Re: Broker Client Process flow

Can you please talk to Justin and help him understand the structure we are
planning to use. I hope that we won't need a different structure. Hopefully
we can keep Justin in the loop and manage the legal aspect from here. Let
me know.
---------------------- Forwarded by Bob Shults/HOU/ECT on 11/03/2000 10:36 AM
---------------------------

Justin Boyd
11/02/2000 10:02 AM
To: Bob Shults/HOU/ECT@ECT, Mark Taylor/HOU/ECT@ECT
cc: Amita Gosalia/LON/ECT@ECT, Andy Zipper/Corp/Enron@Enron
Subject: Re: Broker Client Process flow

Bob

Thanks. It seems to me that:

the broker acts as principal and must itself be EOL pre-approved
the broker will seek to novate the trade to the specified counterparty (who
must be EOL pre-approved in relation to the underlying product)
on novation (if at all), the broker is released as principal and the
specified counterparty is substituted therefor
if no novation occurs, the broker is liable as principal and any cash-out
should be calculated on market-based principles

Justin

To: Justin Boyd/LON/ECT@ECT
cc: Andy Zipper/Corp/Enron@Enron, Mark Taylor/HOU/ECT@ECT, Amita
Gosalia/LON/ECT@ECT

Subject: Re: Broker Client Process flow

Justin please see my comments in red below. You probably need to have a
conversation with Mark Taylor to flush out details of the broker customer
relationship.

Justin Boyd
11/01/2000 02:50 AM
To: Bob Shults/HOU/ECT@ECT
cc: Andy Zipper/Corp/Enron@Enron, Mark Taylor/HOU/ECT@ECT, Amita
Gosalia/LON/ECT@ECT
Subject: Re: Broker Client Process flow

Bob,

Thanks for these. My comments/questions were:

What is the rationale for requiring margin from the broker, given its role as
agent for the client? What if the client refuses to accept/acknowledge the
trade - I assume the agent is nonetheless liable? The margin will secure the
risk between treansaction and confirmation with the counterparty. the broker
will pay liquidated damages if counterparty does not accept the trade. (risk
is essentially 1-3 days)

I assume we will negotiate a fully-fledged agreement with each broker,
covering all the usual protections for Enron (indemnities/right of agent to
bind its principal/reps and warranties/duties & obligations of
agent/liability of agent/margin arrangements) Yes. Mark Taylor is drafting
the agreement. the agreement will lay out the margin requirements,
liquidated damages, etc. I am not sure that the broker is acting as a agent
for the customer as the customer may not even know that the broker is
transacting on EnronOnline.

I assume that the client will be an approved EOL counterparty with trading
access for the particular product Not neccesarily. the customer must however
have a profile set up in enronOnline and must have a credit headroom in
EnronOnline. We can potentially paper the transaction under normal OTC
process.

We will need to ensure that the client agrees to be bound by each trade
concluded through the agent, notwithstanding the intermediation of the agent
(it would seem to me that we should create special ETAs/PAs for this purpose
- e.g. each trade is effected by the "click" of the agent, not the client;
the ETA does not contemplate intermediation; the PA relates to the use of
passwords by a principal and not its agent) Mark is also drafting a BTA
(broker transaction agreement. Once again the broker is not acting as agent
rather they will release the rights and obligations under the transaction to
the counterparty.

The agent will, in its terms of business with the client, need to ensure that
it is authorised to bind the client with respect all trades, whether effected
online (including EOL) or offline This is not the case today in OTC
transactions and will not neccessarily be the case with the EnronOnline
broker client.

The agent will need to meet the usual legal/regulatory/financial tests, as if
it were acting as principal - e.g. in the case of derivatives trades, the
agent must be regulated to carry on its business by the UK SFA [no doubt, the
CFTC swaps exemption test will also need to be met] Lets discuss

The agent must also be a corporate or similar commercial enterprise The
broker must be financially able to meet margin requirements

Look forward to your response.

Thanks

Justin

To: Justin Boyd/LON/ECT@ECT
cc: Mark Taylor/HOU/ECT@ECT, Andy Zipper/Corp/Enron@Enron, Michael
Bridges/NA/Enron@ENRON, Teresa Smith/Corp/Enron@Enron

Subject: Broker Client Process flow

We are currently in discussions with 3-4 brokers (including GFI in London) to
allow them to transact on behalf of their customers via EnronOnline. Mark
Taylor suggested that I send you some information on the broker client
application and the process flow. Attached please find the functional
specifications for the broker client and a draft process flow. All documents
are work in progress.

We have been discussing this with Amita Gosalia (EnronOnline Product
Control), Debbie Nichols and Gail Hill in the London Office.

Please call me with any question at 713 853-0397. I will continue to
coordinate my legal questions through Mark Taylor.