Here is the Doug Leach/Russell Dyk e-mail.

 -----Original Message-----
From: 	Leach, Doug  
Sent:	Wednesday, July 25, 2001 3:58 PM
To:	Taylor, Mark E (Legal)
Subject:	FW: hedge funds

Mark--please review and let's discuss. Will call you tomorrow am.

 -----Original Message-----
From: 	Dyk, Russell  
Sent:	Tuesday, July 24, 2001 6:33 PM
To:	Leach, Doug
Cc:	Gagliardi, Larry; Shankman, Jeffrey A.; Abramo, Caroline; Zivic, Robyn; Plauche, Stephen
Subject:	RE: hedge funds

Doug and Larry  -
I would say we're at least 6 weeks away from getting the first fund (Tudor) set up to transact gas, crude, products, etc. on EOL. 

The primary reason for this is the way Tudor - and most of these funds - are set up. Normally the funds have at least two separate entities, one onshore and one offshore, so that they can attract both US and overseas investors. 

We have separate ISDAs w/ each fund, yet in practice the fund manager will trade, say, 100 lots which is then split in some way between the two funds. While this works in practice right now, with the funds calling in and us executing orders, it would not work at present on EOL unless they traded as separate entities. Because one manager/trader usually trades on behalf of both entities, he would have to be clicking on two separate EOL screens to trade. 

When I spoke w/ Larry 2 weeks ago, he asked whether the funds could trade on EOL through only one of the two entities. I brought this up w/ them and the reply was that it's not possible. The reason is that the funds are set up legally according to certain guidelines, one of which is that trades are allocated among the various funds according to capital in each fund. To put all of one trade in one fund would violate those guidelines, as the manager would be favoring one class of investors - say, foreign ones if it were only the offshore fund that traded on EOL - over another by putting all of one trade in one fund. If the trade was a winner, the foreign investors would benefit more than domestic ones. If it's a loser, it would be the other way around.  

The way we're proceeding to work around this is to draft an a legal agreement that basically gives one entity (a "superfund") the ability to trade on EOL on behalf of all the funds with which we have ISDAs. We have spoken to the funds about this, as well as to Dan Diamond and Savita Puthigai from EOL, and all have agreed that this is the best way forward. 

There are two funds that we deal w/ which have only one entity, which would make transacting on EOL much easier. 

One of those - Harvard - already has transaction rights on EOL. Harvard, however, is not going to be a flow customer, which is why I noted above that Tudor is really the first fund that will transact regularly on EOL. Harvard's focus is longer term and typically more option-oriented. The one thing they might trade on a more frequent basis - as I mentioned to Larry - is the WTI/Brent spread. Other funds have expressed interest in seeing this product online as well.

The second fund we are still negotiating an ISDA with, but that should be signed within the next 2 weeks. 

As you can see, the funds are not all set up the same way. Moreover, many have different focuses - i.e. short-term, longer-term, fundamentally driven, technically-driven, etc. Some are also restricted by their charter from trading prompt-month instruments. Our goal is to get all of them set up on EnronOnline; but not all of them will be flow customers. 

All the funds currently have guest IDs on EOL. We worked an arrangement w/ Dave Forster and Mike Bridges of EOL under which the funds' guest accounts are good for 2-6 months. So the funds are seeing EOL prices, and we very often transact on those prices - at this point more on the gas side than crude. However, recent trades we have initiated on the crude/products side - for example, a Cal02 fuel oil crack - have been done b/c a fund has seen the price on EOL. Moreover, trades we pitch are often referenced to EOL prices, so that the funds can monitor them for their desired levels. 

Chris Glaas has visited many of the funds to pitch his EOL DFL product, which would allow them to more easily and transparently play in the Dated Brent market. So has Andy James, from the shipping group, who was pitching both dry bulk cargo and wet tanker route markets on EOL. When we last spoke, Larry introduced me to the TAS gasoline product. We're definitely interested in the new products that are out there, and are happy to talk to the funds about specific ones. 

As far as internal problems, the only one we have is the lack of adequate numbers of legal staff to draft and negotiate ISDAs and these EOL omnibus agreements w/ the funds. ENA/EGM has assigned one lawyer to us - Frank Sayre - and he is also saddled w/ other responsibilities so that his time is very constrained. 

Just to summarize, as far as status on EOL, all the funds except Harvard have guest IDs for EOL. We have signed ISDAs w/ five and are negotiating ISDAs w/ seven more. In addition, we are in discussion w/ two other funds. Three of the funds - one with which we're negotiating an ISDA and the two with which we're in discussion - are program ("black box") funds. Our specific pitch to them was EOL, as it has more transparent pricing and often tighter spreads than they see on the floor. Of all the funds, these we expect would provide the most flow business to EOL. 

Sorry for the long explanation to a short request - if you have more questions I'd be happy to discuss them over the phone. I'm at 212 702 3914.  
Regards,
Russ



 -----Original Message-----
From: 	Leach, Doug  
Sent:	Tuesday, July 24, 2001 2:22 PM
To:	Dyk, Russell
Cc:	Gagliardi, Larry
Subject:	hedge funds

Where does the Enron NYC office stand with get the hedge funds signed up to use EnronOnline for crude and products? Could you please give us a list of the funds and the status of each regarding EnronOnline? If there is a legal or credit problem with getting them set up would you please identify who or where that internal problem is?