unregulated" if it was a purely passive booking company.

Provided that the ultimate principal is either ECT Investments, Inc., ECTRIC 
or an unregulated UK principal, there should not be any UK regulatory capital 
requirements.

The SFA would need to be informed in advance of our intention to have an 
equity trading capability in London and EEFT's SFA business profile would 
need to be extended to cover both arranging and dealing as agent in respect 
of equities.

Transaction Reporting        

As the business would be SFA regulated per the above, SFA Rule 5-49 would 
require all transactions to be "Transaction Reported" - for pure cash equity 
business (wherever the equities are listed) this would be accomplished by 
computer-entry of trade details which would then download to one of the 
London Stock Exchange's ("LSE's") systems known as either "SEQUAL" or 
"CHECKING".

The purpose of such reporting  is not only to enable the LSE and SFA to 
establish daily market volumes, etc.,  but also, for example, to provide the 
relevant information to the LSE's surveillance unit which actively monitors 
all trades for signs of Insider Dealing.

Systems' impact 

On the above structure, there should be no extra systems' requirements, 
except:-

 PC screens for the traders having feeds of market quotes / market 
information (e.g., Reuters, Telerate, etc):

potentially a computer-link for settlement purposes

a computer-link for the Transaction Reporting of executed deals to the LSE 
(see above)

a computer-link to produce exception reports of executed deals to enable a 
Compliance Department to monitor for Disclosable Interests in Shares (see 
below) 

a computer-link to produce reports of executed deals for monitoring against 
the Watch and Restricted Lists (see Insider Dealing below)

Accountants, e.g., Arthur Andersen, would be the best placed to advise on the 
correct form of computer-links, especially those for Transaction Reporting 
purposes.

Disclosure of Interests in shares          

Re UK listed companies there are the following disclosures to be made of 
equity interests:-

S. 198 Companies Act '85 - acquisition of 3 % interest or more, or disposal 
to below a 3% interest, or acquisition of each whole % above a 3% interest of 
a UK Public Co's voting capital requires to be disclosed to the company.  
Group interests / concert party interests are aggregated to arrive at the 
thresholds and "interest" includes a right or option to acquire shares.

Substantial Acquisition Rules - acquisition of over 15% interest in a UK 
public company requires separate disclosure to the Company and, if listed, to 
the LSE.

Rule 9 Takeover Code - acquisition of 30 % or more of UK public company's 
voting shares leads to a requirement to make a cash offer for the remainder.

S. 212 Companies Act '85 - UK public companies can request at any time an 
entity to disclose to the company particulars of their, and other persons', 
interests in the company's share capital, including such details for the last 
three years.

Rule 8.3 Takeover Code - during an "offer period" relating to a UK public 
company (and the offer is a "securities exchange offer"), persons owning or 
controlling directly or indirectly 1% or more of relevant securities of that 
company (including cash-settled derivatives) must disclose such interests to 
the Take-Over Panel.

Please note that there may be similar rules in other jurisdictions, depending 
on where the relevant equities are listed - indeed in some jurisdictions 
there may be  prohibitions on foreign ownership of equities. 

Insider Dealing   

Looking just to the UK legislation (The Criminal Justice Act 1993), the 
various criminal offences of Insider Dealing are committed, basically, when 
an individual has Inside Information (meaning unpublished price-sensitive 
information) concerning the securities of an entity or entities (whether UK 
or non-UK) which are officially listed in any State within the European 
Economic Area or admitted to dealing, or quoted, on a "Regulated Market" 
(e.g., including the major European markets, NASDAQ, etc).  Please note that 
"price-sensitive"  means likely to have a significant effect on the price of 
any securities - not just those of the entity or entities in respect of which 
one has the knowledge; and "securities" includes shares, debentures, options 
to subscribe for shares / debentures, depository receipts, futures and CFDs.  
Once in knowledgeable possession of insider information, the offences are 
commited if one deals in price-affected securities in relation to  that 
information, or encourages another to so deal or discloses the information.  
The offence is punishable by imprisonment and / or fines.

