From: robert.bruce@enron.com
To: lisa.yoho@enron.com, mark.taylor@enron.com
Date: 2001-01-16 10:11:00+00:00
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
. 

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