Informal FSA Feedback

Hi Guys

The following matters were discussed with Gay Wisbey, Paul Richardson and Ted
Morris of the Markets & Exchanges Division of the FSA.

FSA's view is that as more and more trading activity is moving from
traditional exchanges to proprietary electronic platforms the distinction
between the two is becoming blurred. Currently, FSA has regulatory oversight
over both exchanges and firms which conduct regulated activity via their own
electronic platforms but the regulatory regime applicable to each differs.
In the light of this FSA is considering implementation of a dedicated
regulatory regime for alternative trading platforms (ATSs) so that regardless
of whether business is conducted via an exchange or an electronic platform,
FSA would be able to monitor price transparency, transaction transparency,
market depth and robustness of systems supporting the platform. As far as
the current situation is concerned FSA mentioned that even before
implementation of a specific ATS regime they would like electronic platform
operators such as Enron to keep FSA informed of any squeezes in the market
which become apparent to our traders - this seemed to be related to
EnronOnline activity vs offline activity. This is clearly not something we
do now for offline deals.

Regulation of the EnronOnline platform could result in:

a) monitoring of the platform and activity on it particularly in terms of
operational robustness with no additional regulation of products quoted on
EnronOnline;
b) regulation of the trading of financial products (currently regulated
through EEFT arranging deals for ECTRIC) and physical products (currently
unregulated). This could result in an anomolous situation where Enron's
offline physical trading is unregulated while online physical trading is
regulated.
c) increased concern as to the systemic risk which increased trading activity
via EnronOnline poses and therefore greater attention being paid to the
management of counterparty credit risk and capitalisation.

I suggest that we issue a guest user id to the FSA to enable them to monitor
prices on an ongoing basis.

FSA is releasing a discussion document re ATSs in late May. Jonathan Marsh
is monitoring developments in this area and will liaise with Justin Boyd and
me as soon as the paper is published. This should provide further insight
into their intentions.

Please let me know if you need any further information at this stage.

Regards

Amita