Are multiparty ISDAs a real option ? This seems like the simplest solution.

If not, I think we are back to the alternatives mentioned below.

With respect to the spread products I believe there are no spread books as such, each risk is laid off to the respective books. In this case, a good rule of thumb would be to have the spread product offered by ENA (thus it is ENA who contracts with the hedge fund) and then ENA lays off the relevant risk (in the WTI/Brent example ENA lays off Brent to ECTRIC). The only issue I see with this is offering the product when ENA is closed, as traders in London cannot act on behalf of ENA (or alternatively traders in Houston could work extended hours ?).

Russell, do the hedge funds operate only out of New York, or would they operate out of London or other European offices also ? I am just wondering how much of an issue the trading hours would be.

To clarify, using ENA as the contracting party for all global liquids products would risk exposing ENA to a UK tax presence (assuming that traders continue to be based in London). Since a significant proportion of Enron's total income is earned by ENA this would be an unacceptable risk (any UK tax paid cannot offset the US tax liability because of certain limitations that apply to Enron - thus most of the UK tax paid represents an additional cost). 

Regards
Janine

 -----Original Message-----
From: 	White, Bill  
Sent:	28 September 2001 13:22
To:	Boyd, Justin; Dyk, Russell; Shackleton, Sara; Shankman, Jeffrey A.
Cc:	Abramo, Caroline; Zivic, Robyn; Diamond, Daniel; Radous, Paul; Lebrocq, Wendi; Sharma, Shifali; Juggins, Janine; Nelson, Roderick
Subject:	RE: Trades as ENA

Justin,

Your solution appears to respond specifically to EOL related legal/credit issues.  However, isn't this only the tip of the iceberg?  What about non-EOL OTC trades conducted by ECTRIC traders with counterparties that want ENA as their counterparty.  From my time in London, it was always impressed upon me that there was a quagmire of additional tax and potential regulatory (SFA) issues.

Please comment.

Also, as a commercially efficient course of action, It has always seemed to me that we should attempt to "train" our couterparties to accept that ECTRIC is also a Enron Corp guaranteed sub (at least it was in the past, at their request) and somehow initially set up our contracts/ISDA to be inclusive of this vehicle.  Is this possible?  Otherwise, the permutations of various legal/credit/tax/regulatory hurdles for all manner of OTC trades becomes onerous.

Bill--

 -----Original Message-----
From: 	Boyd, Justin  
Sent:	28 September 2001 05:43
To:	Dyk, Russell; Shackleton, Sara; White, Bill; Shankman, Jeffrey A.
Cc:	Abramo, Caroline; Zivic, Robyn; Diamond, Daniel; Radous, Paul; Lebrocq, Wendi; Sharma, Shifali; Juggins, Janine; Nelson, Roderick
Subject:	RE: Trades as ENA

Russell

My view would be to follow the novation route, i.e. 

1.	C/P trades via EOL with ECTRIC
2.	Each trade is novated from ECTRIC to ENA, and treated as concluded under ENA ISDA Master
3.	ENA enters into back-to-back trade with ECTRIC

This does mean that the C/P must initially accept the European EOL GTCs, though if we set up a mechanism whereby EOL trades are automatically novated to ENA and treated as concluded under the ENA ISDA Master, this effectively cancels out the EOL GTCs.

Justin

 -----Original Message-----
From: 	Dyk, Russell  
Sent:	27 September 2001 23:38
To:	Shackleton, Sara; Boyd, Justin; White, Bill; Shankman, Jeffrey A.
Cc:	Abramo, Caroline; Zivic, Robyn; Diamond, Daniel; Radous, Paul; Lebrocq, Wendi; Sharma, Shifali
Subject:	FW: Trades as ENA

Everyone -

Our hedge fund group needs clarification on the issue of doing Brent and other European product deals w/ our hedge fund counterparties and booking them back to ENA, the entity with which all the funds have ISDAs. We just did two WTI/Brent crude oil spreads today, one w/ very large volume, and expect to be doing more such deals. 

This is more than just a legal issue; it's going to impact credit and our strategy to get the funds trading on EOL as well.

As we understand it, the main legal issue is that all the funds have an ISDA only w/ ENA and not w/ ECTRIC, so they (and I assume we) want all deals and legal exposure to be w/ ENA. To satisfy both parties' desires, all European product deals must be booked from ECTRIC to ENA. Sara, from speaking to you and from Justin's response below, it seems to me that the only legal hurdle we, the funds, and our traders might face is if no trader w/ ENA in Houston okays w/ the counterparty on ENA's behalf. However, there seem to be 2 other solutions (a netting agreement and novating) that get around this. As Sara knows, dealing on legal agreements w/ the funds can be onerous and time-consuming; negotiating more paperwork is not a viable option.

