FYI
---------------------- Forwarded by Mark - ECT Legal Taylor/HOU/ECT on 
03/12/99 09:29 AM ---------------------------


Paul Simons
03/12/99 08:53 AM
To: ECT London European Trading
cc:  
Subject: Weather Derivatives: European Legal Due Diligence

FYI - bon weekend!
---------------------- Forwarded by Paul Simons/LON/ECT on 03/12/99 02:54 PM 
---------------------------


Paul Simons
03/12/99 12:08 PM
To: Nick Mooney/LON/ECT@ECT
cc:  
Subject: Weather Derivatives: European Legal Due Diligence

As requested, a thumb-nail sketch of the above. As you will see, the sky is 
generally blue , but follow up work will be required in one or two countries 
before we can give the all-clear.

Executive Summary

Generally, only the Czech Republic, Poland, the Netherlands (options and 
swaptions only) and Spain (options only) are countries/transaction types in 
respect of which we cannot begin marketing and trading now. 

In Germany, Hungary, Italy, Norway, Sweden and the UK, the marketing and 
trading of ALL weather derivatives products can commence immediately. 

In France, the marketing and trading of ALL weather products can begin when 
we receive acceptance from SFA of our French passport application (in the 
next few weeks).

The marketing of, and trading in, Dutch weather swaps and Spanish swaps and 
swaptions can commence immediately.
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The following questions are addressed in the case of each country

1. are weather derivatives regulated ( eg marketing restrictions/ 
licence/capital requirements etc)?
2.  could they be construed to be unauthorised insurance contracts?
3.  could they be construed to be gaming contracts?

Czech Republic  ---  1.  Totally unregulated
                                               2.  Possibly, yes (especially 
options) with criminal consequences if unauthorised
                                               3.  Unlikely if transacted for 
commercial purpose
                                         
France  ---  1.  Regulated in the same way as commodity derivatives (ISD 
passport available to EEFT)
                        2.  Unlikely
                        3.  No

Germany ---  1. Totally unregulated
                            2.  Not insurance contracts
                            3.  Carve out from gaming law possibly not 
available, but no problem if in good faith believe c'party is hedging 
(English law may improve analysis)

Hungary  ---  1.  Totally unregulated
                         2.  Highly unlikely (if individually negotiated)
                         3.  Highly unlikely

Italy  ---  1.  Totally unregulated
                  2.  No
                  3.  Probably not if transacted for commercial reason

Netherlands  ---  1.  Same as commodity derivatives, but capital requirements 
may apply to options and swaptions (we are checking this)
                                       2.  Unlikely
                                       3.  Unlikely if transacted for a valid 
commercial purpose (but we will clarify in light of possible criminal 
sanctions)

Norway  ---  1. Totally unregulated
                          2.  Probably not insurance contracts, but may be 
prudent to check with Banking Securities and Insurance Commission
                          3.  No problem if in good faith believe c'party is 
transacting for sound financial/commercial reason

Poland  ---   1.  No specific requirements now (eg under the Energy law)
                          2.  Unlikely, but unclear: need to check with 
Minister of Finance (English law would not help) -  up to 2 yrs' imprisonment 
for breaches
                          3.  Unlikely if transacted for commercial reasons, 
but need to check with  Minister of Finance (risk of 3 yrs' imprisonment and 
loss of power licence)

Spain  ---  1.  Totally unregulated if OTC 
                      2.  Swaps and swaptions, no. Options, unclear (risk 
higher if a premium is payable and contract a hedge). Result: options may be 
void
                      3.  No problem if one party transacts for valid 
commercial purpose

Sweden  ---  1.  Regulated in the same way as commodity derivatives
                            2.  No 
                            3.  No  

United Kingdom  ---  1. Regulated by SFA (must be transacted through EEFT etc)
                                             2.  No
                                             3.  No, provided one part 
transacts by way of business (Enron will).

Let's discuss this note before we distribute it more widely (including any 
comments you may have).

Paul
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