Organization of the LOWRENT Energy Exchange An unprecedented organizational meeting to create the LOWRENT Energy Exchange has been assembled in a secret conference room at the CFTC. Representatives of the organizers, intermediaries, advisers, clearinghouse, end users and Commission work to understand the implications of the CFMA and how best to structure the enterprise. One of the organizers of LOWRENT has had an unfortunate relationship with the SEC and NASD. Together, the organizers of LOWRENT represent a significant share of OTC energy transactions. LOWRENT wants as little as possible to do with state or federal regulators, but it wants to reach all players and liquidity providers. There are many choices, what form of organization gets us the most? Jan. 26, 2001 (c) Jerrold E. Salzman

B2B Spot and Forward Markets Jan. 26, 2001 (c) Jerrold E. Salzman

B2B Spot and Forward Exchanges Is this the path to avoid CFTC jurisdiction over LOWRENT’S operations? What will the product mix look like if the goal is no regulation? Are there any limits on intermediation? Who regulates intermediaries and advisers? Is this practical? Can we go to market with an IPO under this structure? When will we hear from the DOJ or FTC? Is FERC going to be interested? Can we use the CFTC to keep FERC out of our affairs? Are there restrictions on utilities trading with related parties? Jan. 26, 2001 (c) Jerrold E. Salzman

Treasury Amendment Exchanges Jan. 26, 2001 (c) Jerrold E. Salzman

Treasury Amendment Exchanges Section 1a(27) Organized Exchange means a “trading facility” where: Trading is not limited to ECPs on a principal-to principal basis; or That has rules that govern conduct and include disciplinary sanctions. (???Apparently a T.A. Exchange can write contract terms if it does not discipline participants???) Is principal-to-principal consistent with traditional mutualized clearing systems? Jan. 26, 2001 (c) Jerrold E. Salzman

Separate Dealer Markets Using Shared Infrastructure Section 2(d) Excluded Derivative Transactions Section 2(g) Excluded Swap Transactions Jan. 26, 2001 (c) Jerrold E. Salzman

Separate Dealer Markets on a Shared Platform Is this the way to avoid any form of CFTC jurisdiction over LOWRENT’S operations? Can we organize separate dealer markets on the same platform and avoid classification as a trading facility. Can we organize a JV to be the sole dealer? Will there be any limits on intermediation? Do intermediaries and advisers escape CFTC regulation? Is this practical? Can we go to market with an IPO under this structure? When will we hear from the DOJ, FTC or FERC? Jan. 26, 2001 (c) Jerrold E. Salzman

Exempt Board of Trade Section 5d(b): Jan. 26, 2001 (c) Jerrold E. Salzman

Exempt Board of Trade: Can we qualify? What do we gain? What are our obligations? CFTC has exclusive jurisdiction over the contracts traded on an exempt board of trade. Does it have exclusive jurisdiction over the board of trade? What is the impact of the reference to 12(e)(2)(b)? But compare 12(e)(1)(B)(i) [“Nothing in this Act shall supersede or preempt‑(B) the application of any Federal or State statute . . . to any transaction in or involving any commodity, product, right , service or interest‑(i) that is not conducted on or subject to the rules of a registered entity or exempt board of trade . . . .] Antitrust? There is no principal-to-principal limitation, what are requirements for intermediaries? What about advisers and agents? Can power management companies execute for and/or advise clients to transact on such exchanges without registering with the Commission as CTAs? Does an FCM have a valuable role to play? Can we preempt antitrust scrutiny? Shouldn’t we be worried about state regulators? Is the SEC lurking to claim jurisdiction if a product begins to look like a security? What are the consequences for other exchanges. Jan. 26, 2001 (c) Jerrold E. Salzman

Excluded Electronic Trading Facility‑Exempt Commodities Section 2(h)(3) Legal certainty for Certain Transactions in Exempt Commodities Jan. 26, 2001 (c) Jerrold E. Salzman

Excluded Electronic Trading Facility – Excluded Commodities: Extent of the Section 2(d)(2) Electronic Trading Facility Exclusion.‑Nothing in this Act (other than section 5a (to the extent provided in section 5a(g)), 5b, 5d, or 12(e)(2)(b)) governs or applies to an agreement, contract, or transaction in an excluded commodity if‑(A) the agreement, contract, or transaction is entered into on a principal-to principal basis between parties trading for their own accounts or as described in section 1a(12)(B)(ii); the agreement, contract, or transaction is entered into only between persons that are eligible contract participants described in subparagraph (A), (B)(ii), or (C) of section 1a(12) at the time at which the persons enter into the agreement, contract, or transaction: and (C) the agreement, contract, or transaction is executed or traded on an electronic trading facility. Jan. 26, 2001 (c) Jerrold E. Salzman

Excluded Electronic Trading Facility – Excluded Commodities Section 2(d)(2) Electronic Trading Facility Exclusion Jan. 26, 2001 (c) Jerrold E. Salzman

Registered DTF Section 5a(b)(2)(F) Commodities Subject to the Threat of Manipulation Jan. 26, 2001 (c) Jerrold E. Salzman

Registered DTF Section 5a(b)(2)(A)(B)(C)(D)(E) Jan. 26, 2001 (c) Jerrold E. Salzman

Registered DTF Do our products qualify? Who can act as an intermediary? Does it matter whether the customer is an ECP? Who are the eligible traders? Who must trade through an FCM? How onerous is this category from the market’s point of view? Are there any obvious benefits? Why not go all of the way? Jan. 26, 2001 (c) Jerrold E. Salzman

Designated Contract Market Jan. 26, 2001 (c) Jerrold E. Salzman

Designated Contract Market What is the risk reward ratio? Burdens Preemption Customer base Intermediaries Certainty Access to foreign jurisdictions. Jan. 26, 2001 (c) Jerrold E. Salzman