Gaselys Investment Firm Banque de France Regulations

Abstract of Regulatory requirements

September 2005

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Licensing

3 Investment Firm statutory requirements

10

Regulatory equity requirements 14

Risk control organisation

17

September 2005

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Investment Firm statutory requirements

• French Banking Authorities organisation:

CECEI grants or cancels banking licences for trading derivative products on different markets (own account trading and execution for third parties)

The « Banque de France » (BF) is in charge of the prudential supervision through the « Commission Bancaire » (CB)

The « Autorité des Marchés Financiers » (AMF) is in charge of good conduct business practices

• Investment Firm status is granted by CECEI if the following is initally approved:

Adequate level of equity capital

Capability of shareholders to provide all relevant undertakings and insurances

Appropriate infrastructure (IT) and competent workforce

Suitability of the business plan and respectability of IF’s managers

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Situation in France

No need for authorisation for : commodity dealers that provide investment services only to their clients and when it is strictly necessary to their main activity ;

companies which main activity is the production, processing, distribution or selling of commodities, and deal in Financial Institutions for the usual needs of their activity.

Under French law

France Licensing

September 2005

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Investment

Firms

Non- regulated

entities

?

Authorisation requirement

investment firms : undertakings whose regular business is the provision of investment services (listed in Annex I A)

member states require that the provision of investment services or activities on a regular basis be subject to prior authorisation

EU licensing

1

2

(main) EU Exemption regime (30 months)

2.1(d). Firms dealing only on own account : exempt unless they are market makers

2.1 (i). Firms dealing on own account or providing investment services in commodity services to the client of their main business, provided it is an ancillary service

2.1(k). Firms whose main business is dealing on own account in commodities/commodity derivatives

September 2005

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Licensing

3 Investment Firm statutory requirements

10

Regulatory equity requirements 14

Risk control organisation

17

September 2005

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• Investment Firm status is a banking status which translates into:

Minimum level of equity and accordingly profitability by activity

Internal control organisation and regulatory compliance reporting

Customer based knowledge

Professional and personal good conduct rules, especially within Front Office desks

• Investment Firm status provides to Gaselys’ shareholders and Gaselys’ counterparties :

a strong control structure : internal audit and risk analysis process, process in compliance with bank regulations

a balanced management of commitments (diversification, profitability)

Investment Firm statutory requirements

September 2005

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To keep its licence the IF must, on an ongoing basis:

• comply with strict ratios

capital adequacy : minimum level of capital mandatory to cope with large treasury requirements (cash out caused by adverse market movements or counterparty defaults),

credit risk portfolio diversification: protection against « large exposure »

risk diversification (credit risk and material risk )

• comply with regulatory and good conduct rules

market manipulation

money laundering

information and advisory

Ongoing supervision by the regulators:

• BF on a monthly, quaterly and yearly basis

• AMF on request (mainly yearly)

Investment Firm statutory requirements

September 2005

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Minimum capital requirement comprise two aggregates: In compliance with Regulation no. 91-05 of February 1991 – and all further

amendments of calculation methods delivered thereafter – any IF must report to the regulatory authorities an amount of capital necessary to face an adverse situations leading to liquidity requirements. This calculation is based on :

1. An equivalent risk amount to cover losses due to adverse market movements: this amount is derived from the sensibility of open positions to market movements, measured either by VaR or Greeks.

2. An “equivalent credit risk” to cover counterparty default :

all open trading positions with a given counterparty bear a risk of loss if the counterparty defaults. This amount is calculated on a trade basis and is derived form the nominal (% of the nominal as potential future loss) and the current MTM (% of the current MTM as replacement risk) of the transaction. It is aggregated at counterparty level, taking into account whatever netting agreement or risk mitigation there might be between the company and its counterparty.

Investment Firm statutory requirements

September 2005

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This equivalent Credit Risk is computed – on an individual trade basis - by the following formula :

ECR = Weighting contrepartie x (Potential Future Loss + Replacement Risk)

whereby :

The weighting contrepartie depends on the nature of the counterparty : 0% for an institutional or a state, 20% for banks and other IF firms, and 50% for any other counterparty (art. 4.3.2. & art 4.2 of Regulation 91-05) ;

The replacement risk equals “netting factor” * Max (0, MTM), in case there is a netting agreement between us and the counterparty ;

The potential future loss depends on the Nominal amount, the residual maturity and the underlying (commodities, stocks, bonds …).

On top of this, receivables are also taken into account as amount at risk and added to this figure.

Investment Firm statutory requirements

September 2005

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Gaselys : SG and Gaz de France trading joint venture 3 Investment Firm statutory requirements 10

Regulatory equity requirements 14 Risk control organisation 17

Appendix - Financial statements 2004- Banque de France Investment Firm Licence - Contact information- Company identification

September 2005

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• Minimum Capital Requirement (« Cooke Ratio »):

Any Investment Firm must comply - and report to regulatory authorities - with a floor level of equity capital defined as an appraisal of a worst-case liquidity requirement. This appraisal is based on:

an equivalent amount at risk to counterparty defaults (payment default of energy product delivered and remplacement cost of derivative product)

an equivalent amount at risk representing losses due to adverse market movements (unfavourable price variations modellisation)

• Risk Diversification Ratio (« Large Exposures »):

the equivalent credit risk on a given client or a given group has to be less than 25% of regulatory capital

each group standing above 10% is classified as a « Large Exposure ». The consolidated « Large Exposures » should not exceed 6 times the equity capital.

Regulatory equity requirements

September 2005

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Investment Firm Financial Structure : minimum capital to face an adverse situation leading to liquidity requirements

Regulatory equity requirements

Foreign exchange risk

Energy market risk

Equity requirements for :

Accounting Equity

Equity(capital, reserves,…)

Subordinated Debt

Credit risk on receivables

(balance sheet)

Credit risk on commodity derivatives

commitments(off balance sheet)

Based on a VAR99c

Based on Mark to Market and Nominal values

1) Minimum ratios recorded and required on a daily basis and communicated to the Banking Authorities every month.

2) Additional securities through :

- a back up line of 50 MEUR

- an emergency line of 50 MEUR

September 2005

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Gaselys : SG and Gaz de France trading joint venture 3 Investment Firm statutory requirements 10

Regulatory equity requirements 14 Risk control organisation 17

Appendix - Financial statements 2004- Banque de France Investment Firm Licence - Contact information- Company identification

September 2005

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Board of Directors

GASELYSSAS

2

Risk Committee

3 New Products Committee

4

Independent Risk Managers

Internal Control5

6

Audit Committee

Bodies required by Banking Regulation

Directors SG, GDF, GASELYS

Activities and risks overview Members of SG and GDF Risk

Divisions, Members of SG and GDF Business lines, Gaselys Directors

Risks overview and decisions

Members of SG and GDF Risk Divisions, Members of SG and GDF Business lines, Gaselys Directors

New product review and validation Credit and Market risks reporting by

independent Risk Managers Risk limits and authorisations SG and GDF relations

Internal control organisation

Regulation requirements reporting (AMF, CB, …)

Reporting to the Board President

Members: 4 of GASELYS’ board members

Periodic review of economic and accounting issues

Risk analysis and advice to prepare Board-level decisions

1

Risk control organisation