PUBLIC LAW 109–390—DEC. 12, 2006

FINANCIAL NETTING IMPROVEMENTS

ACT OF 2006

120 STAT. 2692 PUBLIC LAW 109–390—DEC. 12, 2006

Public Law 109–390

109th Congress

An Act

To improve the netting process for financial contracts, and for other purposes.

Be it enacted by the Senate and House of Representatives of

the United States of America in Congress assembled,

SECTION 1. SHORT TITLE.

This Act may be cited as the ‘‘Financial Netting Improvements

Act of 2006’’.

SEC. 2. TREATMENT OF CERTAIN AGREEMENTS BY CONSERVATORS

OR RECEIVERS OF DEPOSITORY INSTITUTIONS.

(a) DEFINITION OF SECURITIES CONTRACT.—

(1) FDIC-INSURED DEPOSITORY INSTITUTIONS.—Section

11(e)(8)(D)(ii) of the Federal Deposit Insurance Act (12 U.S.C.

1821(e)(8)(D)(ii)) is amended—

(A) in subclause (I)—

(i) by striking ‘‘mortgage loan, or’’ and inserting

‘‘mortgage loan,’’; and

(ii) by inserting before the semicolon ‘‘(whether

or not such repurchase or reverse repurchase transaction is a ‘repurchase agreement’, as defined in clause

(v))’’;

(B) in subclause (IV)—

(i) by inserting ‘‘(including by novation)’’ after ‘‘the

guarantee’’; and

(ii) by inserting before the semicolon ‘‘(whether

or not such settlement is in connection with any agreement or transaction referred to in subclauses (I)

through (XII) (other than subclause (II))’’;

(C) in subclause (IX), by striking ‘‘or (VIII)’’ each place

such term appears and inserting ‘‘(VIII), (IX), or (X)’’;

(D) by redesignating subclauses (VI), (VII), (VIII), (IX),

and (X) as subclauses (VIII), (IX), (X), (XI), and (XII),

respectively; and

(E) by inserting after subclause (V) the following new

subparagraphs:

‘‘(VI) means any extension of credit for the

clearance or settlement of securities transactions;

‘‘(VII) means any loan transaction coupled

with a securities collar transaction, any prepaid

securities forward transaction, or any total return

swap transaction coupled with a securities sale

transaction;’’.

11 USC 101 note.

Financial Netting

Improvements

Act of 2006.

Dec. 12, 2006

[H.R. 5585]

PUBLIC LAW 109–390—DEC. 12, 2006 120 STAT. 2693

(2) INSURED CREDIT UNIONS.—Section 207(c)(8)(D)(ii) of the

Federal Credit Union Act (12 U.S.C. 1787(c)(8)(D)(ii)) is

amended—

(A) in subclause (I)—

(i) by striking ‘‘mortgage loan, or’’ and inserting

‘‘mortgage loan,’’; and

(ii) by inserting before the semicolon ‘‘(whether

or not such repurchase or reverse repurchase transaction is a ‘repurchase agreement’, as defined in clause

(v))’’;

(B) in subclause (IV)—

(i) by inserting ‘‘(including by novation)’’ after ‘‘the

guarantee’’; and

(ii) by inserting before the semicolon ‘‘(whether

or not such settlement is in connection with any agreement or transaction referred to in subclauses (I)

through (XII) (other than subclause (II))’’;

(C) in subclause (IX), by striking ‘‘or (VIII)’’ each place

such term appears and inserting ‘‘(VIII), (IX), or (X)’’;

(D) by redesignating subclauses (VI), (VII), (VIII), (IX),

and (X) as subclauses (VIII), (IX), (X), (XI), and (XII),

respectively; and

(E) by inserting after subclause (V) the following new

subparagraphs:

‘‘(VI) means any extension of credit for the

clearance or settlement of securities transactions;

‘‘(VII) means any loan transaction coupled

with a securities collar transaction, any prepaid

securities forward transaction, or any total return

swap transaction coupled with a securities sale

transaction;’’.

(b) DEFINITION OF FORWARD CONTRACT.—

(1) FDIC-INSURED DEPOSITORY INSTITUTIONS.—Section

11(e)(8)(D)(iv)(I) of the Federal Deposit Insurance Act (12 U.S.C.

1821(e)(8)(D)(iv)(I)) is amended by striking ‘‘transaction, reverse

repurchase transaction’’ and inserting ‘‘or reverse repurchase

transaction (whether or not such repurchase or reverse

repurchase transaction is a ‘repurchase agreement’, as defined

in clause (v))’’.

