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Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: David Forster X-To: Mark Taylor X-cc: X-bcc: X-Folder: \Mark_Taylor_Jun2001\Notes Folders\Notes inbox X-Origin: Taylor-M X-FileName: mtaylor.nsf Mark, Are we considered to be 2nd or third tier under the new regulations? Can we obtain a summary of what the new regulations say? Dave ---------------------- Forwarded by David Forster/Corp/Enron on 12/27/2000 08:27 AM --------------------------- From: Rahil Jafry@ECT on 12/26/2000 03:04 PM To: Andy Zipper/Corp/Enron@Enron, Mark Taylor/HOU/ECT@ECT, Dave Samuels/HOU/ECT@ECT, David.Forster@enron.com, Bob Shults/HOU/ECT@ECT, Angela Connelly/LON/ECT@ECT, Julie Ferrara/HOU/ECT@ECT, Daniel Diamond/HOU/ECT@ECT, Leonardo Pacheco/Corp/Enron@Enron, Kal Shah/HOU/ECT@ECT cc: Paul Goddard/EU/Enron@Enron Subject: CFTC Rules, Legislation Aim to Clear Up Regulation of Over-the-Counter ... ---------------------- Forwarded by Rahil Jafry/HOU/ECT on 12/26/2000 03:01 PM --------------------------- CFTC Rules, Legislation Aim to Clear Up Regulation of Over-the-Counter Contracts.(US Commodity Futures Trading Commission)(Brief Article) 12/08/2000 The Oil Daily ITEM00343007 Copyright 2000 Gale Group. All rights reserved. COPYRIGHT 2000 Energy Intelligence Group CFTC Rules, Legislation Aim to Clear Up Regulation of Over-the-Counter Contracts A long process designed to clarify rules for over-the- counter (OTC) markets may be drawing to a close after the US Commodity Futures Trading Commission (CFTC) - the main regulatory agency - issued its final framework for a new regime. The rules are designed to clear up the legal status of OTC products such as swaps, while providing more flexible oversight of futures markets and promoting the establishment of independent clearinghouses. Unveiled late last month, the CFTC reforms are due to be published in the Federal Register next week, and would take effect 60 days later - in mid-February. In the meantime, a new president should take office Jan. 20. CFTC experts seem confident that the reforms will survive the changeover, saying it is hard for an incoming administration to pull back final regulations. There are also signs of progress on a parallel bill supporting the reforms, the Commodity Futures Modernization Act. This was passed by the House in late October, but got bogged down in the Senate, partly due to objections by Sen. Phil Gramm (R-Texas), who heads the Senate Banking Committee. A compromise was hammered out early this week, sources say, and the law could still get through this year - most likely as an attachment to an appropriations bill. Legislation would give the CFTC measures a stronger legal footing, but could require them to be tweaked into line. The CFTC reforms respond to the explosion of both derivatives markets and electronic trading, from equities to natural gas. Currently, electronic exchanges targeting derivatives markets - such as the Big Oil-backed IntercontinentalExchange - operate in a regulatory gray area. The new reforms define futures exchanges more flexibly, replacing a "one-size-fits-all" approach with core principles, and establishing three tiers of regulation: The top tier - of "recognized futures exchanges" (RFEs) - matches the current futures markets, such as Nymex, and is the most tightly regulated The second rank, of "derivatives transaction facilities" (DTFs), comprises institutions requiring looser regulation, if, for example, participation is restricted to big companies. The third tier, of "exempt multilateral transaction execution facilities" (Exempt MTEFs), escapes most regulation. In parallel, the CFTC has clarified an old ruling removing swaps from regulation - the so-called Part 35 exemption. This ends previous restrictions, so that OTC products traded between two parties can now be "fungible, standardized, and cleared." This is part of a drive to turn derivatives into legally recognized products, making it hard for one side to renege on an unfavorable contract. Finally, the CFTC has moved to encourage the establishment of independent clearinghouses by separating the rules for exchange and clearing functions. Two start-ups, EnergyClear and NexClear, have already declared their intention to offer such services, starting with US gas and power. Amid concerns about price manipulation, the energy industry has been treated as a special case throughout the new framework and does not qualify for the least-regulated Exempt MTEF category of exchange. The CFTC reforms also remain fuzzy in certain areas. In particular, the new Part 35 exemption for derivatives covers bilateral transactions, with multilateral activity still in something of a gray area. Basically, an exchange handling multilateral trades of energy derivatives can apply to the CFTC for official status as a "commercial DTF" if it thinks this will bring credibility and legal standing. However, a derivatives exchange that does not register with the CFTC will not be pursued. The new framework offers "legal certainty for those who want recognition; it is not ruling on the status of those who don't," one expert said. In practice, outfits such as EnronOnline - the web system for direct transactions with Enron - are in the clear as bilateral platforms dealing in contracts outside CFTC jurisdiction. Intercontinental, as a multilateral exchange dealing in standardized swaps, could probably remain unregulated, but could also register as a DTF to clarify its status. Nymex, in its current form, would be an RFE because it entertains noninstitutional traders. But the exchange could apply for its planned electronic arm enymex (or its traditional floor) to become a DTF, by limiting activity to institutional users. David Pike, Manimoli Dinesh For more on this story, see the next issue of Oil Daily sister publication energy network. Folder Name: Rahil Jafry Relevance Score on Scale of 100: 80 ______________________________________________________________________ To review or revise your folder, visit http://www.djinteractive.com or contact Dow Jones Customer Service by e-mail at custom.news@bis.dowjones.com or by phone at 800-369-7466. (Outside the U.S. and Canada, call 609-452-1511 or contact your local sales representative.) ______________________________________________________________________ Copyright © 2000 Dow Jones & Company, Inc. All Rights Reserved
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