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[Congressional Bills 104th Congress]
[From the U.S. Government Publishing Office]
[H.R. 20 Introduced in House (IH)]

104th CONGRESS
  1st Session
                                 H. R. 20

    To provide a framework to improve risk management techniques at 
  financial institutions, including the prudential use of derivative 
                               products.

_______________________________________________________________________

                    IN THE HOUSE OF REPRESENTATIVES

                            January 4, 1995

  Mr. Leach introduced the following bill; which was referred to the 
 Committee on Banking and Financial Services and, in addition, to the 
      Committees on Commerce, and Agriculture, for a period to be 
subsequently determined by the Speaker, in each case for consideration 
  of such provisions as fall within the jurisdiction of the committee 
                               concerned

_______________________________________________________________________

                                 A BILL

 
    To provide a framework to improve risk management techniques at 
  financial institutions, including the prudential use of derivative 
                               products.

    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 shall be cited as the ``Risk Management Improvement and 
Derivatives Oversight Act of 1995''.

                TITLE I--FEDERAL DERIVATIVES COMMISSION

SEC. 101. DECLARATION OF PURPOSE.

    It is the purpose of this title to establish a Federal Derivatives 
Commission which shall establish principles and standards for the 
supervision and oversight by Federal financial institution regulators 
of financial institutions engaged in derivatives activities and make 
recommendations to promote better risk management techniques and 
uniformity in the supervision of these financial institutions. The 
Commission's actions shall be designed to promote consistency in 
regulatory practices and to insure progressive and vigilant 
supervision.

SEC. 102. DEFINITIONS.

    As used in this title--
            (1) the term ``Federal financial institution regulatory 
        agencies'' means the Office of the Comptroller of the Currency, 
        the Board of Governors of the Federal Reserve System, the 
        Federal Deposit Insurance Corporation, the Office of Thrift 
        Supervision, the Securities and Exchange Commission, and the 
        Commodity Futures Trading Commission;
            (2) the term ``Commission'' means the Federal Derivatives 
        Commission;
            (3) the term ``Federal banking agency'' has the same 
        meaning as in section 3 of the Federal Deposit Insurance Act 
        (12 U.S.C. 1813);
            (4) the term ``financial institution'' means any 
        institution covered under section 402(9) of the Federal Deposit 
        Insurance Corporation Improvement Act of 1991, any government 
        sponsored enterprise, or any other institution (including a 
        state or local government or other type of end-user) as 
        determined by the Commission;
            (5) the term ``government sponsored enterprise'' has the 
        same meaning as in section 1404(e) of the Financial 
        Institutions Reform, Recovery, and Enforcement Act of 1989;
            (6) the term ``securities contract'' has the same meaning 
        as in section 741(7) of title 11, United States Code and 
        includes a contract for the purchase, sale or loan of a 
        structured note or an option on a structured note;
            (7) the terms ``commodity contract'', ``forward contract'', 
        and ``swap agreement'' have the same meaning as in section 
        11(e)(8)(D) of the Federal Deposit Insurance Act (12 U.S.C. 
        1821(e)(8)(D));
            (8) the term ``derivative financial instrument'' means any 
        securities contract, commodity contract, forward contract, swap 
        agreement or any other similar agreement or instrument which 
        the Commission determines to be a derivative financial 
        instrument for purposes of this title; and
            (9) the term ``derivatives activities'' means activities by 
        a financial institution involving derivative financial 
        instruments.

SEC. 103. FEDERAL DERIVATIVES COMMISSION.

    (a) Establishment; Composition.--There is established the Federal 
Derivatives Commission which shall consist of--
            (1) the Chairman of the Board of Governors of the Federal 
        Reserve System,
            (2) the Comptroller of the Currency,
            (3) the Chairperson of the Board of Directors of the 
        Federal Deposit Insurance Corporation,
            (4) the Director of the Office of Thrift Supervision,
            (5) the Chairman of the Securities and Exchange Commission,
            (6) the Chairman of the Commodity Futures Trading 
        Commission, and
            (7) the Secretary of Treasury.
    (b) Chairmanship.--The chairman of the Commission shall be the 
Chairman of the Board of Governors of the Federal Reserve System.
    (c) Designation of Officers and Employees.--The members of the 
Commission may, from time to time, designate other officers or 
employees of their respective agencies to carry out their duties on the 
Commission.
    (d) Compensation and Expenses.--Each member of the Commission shall 
serve without additional compensation but shall be entitled to 
reasonable expenses incurred in carrying out his official duties as 
such a member.
    (e) Costs and Expenses of Commission.--One-sixth of the costs and 
expenses of the Commission, including the salaries of its employees, 
shall be paid by each of the Federal financial institution regulatory 
agencies. Annual assessments for such share shall be levied by the 
Commission based upon its projected budget for the year, and additional 
assessments may be made during the year if necessary.