(2) INSURED CREDIT UNIONS.—Section 207(c)(8)(D)(iv)(I) of

the Federal Credit Union Act (12 U.S.C. 1787(c)(8)(D)(iv)(I))

is amended by striking ‘‘transaction, reverse repurchase transaction’’ and inserting ‘‘or reverse repurchase transaction

(whether or not such repurchase or reverse repurchase transaction is a ‘repurchase agreement’, as defined in clause (v))’’.

(c) DEFINITION OF SWAP AGREEMENT.—

(1) FDIC-INSURED DEPOSITORY INSTITUTIONS.—Section

11(e)(8)(D)(vi) of the Federal Deposit Insurance Act (12 U.S.C.

1821(e)(8)(D)(vi)) is amended—

(A) in subclause (I)—

(i) by striking ‘‘or precious metals’’ and inserting

‘‘, precious metals, or other commodity’’; and

(ii) by striking ‘‘or a weather swap, weather derivative, or weather option’’ and inserting ‘‘weather swap,

option, future, or forward agreement; an emissions

swap, option, future, or forward agreement; or an inflation swap, option, future, or forward agreement’’;

120 STAT. 2694 PUBLIC LAW 109–390—DEC. 12, 2006

(B) in subclause (II)—

(i) by inserting ‘‘or other derivatives’’ after

‘‘dealings in the swap’’; and

(ii) by striking ‘‘future, or option’’ and inserting

‘‘future, option, or spot transaction’’; and

(C) by striking ‘‘the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the

Investment Company Act of 1940, the Investment Advisers

Act of 1940, the Securities Investor Protection Act of 1970,

the Commodity Exchange Act, the Gramm-Leach-Bliley

Act, and the Legal Certainty for Bank Products Act of

2000’’ and inserting ‘‘the Gramm-Leach-Bliley Act, the

Legal Certainty for Bank Products Act of 2000, the securities laws (as such term is defined in section 3(a)(47) of

the Securities Exchange Act of 1934) and the Commodity

Exchange Act’’.

(2) INSURED CREDIT UNIONS.—Section 207(c)(8)(D)(vi) of the

Federal Credit Union Act (12 U.S.C. 1787(c)(8)(D)(vi)) is

amended—

(A) in subclause (I)—

(i) by striking ‘‘or precious metals’’ and inserting

‘‘, precious metals, or other commodity’’; and

(ii) by striking ‘‘or a weather swap, weather derivative, or weather option’’ and inserting ‘‘weather swap,

option, future, or forward agreement; an emissions

swap, option, future, or forward agreement; or an inflation swap, option, future, or forward agreement’’;

(B) in subclause (II)—

(i) by inserting ‘‘or other derivatives’’ after

‘‘dealings in the swap’’; and

(ii) by striking ‘‘future, or option’’ and inserting

‘‘future, option, or spot transaction’’; and

(C) by striking ‘‘the Securities Act of 1933, the Securities Exchange Act of 1934, the Public Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the

Investment Company Act of 1940, the Investment Advisers

Act of 1940, the Securities Investor Protection Act of 1970,

the Commodity Exchange Act, the Gramm-Leach-Bliley

Act, and the Legal Certainty for Bank Products Act of

2000’’ and inserting ‘‘the Gramm-Leach-Bliley Act, the

Legal Certainty for Bank Products Act of 2000, the securities laws (as such term is defined in section 3(a)(47) of

the Securities Exchange Act of 1934) and the Commodity

Exchange Act’’.

SEC. 3. CLARIFYING AMENDMENTS RELATING TO DEFINITION OF PERSON.

(a) FDIC-INSURED DEPOSITORY INSTITUTIONS DEFINITION OF

PERSON.—Section 11(e)(8)(D) of the Federal Deposit Insurance Act

(12 U.S.C. 1821(e)(8)(D)) is amended by adding at the end the

following:

‘‘(ix) PERSON.—The term ‘person’ includes any governmental entity in addition to any entity included in the

definition of such term in section 1 of title 1, United States

Code.’’.

PUBLIC LAW 109–390—DEC. 12, 2006 120 STAT. 2695

(b) INSURED CREDIT UNIONS DEFINITION OF PERSON.—Section

207(c)(8)(D) of the Federal Credit Union Act (12 U.S.C.

1787(c)(8)(D)) is amended by adding at the end the following:

‘‘(ix) PERSON.—The term ‘person’ includes any

governmental entity in addition to any entity included

in the definition of such term in section 1 of title

1, United States Code.’’.

SEC. 4. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT

ACT OF 1991.

