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FYI.
----- Forwarded by Alan Aronowitz/HOU/ECT on 07/13/2000 08:56 AM ----- John Viverito@ENRON 07/13/2000 05:59 AM To: Alan Aronowitz/HOU/ECT@ECT cc: Subject: FW: Weather and Oil Derivatives Alan- Jeremy has requested that I forward this on to you, as he had experienced a "bounce back" problem with your address. ----- Forwarded by John Viverito/Corp/Enron on 07/13/2000 05:58 AM ----- Jeremy.Pitts@BAKERNET.com 07/13/2000 05:52 AM To: John.Viverito@enron.com, john_viverito@enron.com, johnviverito@enron.com, 'alan.aronowitz@enron.com' cc: Subject: FW: Weather and Oil Derivatives Resending.... -----Original Message----- From: Pitts, Jeremy Sent: Thursday, July 13, 2000 7:16 PM To: 'John.Viverito@enron.com' Cc: Davis, Paul; Eguchi, Naoaki; Toyohara, Shinji; 'alan.aronowitz@enron.com'; 'nicholas.o'day@enron.com'; 'michael.grimes@enron.com'; 'jonathan.whitehead@enron.com' Subject: FW: Weather and Oil Derivatives John, I refer to our telephone conversation this afternoon regarding our advice (copy below) and confirm the matters discussed as follows: 1. We note your conversation with Terry Tanaka of IBJ in which he commented that it was his understanding that the FSA had given informal approval for banks to conduct weather derivative transactions. This gives banks who engage in weather derivative transactions (and their counterparties) a possible additional argument that the transaction are "being conducted in accordance with law" for the purposes of the defense in Article 35 of the Criminal Code. This does not change our advice with respect to transactions between Enron Japan and non-bank counterparties. However, if Enron Japan were to enter into a weather derivative with a bank, Enron Japan would be able to rely on the tacit approval given by the FSA to the bank - but only to the extent to which the bank would be willing to represent and warrant to Enron Japan that the bank was authorised to enter into the transaction under Japanese laws and regulations. 2. We note your comment regarding the possibility that Enron Japan would enter into back-to-back transaction with an offshore Enron affiliate and thus transfer all risk in relation to the weather derivative transactions outside Japan. As mentioned in our advice, one of the factors that will suggest that Enron Japan is engaged in a "legitimate business activity" will be the fact that Enron Japan manages the risk under the transactions that it enters into and does not take purely speculative positions. Entering into back-to-back transactions is one way in which Enron Japan may manage risk. However, there are also other risk management techniques (such as hedging in local markets - to the extent possible - or hedging in offshore markets). Insofar as these different risk management techniques are all effective methods of risk management, we do not believe that any one method of risk management is necessarily preferable to another. 3. We have checked the home page for the Japanese Financial Law Board and confirm that it does not contain any information directly relevant to weather derivatives. The home page does contain discussion of the application of the Criminal Law to financial derivatives generally, but simply notes that the parties to a financial derivative that is not specifically authorised by law cannot rely on the "act in accordance with law" defense under Article 35 of the Criminal Law. 4. You have asked us whether we would be able to change our risk assessment from "relatively low" to "extremely low". We are most reluctant to change our view. Our difficulty is that the risk of possible action by the regulators or by the police is extremely difficult to predict and it is therefore necessary for us to take a slightly cautious approach. We do note that similar concerns about gambling were raised when swaps were first introduced in Japan in the 1980s and again when new derivatives products such as oil derivatives and equity derivatives were introduced in the 1990s. However, as far as we are aware, no prosecutions have ever been commenced in Japan alleging that swap or derivative transaction constitute gambling. 5. In our advice we identified a number of factors that tend to raise or lower the risk of possible action. We would like to emphasise that, if Enron Japan does commence weather derivative trading in Japan, Enron Japan should: * clearly add specific representations regarding the "legitimate business" issue in its contract documentation; * establish clear internal policies regarding counterparty selection and risk management (possibly in the form of a board resolution); * only transact business with (a) authorised financial institutions (see above) or (b) large sophisticated counterparties with a legitimate business purpose; and * transact business in an "appropriate" manner. These points are explained in further detail in the attached advice. We hope this helps to clarify the risks. Please let us know if you need additional information. Best regards Jeremy Pitts Registered Foreign Lawyer - Jurisdiction of Primary Qualification - New South Wales Designated Jurisdictions - England and Wales and the State of Victoria Direct Tel: (81-3) 3479 3839 Direct Fax: (81-3) 3479 0225 Voice/Fax Messaging: (81-3) 4464 6094 This is an e-mail from Baker & McKenzie - Tokyo Aoyama Law Office (Qualified Joint Enterprise Offices). The contents of this e-mail may be privileged and confidential and are intended only for the use of the addressee. No one else may copy, forward, disclose or use all or any of it in any form. If you are not an intended recipient, please notify us immediately (by reply e-mail) and delete this e-mail from your system. Thank you. -----Original Message----- From: Pitts, Jeremy Sent: Friday, July 07, 2000 7:49 PM To: 'John.Viverito@enron.com' Cc: 'scott.gilchrist@enron.com'; Davis, Paul; Eguchi, Naoaki; Toyohara, Shinji; 'alan.aronowitz@enron.com'; 'nicholas.o'day@enron.com'; 'michael.grimes@enron.com'; 'jonathan.whitehead@enron.com' Subject: Weather and Oil Derivatives John - the memo is attached. I am copying this to Scott in the event that we have transmission problems getting to you. Scott - could you make sure that John receives this message. Thanks and best regards Jeremy Pitts <<Gamble 06.07.00.doc<< - Gamble 06.07.00.doc
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