Re: VAR FOR CREDIT TRADING

Ted

Thanks for the note - coming from JPMorgan I understand the importance of VAR
as a key control measure and I appreciate that we may all need to do further
work to 'institutionalise' a VAR culture in Enron. However, in this instance,
I believe the initial comment has been taken out of context.

I believe there is a general communication issue here. Since inception the
business has been monitoring risk via the use of a cumulative sensitivity
measure for the portfolio - expressed and reported as DV01on the daily DPR.
However, no-one in RAC/Commercial/Commercial Support appears to have formally
equated that sensitivity to the business VAR limit during the longer than
expected delay to the completion of a signed off VAR model. ( informally this
is being done )

I would have expected the business to utilise a crude ( and possibly
necessarily overstated ) scaling factor based on the volatility of credit
spread movements in the market and for RAC to have signed off this scaling
factor. Bryan Seyfield and David Wall will propose this immediately.

Finally, I believe both Commercial and Commercial Support for Credit Trading
are reprioritising the work being completed for the model for VAR reporting
- we should communicate the new delivery date as soon as possible.

I look forward to discussing this and other RAC/Commercial Support interface
issues with you next week

Regards

Mike

From: Ted Murphy
26/06/2000 14:50

To: Sally Beck/HOU/ECT@ECT, Mike Jordan/LON/ECT@ECT, Fernley
Dyson/LON/ECT@ECT, Bryan Seyfried
cc: Rick Buy, Richard Causey/Corp/Enron@ENRON

Subject: Re: VAR FOR CREDIT TRADING

Please see the attached comment at the bottom of this string of e-mails.

The privilege of using Enron's balance sheet comes with the responsibility to
adequately report the risk in the form that has been agreed to.
It is appalling to me that we are currently incapable of calculating VAR in a
product that has been approved for trading for several months. It is equally
appalling that the support staff continues to be so unaware of the importance
of this that the comments below could even be considered reasonable.
Obviously, the individual who made the comment is hardly responsible. It
lies with both commercial and commercial support management. I know that
airing this out in such a broad way appears to be harsh. This is not the
point. This is not an isolated problem. It is not just pertaining to
Europe. Please do not feel singled out. But the scrutiny and pressure on VAR
as a measure of risk continues to grow at fast pace. We can hardly make any
progress if this is the pervasive attitude. Let's knock this stuff out one
at a time.
Ted

Oliver Gaylard
06/26/2000 08:34 AM
To: David Port/Market Risk/Corp/Enron@ENRON
cc: Chris Abel/HOU/ECT@ECT, Michael E Moscoso/HOU/ECT@ECT, David A Wall/Risk
Mgmt/LON/ECT@ECT, Ted Murphy/HOU/ECT@ECT
Subject: Re: VAR FOR CREDIT TRADING

The VaR engine for credit trading is being built by Research in London and it
is intended that VaR be run daily as soon as they have produced/signed off on
this.

Oliver

From: David Port @ ENRON
26/06/2000 14:24

To: Chris Abel/HOU/ECT@ECT
cc: Michael E Moscoso/HOU/ECT@ECT, David A Wall/Risk Mgmt/LON/ECT@ECT, Oliver
Gaylard/LON/ECT@ECT, Ted Murphy/HOU/ECT@ECT

Subject: Re: VAR FOR CREDIT TRADING

My view : Prove its insignificant by calculating it every day, that's why the
board approved the limit.

DP

Chris Abel@ECT
06/23/2000 07:41 AM
To: David Port/Market Risk/Corp/Enron@ENRON
cc: Michael E Moscoso/HOU/ECT@ECT

Subject: VAR FOR CREDIT TRADING

FYI
---------------------- Forwarded by Chris Abel/HOU/ECT on 06/23/2000 07:38 AM
---------------------------

Mary Thambiah
06/23/2000 03:29 AM
To: Chris Abel/HOU/ECT@ECT
cc: David A Wall/Risk Mgmt/LON/ECT@ECT
Subject: VAR FOR CREDIT TRADING

Hi Chris

I talked with David yesterday and we don't think the risk is significant
enough to start calculating a VAR number. However if you have any queries
feel free to give him a call.

Rgds
Mary