(a) ENFORCEABILITY OF BILATERAL NETTING CONTRACTS.—Section 403 of the Federal Deposit Insurance Corporation Improvement

Act of 1991 (12 U.S.C. 4403) is amended—

(1) in each of subsections (a) and (f), by striking ‘‘paragraphs (8)(E), (8)(F), and (10)(B) of’’ each place such term

appears; and

(2) in subsection (a), by inserting ‘‘terminated, liquidated,

accelerated, and’’ after ‘‘institutions shall be’’.

(b) ENFORCEABILITY OF CLEARING ORGANIZATION NETTING CON- TRACTS.—Section 404 of the Federal Deposit Insurance Corporation

Improvement Act of 1991 (12 U.S.C. 4404) is amended—

(1) in each of subsections (a) and (h), by striking ‘‘paragraphs (8)(E), (8)(F), and (10)(B) of’’ each place such term

appears; and

(2) in subsection (a), by inserting ‘‘terminated, liquidated,

accelerated, and’’ after ‘‘organization shall be’’.

SEC. 5. CONFORMING AMENDMENTS.

(a) CLARIFYING DEFINITIONS.—Title 11, United States Code,

is amended—

(1) in section 101—

(A) in paragraph (22)(A)—

(i) by striking ‘‘(domestic or foreign)’’ after ‘‘an

entity’’; and

(ii) by inserting ‘‘(whether or not a ‘customer’, as

defined in section 741)’’ after ‘‘custodian for a customer’’;

(B) in paragraph (22A)—

(i) by striking ‘‘on any day during the previous

15-month period’’ each place it appears and inserting

‘‘at such time or on any day during the 15-month

period preceding the date of the filing of the petition’’;

and

(ii) by inserting ‘‘(aggregated across

counterparties)’’ after ‘‘principal amount outstanding’’;

(C) in paragraph (25)(A)—

(i) by inserting ‘‘, as defined in section 761’’ after

‘‘commodity contract’’; and

(ii) by striking ‘‘repurchase transaction, reverse

repurchase transaction,’’ and inserting ‘‘repurchase or

reverse repurchase transaction (whether or not such

repurchase or reverse repurchase transaction is a

‘repurchase agreement’, as defined in this section)’’;

(D) in paragraph (53B)(A)—

(i) in clause (i)—

(I) in subclause (II), by striking ‘‘or precious

metals’’ and inserting ‘‘, precious metals, or other

commodity’’;

120 STAT. 2696 PUBLIC LAW 109–390—DEC. 12, 2006

(II) in subclause (VII), by striking ‘‘or’’ at the

end;

(III) in subclause (VIII), by striking ‘‘weather

derivative, or weather option’’ and inserting

‘‘option, future, or forward agreement’’; and

(IV) by adding at the end the following:

‘‘(IX) an emissions swap, option, future, or forward agreement; or

‘‘(X) an inflation swap, option, future, or forward agreement;’’; and

(ii) in clause (ii)—

(I) in subclause (I), by inserting ‘‘or other

derivatives’’ after ‘‘dealings in the swap’’; and

(II) in subclause (II), by striking ‘‘future, or

option’’ and inserting ‘‘future, option, or spot transaction’’; and

(E) in paragraph (53B)(B), by striking ‘‘the Securities

Act of 1933, the Securities Exchange Act of 1934, the

Public Utility Holding Company Act of 1935, the Trust

Indenture Act of 1939, the Investment Company Act of

1940, the Investment Advisers Act of 1940, the Securities

Investor Protection Act of 1970, the Commodity Exchange

Act, the Gramm-Leach-Bliley Act, and the Legal Certainty

for Bank Products Act of 2000’’ and inserting ‘‘the GrammLeach-Bliley Act, the Legal Certainty for Bank Products

Act of 2000, the securities laws (as such term is defined

in section 3(a)(47) of the Securities Exchange Act of 1934)

and the Commodity Exchange Act’’;

(2) in section 362(b)—

(A) by striking paragraphs (6) and (7) and inserting

the following:

‘‘(6) under subsection (a) of this section, of the exercise

by a commodity broker, forward contract merchant, stockbroker,

financial institution, financial participant, or securities clearing

agency of any contractual right (as defined in section 555 or

556) under any security agreement or arrangement or other

credit enhancement forming a part of or related to any commodity contract, forward contract or securities contract, or of

any contractual right (as defined in section 555 or 556) to

offset or net out any termination value, payment amount, or

other transfer obligation arising under or in connection with

1 or more such contracts, including any master agreement

for such contracts;

