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Enron Mail |
Sorry for the delay in getting this back to you. Give me a call and we can
discuss in more detail. Mark P.S. - have you been watching the Horatio Hornblower movies on A&E? Christian Yoder 04/13/99 04:30 PM To: Mark - ECT Legal Taylor/HOU/ECT@ECT cc: Subject: request for primer Mark, I am heading into another CFTC related analysis and desparately need another quick primer. I would be very greatful if you could edit the following conversation and send it back to me like you did last time. I kept that copy and it has proven to be invaluable. Know it All: Yeah that CFTC stuff is pretty complicated. You have to remember though that it is the option of settling financially that distinguishes the futures contract. If you do a physical contract that has the option to settle financially it is an illegal futures contract if it isn't done on a regulated exchange and it is just like giving the other guy a free option to termiate for illegality. So the risk in doing these things is that your counterparty can get out on the basis of illegality and secondly, you might find yourself suddenly regulated by the CFTC. This risk is not to be confused with the other kind of risk which is where you write a mandatory financial transaction but wrap it up in physical clothing. This is basically the risk of doing an unauthorized derivitive transaction and again, depending on the counterparty, you may have given a free option to terminate for lack of authorization. Tormented: Okay, okay, I think I've got that part, but what's all this option crap that people keep adding into the forumula? They always say you can trade this and that and then they throw in the options. Are options over the counter or under the counter or not on the counter or regulated or what? Know it All: Can't you remember this stuff. I get tired of repeating it. Certain kinds of All commodity options are regulated and certain kinds aren't. Can't you just get that once and for all? Tormented: No. I've got optionality dislexia. What kind of option is How are options regulated? I see our traders doing options all the time and we just write them up in our confirmation letters. There's no big deal about CFTC or regulation. What's the problem? Know it All: Well its like this: if it is an option to do a futures contract it has to be done on the Exchange. Any other options are off exchange. It's just that simple. Off exchange commodity options can only be done if the offeree (that's the guy receiving the offer) is a commercial user, producer, processor or merchant handling the underlying commodity. Tormented: Hmmm. I'll have to think about that.
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