Re: New product approvals

an interesting debate re NPAs and how to manage and control operational risk

Would be good to chat around this
---------------------- Forwarded by Mike Jordan/LON/ECT on 09/05/2001 10:35 ---------------------------

James New
09/05/2001 10:12
To: Lloyd Fleming/LON/ECT@ECT
cc: David Port/Enron@EnronXGate, Cassandra Schultz/Enron@EnronXGate, Ted Murphy/LON/ECT@ECT, Mike Jordan/LON/ECT@ECT, Mike Jordan/LON/ECT@ECT, Fernley Dyson/LON/ECT@ECT

Subject: Re: New product approvals

RAC control the corporate risk policy (please correct me if I am wrong here) so by definition RAC need to be concerned by the operational issues around new products as they relate to ensuring that the end goal of aggregation in the overall Corporate VAR. That is the issue which will continue to face us as the markets expand and deregulate and more and more basis locations get added (the problem we have right now).

All the investment banks have a new product / new business policy to stop just those issues we are facing and I strongly feel that we should more to adopt the same here. This would help to reduce the noise we are having around the process and close one more door.

Cassandra - your thoughts ?

James

From: Lloyd Fleming 09/05/2001 09:40

To: James New/LON/ECT@ECT
cc: David Port, Cassandra Schultz/Enron@EnronXGate, Ted Murphy, Mike Jordan/LON/ECT@ECT

Subject: New product approvals

James,

Further to your comments yesterday on the absence of a policy for New Product approvals, as far as I am aware there is no explicit policy by RAC for approval of new products, other than the extent to which a new product is covered under this paragraph in the Risk Policy manual:-

VI / A. Subject to the authorization of the Board of Directors, the Enron Corp. Chairman, the President of Enron Corp. and the Enron Corp. Chief Risk Officer, additional Portfolios may be created and additional Commodity Groups may be added within existing Portfolios, and the related limits will be created or revised accordingly. The President of Enron Corp. and the Enron Corp. Chief Risk Officer can authorize additional Positions within the existing Commodity Groups, provided that such Positions can be aggregated within the limits of a currently authorized Commodity Group.

RAC's concern is not with the operational issues around new products, but about whether or not those products are aggregated in the overall Corporate Risk reporting. I suggest we approach this from our respective ends: I will raise this with Ted Murphy and Cassandra Schulz to see what level of policy they deem appropriate from a corporate perspective. From your side, are you able to put together some operational guidelines, if none already exist?

regards

Lloyd

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