‘‘(7) under subsection (a) of this section, of the exercise

by a repo participant or financial participant of any contractual

right (as defined in section 559) under any security agreement

or arrangement or other credit enhancement forming a part

of or related to any repurchase agreement, or of any contractual

right (as defined in section 559) to offset or net out any termination value, payment amount, or other transfer obligation

arising under or in connection with 1 or more such agreements,

including any master agreement for such agreements;’’;

(B) by striking paragraph (17) and inserting the following:

‘‘(17) under subsection (a) of this section, of the exercise

by a swap participant or financial participant of any contractual

right (as defined in section 560) under any security agreement

PUBLIC LAW 109–390—DEC. 12, 2006 120 STAT. 2697

or arrangement or other credit enhancement forming a part

of or related to any swap agreement, or of any contractual

right (as defined in section 560) to offset or net out any termination value, payment amount, or other transfer obligation

arising under or in connection with 1 or more such agreements,

including any master agreement for such agreements;’’; and

(C) by striking paragraph (27) and inserting the following:

‘‘(27) under subsection (a) of this section, of the exercise

by a master netting agreement participant of any contractual

right (as defined in section 555, 556, 559, or 560) under any

security agreement or arrangement or other credit enhancement forming a part of or related to any master netting agreement, or of any contractual right (as defined in section 555,

556, 559, or 560) to offset or net out any termination value,

payment amount, or other transfer obligation arising under

or in connection with 1 or more such master netting agreements

to the extent that such participant is eligible to exercise such

rights under paragraph (6), (7), or (17) for each individual

contract covered by the master netting agreement in issue;

and’’; and

(3) in section 741(7)(A)—

(A) in clause (i)—

(i) by striking ‘‘mortgage loan or’’ and inserting

‘‘mortgage loan,’’; and

(ii) by inserting before the semicolon ‘‘(whether

or not such repurchase or reverse repurchase transaction is a ‘repurchase agreement’, as defined in section

101)’’;

(B) in clause (iii)—

(i) by inserting ‘‘(including by novation)’’ after ‘‘the

guarantee’’; and

(ii) by inserting before the semicolon ‘‘(whether

or not such settlement is in connection with any agreement or transaction referred to in clauses (i) through

(xi))’’;

(C) in clause (viii), by striking ‘‘or (vii)’’ each place

it appears and inserting ‘‘(vii), (viii), or (ix)’’;

(D) by redesignating clauses (v) through (ix) as clauses

(vii) through (xi), respectively; and

(E) by inserting after clause (iv) the following:

‘‘(v) any extension of credit for the clearance

or settlement of securities transactions;

‘‘(vi) any loan transaction coupled with a securities collar transaction, any prepaid forward securities transaction, or any total return swap transaction coupled with a securities sale transaction;’’.

(b) LIMITATION OF AVOIDANCE POWERS UNDER MASTER NETTING

AGREEMENT.—Section 546 of title 11, United States Code, is

amended—

(1) in subsection (e)—

(A) by inserting ‘‘(or for the benefit of)’’ before ‘‘a commodity broker’’; and

(B) by inserting ‘‘or that is a transfer made by or

to (or for the benefit of) a commodity broker, forward contract merchant, stockbroker, financial institution, financial

participant, or securities clearing agency, in connection

120 STAT. 2698 PUBLIC LAW 109–390—DEC. 12, 2006

with a securities contract, as defined in section 741(7),

commodity contract, as defined in section 761(4), or forward

contract,’’ after ‘‘securities clearing agency,’’;

(2) in subsection (f)—

(A) by striking ‘‘that is a margin payment, as defined

in section 741 or 761 of this title, or settlement payment,

as defined in section 741 of this title,’’; and

(B) by inserting ‘‘(or for the benefit of)’’ before ‘‘a repo

participant’’;

(3) in subsection (g), by inserting ‘‘(or for the benefit of)’’

before ‘‘a swap participant’’; and

(4) in subsection (j), by inserting ‘‘(or for the benefit of)’’

after ‘‘made by or to’’.

(c) SIPC STAY.—Section 5(b)(2)(C)(iii) of the Securities Investor

Protection Act of 1970 (15 U.S.C. 78eee(b)(2)(C)(iii)) is amended—

(1) by inserting ‘‘a derivatives clearing organization (as

defined in the Commodity Exchange Act), a multilateral

clearing organization (as defined in the Federal Deposit Insurance Corporation Improvement Act of 1991),’’ after ‘‘rule or

bylaw of’’; and

(2) by striking ‘‘or a securities clearance agency, a right

set forth in a bylaw of a clearing organization or contract

market’’ and inserting ‘‘a securities clearing agency, a contract

market designated under the Commodity Exchange Act, a

derivatives transaction execution facility registered under the

Commodity Exchange Act, or a board of trade (as defined in

the Commodity Exchange Act),’’.