        The offences are highly technical and there are certain defences 
available.  

The manner in which to try to prevent the internal commission of the offences 
is to put in place, simply, "established and effective" Chinese Walls between 
those individuals who would be involved in the Equity Trading facility and 
others in within the Enron Group who may have such inside information, to 
prevent the potential flows of Inside Information between those with such 
information and the Equity Traders in London.  Both I and Slaughter & May 
feel that potentially replicating in London the Enron Chinese Wall  policy 
actively followed in Houston could suffice in this respect as it is generally 
felt that the US requirements should be at least as stringent as those 
required in the UK.  Alan Aronowitz is in the process of  sending me 
Houston's policy in this regard for review and upon receipt that policy will 
be reviewed accordingly.

However, the relevant Chinese Walls would need to be put in place for Insider 
Dealing purposes between, in my and Slaughters' views, (a) on the one side, 
the Equity Traders and (b) on the other side, originators and traders, and 
persons involved in any corporate finance, M&A, Joint Venture, and financing  
activity.         

Not only would the Chinese Walls need to be implemented, but also they would 
need to be actively monitored by a Compliance Department in London to ensure 
that they were being observed and effective.

In addition to the Houston Chinese Wall policy, there should be implemented 
both a "Watch List" and a "Restricted List" procedure (I understand the 
latter already exists and would need to be combined with additions to such 
list in London ) - the Watch List does not actively prevent trading in 
relevant securities, but is an intermediate step before a stock is placed on 
the Restricted List: i.e., companies in which Enron is involved in sensitive 
transactions would be placed on such a list and an internal Compliance 
Department should then actively monitor for any unusual deals by the Equity 
Traders (e.g., by volume etc) in stocks of the Companies on  such list.  If 
any irregular trading activity is then spotted - it could be internally 
investigated.  Obviously, an internal procedure would need to be established 
to gather information on sensitive transactions so that they could be placed 
on the Watch / Restricted Lists as appropriate.

Other Confidential Information

In addition to any specific Insider Information, various Enron Group entities 
will be party to specific Confidentiality Agreements (or other forms of 
Agreement, e.g., Master Agreements, containing confidentiality clauses) with 
third parties, pursuant to which the Enron entities may have confidentiality 
obligations to those third parties and which may prevent the contracting 
Enron entities from disclosing certain information to affiliated Enron 
entities.

Obviously, in order to comply with our various obligations in this regard we 
would need either to check each contract or ensure that Enron personnel were 
aware of their obligations in this regard and never disclosed to the London 
Equity traders any information covered by the confidentiality obligations.  
The Watch List could be used to log, for monitoring purposes, companies to 
whom Enron owes confidentiality obligations.  

Both with regard to Insider Information and this form of confidential 
information, employees would need to be actively trained to ensure that only 
generally available market sentiment on a third party could be passed on to 
the London Equity traders and not more specific information.    

Compliance Department 

If this proposal moves ahead, my suggestion is that Enron in London would 
need to hire an experienced  Compliance professional for the following 
purposes:-

active implementation of, review of, and consistent monitoring of, the 
Chinese Wall policy;

active monitoring of executed deals against Watch and Restricted Lists;

active monitoring of executed deals for Disclosable Interests in Shares in 
the UK and similar rules and prohibitions in other jurisdictions;

handling SFA and  LSE queries on Transaction Reporting; 

handling potential LSE and Takeover Panel queries on executed Transactions; 
and

running continuous training courses for Enron personnel on Insider Dealing, 
confidentiality obligations, etc.  

In addition, such person could have responsibility for the implementation of, 
monitoring of, and ensuring compliance with, SFA Conduct of Business Rules 
and Moneylaundering compliance, and any relevant exchange rules, firm-wide in 
London across all of Enron's business - e.g., its OTC Derivatives' 
business.    
Kind regards

Mark