Message-ID: <22203861.1075844494104.JavaMail.evans@thyme> Date: Fri, 8 Sep 2000 08:45:00 -0700 (PDT) From: alan.aronowitz@enron.com To: sara.shackleton@enron.com Subject: Re: Enron Japan Trading and Enron Global Markets LLC Trading Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Alan Aronowitz X-To: Sara Shackleton X-cc: X-bcc: X-Folder: \Sara_Shackleton_Dec2000_June2001_1\Notes Folders\Notes inbox X-Origin: SHACKLETON-S X-FileName: sshackle.nsf FYI. ----- Forwarded by Alan Aronowitz/HOU/ECT on 09/08/2000 03:44 PM ----- John Viverito@ENRON 08/17/2000 03:16 AM To: Darren Delage/HOU/ECT@ECT cc: Gary Hickerson/HOU/ECT@ECT, Jan-Erland Bekeng/AP/Enron@Enron@ECT, Sheila Glover/HOU/ECT@ECT, Susan Musch/ENRON_DEVELOPMENT@ENRON_DEVELOPMENT, (bcc: Alan Aronowitz/HOU/ECT) Subject: Re: Enron Japan Trading and Enron Global Markets LLC Trading Darren- Pursuant to your questions relating to interest rate and foreign exchange trading in Japan, please review the advice below: Interest Rates and Foreign Exchange Transactions. Transactions with respect to interest rates and foreign exchange (other than financial futures transactions) are generally not subject to specific regulation in Japan. Banks, securities companies are permitted to enter into transactions of this type as part of their ancillary business, but are not granted an exclusive mandate to conduct these transactions. Accordingly, it would be possible for Enron Japan Corp. to conduct interest rate and foreign exchange transactions with ordinary Japanese corporations as well as financial institutions. However, in the event that Enron Japan does conduct interest rate or foreign exchange transactions with a corporation that is not a financial institution, the risk that the transaction may be considered to be gambling increases. The fact that one of the parties to a derivative transaction is authorized by statute to enter into the transaction will constitute a defense to an allegation that the transaction constitutes gambling. If neither party to the transaction has the benefit of a specific authorization, it will be necessary to rebut an allegation of gambling by arguing that the parties had a legitimate business reason for entering into the transaction. Baker & McKenzie has stated that this risk is relatively low and are not aware of any cases where such activity has been problematic. In addition, where the transaction constitutes an OTC financial futures transaction (for example, a swap where the price is based on an interest rate index quoted on a financial futures exchange in Japan), the transaction will be regulated under the Financial Futures Trading Law (see below). Financial Futures Transactions. In summary, under the Financial Futures Trading Law, if Enron Japan wishes to conduct financial futures brokerage business it must hold a license. If Enron Japan does not hold such a license, the counterparties with whom it may conduct financial futures transactions will be limited to banks, securities companies and members of a Financial Futures Exchange who are licensed as financial futures brokers. Financial futures transactions include the following: (a) futures contracts in relation to currencies, etc. and listed options with respect to currencies, etc.; and (b) OTC financial futures transactions. With regard to the question as to whether the trades that you engage in have to be booked under Enron Japan Corp., or whether you can execute for Enron Global Markets LLC, this is really a tax question for Susan Musch, who I have copied on this e-mail. My general understanding is that, so as not to develop a permanent establishment for tax purposes, which could create tax liabilities for an offshore entity conducting such activities, the trades should be booked with Enron Japan Corp. This is subject to Susan's advice, which will provide you further details and perhaps more sophisticated methods to approach this issue. Looking forward to seeing you back in Japan. Best regards, John Darren Delage@ECT 08/16/2000 12:13 PM To: John Viverito/Corp/Enron@Enron, Sheila Glover, Jan-Erland Bekeng/AP/Enron@Enron cc: Gary Hickerson/HOU/ECT@ECT Subject: Enron Japan Trading and Enron Global Markets LLC Trading Hello John, As you know, I am looking at returning to Tokyo on temporary assignment effective September 1 to support our efforts in Enron Japan as well as to leverage the locational advantage for Financial trading (part of Enron Global Markets LLC) From what I understood of our earlier conversations, there is not a legal issue with entering into foreign exchange or fixed income trades with another counterparty located in Tokyo, whether it be another US bank or a Japanese bank. Can you please generally confirm this? Do the trades that I engage in have to be booked under Enron Japan/ or can I execute for Enron Global Markets LLC? Sheila, If the trades that I do in Japan have to be booked under Enron Japan, how does the accounting work to effectively transfer P&l back to Gary's RC? (ie how are we accounting for proprietary trading p&l in London office?) and are there any nuances that I need to be aware of in the booking/implementation of these trades Jan, what information are you going to need from Sheila's group in order to be comfortable with the transaction and accounting process? {either on proprietary and/or on order flow originating either in Japan or abroad- ie an Australian interest rate hedge that I conduct out of Japan Sincerely, Darren