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Enron Mail |
Bob -
We may want to consider an informal meeting with the CFTC staff to get their suggestions on how best to clarify this issue. I am available today and tomorrow, and will be travelling the remainder of this week. Let me know what works for you and Mark. Lisa Robert Bruce Sent by: Robert Bruce 01/16/2001 08:11 AM To: Lisa Yoho/NA/Enron@Enron, Mark Taylor/HOU/ECT@ECT cc: Subject: Re: CFMA I am forwarding to you an e-mail discussion I have had with Bill Nissen over an ambiguity in the Commodity Futures Modernization Act of 2000 that troubles me somewhat. The Act provides a new deregulated status for transactions in "exempt" commodities. The definition of "exempt" commodities expressly excludes "agricultural commodities." Unfortunately, "agricultural commodities" is not defined. Usually, when Congress or the CFTC makes a law or rule relating to special restrictions on the grains and meats, they expressly reference the list of "enumerated commodities" found in Section 1a4 of the Commodity Exchange Act. In the new bill, the special restricted status just refers to "agricultural commodities," which raises the question -- do the special restrictions cover coffee, sugar and cocoa as well? Our two outside lawyers I have discussed this with so far (Ken Raisler of Sullivan & Cromwell in New York, and Bill) strongly believe the answer is "no," and that this ambiguity is the result of poor drafting of the bill rather than anything Congress intended to do. I would agree that this is probably the case; the strategy now is, how do we get a degree of comfort that coffee, sugar and cocoa are in fact "exempt" commodities? Of course, the highest degree of comfort would come in the form of Congressional amendment to the CFMA to clarify this issue; obviously, we cannot count on this happening on an expedited basis. The next best thing would be a CFTC rule clarifying this. As you know, the CFTC withdrew the rules they had promulgated in December -- in light of the CFMA being signed into law -- and will presumably promulgate new rules supporting and implementing the CFMA. But no one I have talked on the subject expects new CFTC rules anytime soon. So the question is -- what should our "stop-gap" strategy be to address this? Bill has asked if we want him to research legislative history or approach the staff directly (I'm not sure if he's suggesting the ag committee staffs or the CFTC staff). We might also consider a letter opinion on the issue from the CFTC. These are not ideal solutions, but they are the best I can think of, especially given that the ag group would like to roll out softs products on EOL in the next couple of months or so. I propose the three of us meet to discuss strategy on the issue. -- Bob Robert E. Bruce Senior Counsel Enron North America Corp. T (713) 345-7780 F (713) 646-3393 robert.bruce@enron.com ----- Forwarded by Robert Bruce/NA/Enron on 01/16/2001 09:49 AM ----- Robert Bruce Sent by: Robert Bruce 01/16/2001 09:47 AM To: "Nissen, William J." <wnissen@Sidley.com< cc: Subject: Re: CFMA Thank you, Bill; I think your analysis is well-reasoned. I would like to point out that we do not consider EnronOnline, as it is currently operated, to be an "electronic trading facility" for purposes of the Act. In other words, all transactions in an "exempt" commodity on EnronOnline, we believe, are "not entered into on a trading facility," (see Sec. 106(h)(1)(B)) and therefore the notice requirements of Sec. 106(4) would not have to be complied with. That is because the Act's definition of "trading facility" expressly excludes an electronic facility in which transactions are entered into bilaterally (see Sec. 101(2)(33)(B)(i) -- on EnronOnline, Enron is a party to every single transaction. I agree that it seems odd that Congress would intend for coffee, sugar and cocoa to fall within the special restrictions normally reserved for the enumerated grains and meats commodities. It seems more likely that the ambiguity is the result of a drafting oversight rather than something Congress intended. However, it is troublesome to me that Congress was able to refer to the enumerated commodities in other portions of the Act, and it is also troubling that coffee, sugar and cocoa would be probably be considered "agricultural commodities" in the ordinary sense of the phrase. The question remains, then, would we like you to research legislative intent or approach the Commission directly on the issue of whether the term "agricultural commodity" as used as a carve-out in the definition "exempt commodity" includes coffee, sugar, and cocoa -- I will get back to you on this shortly. Robert E. Bruce Senior Counsel Enron North America Corp. T (713) 345-7780 F (713) 646-3393 robert.bruce@enron.com "Nissen, William J." <wnissen@Sidley.com< 01/15/2001 01:12 PM To: "'Bruce, Robert'" <robert.bruce@enron.com< cc: Subject: CFMA Bob, in response to your questions from Friday: I assume you are no longer interested in pursuing your second question about the hedging study inasmuch as it relates only to full fledged contract markets. I have reviewed the Act regarding your first question re the definition of agricultural commodity as it relates to the definition of exempt commodities. Like you, I cannot find a definition of agricultural commodity, although the term is used elsewhere, see sec. 105(g) re excluded swaps. Also see sec. 5(e) (part of sec. 110) (which refers to "current agricultural commodities" as the enumerated commodities which are currently offered by exchanges). Based on the language of the Act, the most reasonable reading appears to be that agricultural commodities refers to the enumerated commodities. The agricultural commodities are being singled out for special treatment, and there is no indication that the Congress intended to extend special treatment to foreign agricultural commodities which have never been given special treatment in the past. The primary significance of the exempt commodity category is in sec. 106 of the Act, which allows certain off-exchange derivatives to be offered on a largely unregulated basis. For those transactions that will be traded with eligible commercial entities on an electronic trading facility under subsection (3), there is a notice requirement. Therefore if Enron wishes to conduct such business, a good way to raise the issue with the CFTC would be to prepare such a notice and then provide it to the staff for prior review. Acceptance of a notice listing commodities such as coffee, sugar and cocoa would set a good precedent for treating these as non-agricultural commodities. If Enron wishes only to offer contracts to eligible contract participants other than on a trading facility under subsection (1), it will have to deal with the ambiguity directly. Absent a CFTC regulation, which may not come for some time, the best way to deal with the issue as definitively as possible would be to raise it with the staff directly. Otherwise we could do more research to see if there is any legislative history to shed light on the issue. Please let us know if you want us either to approach the staff or research the legislative history (to the extent it is available). Regards, Bill . ------------------------------------------------------------------------------ ------------------------------ This e-mail is sent by a law firm and may contain information that is privileged or confidential. If you are not the intended recipient, please delete the e-mail and any attachments and notify us immediately.
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