(d) SAVINGS CLAUSE.—Title IX of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Public Law 109–8,

119 Stat. 146) is amended by adding at the end the following:

‘‘SEC. 912. SAVINGS CLAUSE.

‘‘The meanings of terms used in this title are applicable for

the purposes of this title only, and shall not be construed or applied

so as to challenge or affect the characterization, definition, or treatment of any similar terms under any other statute, regulation,

or rule, including the Gramm-Leach-Bliley Act, the Legal Certainty

for Bank Products Act of 2000, the securities laws (as such term

is defined in section 3(a)(47) of the Securities Exchange Act of

1934), and the Commodity Exchange Act.’’.

SEC. 6. WALKAWAY CLAUSES.

(a) FDIC-INSURED DEPOSITORY INSTITUTIONS.—Section

11(e)(8)(G) of the Federal Deposit Insurance Act (12 U.S.C.

1821(e)(8)(G)) is amended by striking clause (ii) and inserting the

following new clauses:

‘‘(ii) LIMITED SUSPENSION OF CERTAIN OBLIGA- TIONS.—In the case of a qualified financial contract

referred to in clause (i), any payment or delivery obligations otherwise due from a party pursuant to the qualified financial contract shall be suspended from the

time the receiver is appointed until the earlier of—

‘‘(I) the time such party receives notice that

such contract has been transferred pursuant to

subparagraph (A); or

‘‘(II) 5:00 p.m. (eastern time) on the business

day following the date of the appointment of the

receiver.

Applicability.

11 USC 101 note.

PUBLIC LAW 109–390—DEC. 12, 2006 120 STAT. 2699

‘‘(iii) WALKAWAY CLAUSE DEFINED.—For purposes

of this subparagraph, the term ‘walkaway clause’

means any provision in a qualified financial contract

that suspends, conditions, or extinguishes a payment

obligation of a party, in whole or in part, or does

not create a payment obligation of a party that would

otherwise exist, solely because of such party’s status

as a nondefaulting party in connection with the insolvency of an insured depository institution that is a

party to the contract or the appointment of or the

exercise of rights or powers by a conservator or receiver

of such depository institution, and not as a result of

a party’s exercise of any right to offset, setoff, or net

obligations that exist under the contract, any other

contract between those parties, or applicable law.’’.

(b) INSURED CREDIT UNIONS.—Section 207(c)(8)(G) of the Federal Credit Union Act (12 U.S.C. 1787(c)(8)(G)) is amended by

striking clause (ii) and inserting the following new clauses:

‘‘(ii) LIMITED SUSPENSION OF CERTAIN OBLIGATIONS.—In the case of a qualified financial contract

referred to in clause (i), any payment or delivery obligations otherwise due from a party pursuant to the qualified financial contract shall be suspended from the

time the liquidating agent is appointed until the earlier

of—

‘‘(I) the time such party receives notice that

such contract has been transferred pursuant to

subparagraph (A); or

‘‘(II) 5:00 p.m. (eastern time) on the business

day following the date of the appointment of the

liquidating agent.

‘‘(iii) WALKAWAY CLAUSE DEFINED.—For purposes

of this subparagraph, the term ‘walkaway clause’

means any provision in a qualified financial contract

that suspends, conditions, or extinguishes a payment

obligation of a party, in whole or in part, or does

not create a payment obligation of a party that would

otherwise exist, solely because of such party’s status

as a nondefaulting party in connection with the insolvency of an insured credit union or the appointment

of or the exercise of rights or powers by a conservator

or liquidating agent of such credit union, and not as

a result of a party’s exercise of any right to offset,

setoff, or net obligations that exist under the contract,

any other contract between those parties, or applicable

law.’’.

120 STAT. 2700 PUBLIC LAW 109–390—DEC. 12, 2006

LEGISLATIVE HISTORY—H.R. 5585:

HOUSE REPORTS: No. 109–648, Pt. 1 (Comm. on Financial Services).

CONGRESSIONAL RECORD, Vol. 152 (2006):

Sept. 27, considered and passed House.

Sept. 29, considered and passed Senate, amended.

Nov. 15, House concurred in Senate amendments.

Æ

SEC. 7. SCOPE OF APPLICATION.

The amendments made by this Act shall not apply to any

cases commenced under title 11, United States Code, or appointments made under any Federal or State law, before the date of

the enactment of this Act.

Approved December 12, 2006.

11 USC 101 note.