From the credit side, as we understand it, the issue w/ not back-to-backing the trades w/ ENA is that the credit exposure will not be aggregated to the funds' net position in Houston and, therefore, not monitored. In other words, any exposure not sitting w/ ENA will be invisible to credit. so daily margining, etc. will  be incorrect. 

From the EnronOnline side, as we see it there are a couple of issues. EOL wants the funds to trade online; an increasing number of funds also want to trade online. However, they do not want to be restricted to trading products that are only US based. Also, they would like to see more arb spread products like a WTI/Brent crude oil spread online. If neither desire can be easily met b/c we need a separate ISDA w/ ECTRIC (which potentially means, as above, more onerous and time-consuming negotiation), then it will certainly be detrimental for volume and also foresake a certain momentum that we are gaining now. 

The point has been raised that the funds could trade European products if credit in London cleared them and if they were willing then to accept the general terms and conditions that pop up on EOL. We can assure you that they will not accept this.

These are the issues as we see them from the origination side. There may be other issues that we're missing from the sides that I've mentioned as well as the trading/back office side. 
Regards,
Russ
 




 -----Original Message-----
From: 	White, Bill  
Sent:	Thursday, September 27, 2001 3:32 PM
To:	Dyk, Russell
Subject:	FW: Trades as ENA



 -----Original Message-----
From: 	Sharma, Shifali  
Sent:	26 July 2001 08:21
To:	White, Bill
Subject:	FW: Trades as ENA

This is what we have heard from Legal and Tax so far.  We're trying to get a list of couterparties that currently will not trade with ECTRIC and only with ENA.

 -----Original Message-----
From: 	Boyd, Justin  
Sent:	Thursday, July 26, 2001 2:10 AM
To:	Juggins, Janine; Beyhum, Maya
Cc:	Sharma, Shifali; Klar, Guenther; Sexton, Camille; Watt, Julie; Marsh, Jonathan
Subject:	RE: Trades as ENA


i agree - assuming you follow janine's approach, then no adverse UK regulatory issues will ensue

justin
 -----Original Message-----
From: 	Juggins, Janine  
Sent:	25 July 2001 19:29
To:	Beyhum, Maya; Boyd, Justin
Cc:	Sharma, Shifali; Klar, Guenther; Sexton, Camille; Watt, Julie
Subject:	RE: Trades as ENA

I assume that these are financial transactions. The current approach is the right one in the circumstances - i.e trade between ECTRIC and ENA, trade between ENA and third party (eg Bank of America). It is important that the trader agreeing to the deal with the third party in the name of ENA is located in Houston (they cannot agree deals in the name of ENA when located in London).  The pricing should be such that ENA is compensated for taking the credit risk with respect to the third party but otherwise all the economics should be with ECTRIC. 

To avoid booking the back to back trades, a possibility would be an agreement on netting to be entered into by ECTRIC, ENA and Bank of America if all parties can get comfortable with the legal position.

Another alternative sometimes put forward is that ECTRIC does the deal with Bank of America, the contract is then novated from ECTRIC to ENA, and ENA enters into a back to back swap on the same financial terms with ECTRIC.

Note that we are currently working on a project to enter into financials through EFET LLC (arranged by EEFT) instead of ECTRIC (effective 1 November).

Regards
Janine

 -----Original Message-----
From: 	Beyhum, Maya  
Sent:	25 July 2001 14:13
To:	Juggins, Janine; Boyd, Justin
Cc:	Sharma, Shifali
Subject:	Trades as ENA

Hi

I am currently working in the London Risk group for Global Markets.

At the moment we have a number of counterparties who do not want to transact with ECTRIC but would like to do deals only with ENA (e.g. Bank of America). As a result, if a London trader wants to carry out a trade with Bank of America, he will do an internal trade with a trader in Houston and then book a trade between the Houston trader (who trades under ENA) and Bank Of America. The trades are then confirmed from the Houston office.

We were wondering about a couple of things:

Are there any tax/legal implications we should be aware of as a result of booking the trades as we do
Is there a way to approach these counterparties to get them to trade with ECTRIC (as this currently creates a lot of paperwork and administration)?

Thanks for your help
Maya