SEC. 104. FUNCTIONS OF COMMISSION.

    (a) Establishment of Principles and Standards.--
            (1) The Commission shall establish principles and standards 
        to improve risk management and the prudent use of derivative 
        financial instruments by financial institutions. Such actions 
        by the Commission shall include principles and standards 
        related to--
                    (A) capital or limits on leverage as appropriate;
                    (B) accounting (consistent with section 37 of the 
                Federal Deposit Insurance Act);
                    (C) disclosure;
                    (D) sales practices or appropriateness; and
                    (E) such other regulatory actions for the 
                supervision of financial institutions engaged in 
                derivatives activities deemed appropriate by the 
                Commission.
            (2) Each Federal financial institution regulatory agency 
        shall issue substantially similar regulations or guidelines 
        governing derivatives activities for purposes of implementing 
        paragraph (1), unless it finds that implementation of 
        substantially similar regulations is not necessary or 
        appropriate in the public interest.
            (3) For purposes of implementing paragraph (1), the 
        Commission may establish differing standards for different 
        classes of financial institutions, including, but not limited 
        to, dealers, end-users, or municipalities as appropriate.
            (4) Any financial institution not subject to supervision by 
        a Federal banking agency or the Commodity Futures Trading 
        Commission shall be supervised by the Securities and Exchange 
        Commission to the extent of their derivatives activities, 
        except as otherwise provided by the Commission. The Securities 
        and Exchange Commission shall have the authority to enforce the 
        provisions of this title against any financial institution 
        covered by this paragraph to the extent that such provisions 
        govern the conduct or activities of the financial institution 
        as if they were provisions of the Securities Exchange Act of 
        1934.
    (b) Recommendations Regarding Supervisory Actions.--
            (1) In establishing principles and standards under 
        subsection (a), the Commission shall consider and may make 
        recommendations for comparable regulatory action by the Federal 
        financial institution regulatory agencies in other matters 
        related to financial institutions engaged in derivatives 
        activities, including the need to establish principles and 
        standards for the following:
                    (A) Strong capital requirements (with particular 
                attention to a leverage ratio where appropriate) to 
                guard generally against risks at financial 
                institutions, including added risks that may be posed 
                by derivative activities.
                    (B) Comprehensive risk management systems that--
                            (i) are commensurate in scope, size, and 
                        complexity to the levels of activities and 
                        risks assumed by financial institutions;
                            (ii) include limits and controls with 
                        respect to levels or risk regarding 
                        counterparty credit, concentration, and other 
                        relevant market factors;
                            (iii) ensure that market factors affecting 
                        risk exposures are adequately measured, 
                        monitored, controlled and disclosed; and
                            (iv) adequately control potential losses 
                        and undue risks arising from risk control 
                        system deficiencies.
                    (C) To the extent practicable, joint regulatory 
                examinations by the Federal banking agencies of insured 
                depository institutions that are derivatives dealers 
                and any affiliates.
                    (D) Effective senior management supervision and 
                oversight by the board of directors of a financial 
                institution to ensure that derivatives activities are 
                conducted in a safe and sound manner and are consistent 
                with the board of director's overall risk management 
                philosophy and the institution's business strategy.
                    (E) The prudent use of collateral by counterparties 
                to derivatives transactions.
                    (F) Appropriate parameters, models and simulations 
                for purposes of evaluating a financial institution's 
                exposure to derivatives activities and relevant 
                economic scenarios and further specifics regarding 
                stress test.
                    (G) Appropriate credit risk reserves in connection 
                with derivatives activities.
                    (H) Protection against legal risk, including 
                foreign legal risk.
                    (I) Minimum prudential practices for municipalities 
                and pension funds that may use derivatives.
                    (J) Enhanced disclosures to mutual fund customers 
                of the risks that may be posed to mutual funds that are 
                end-users of derivative products.
                    (K) Assurances that, consistent with safe and sound 
                banking practices, a financial institution does not 
                engage in inappropriate derivatives activities.
                    (L) Protection against systemic risk.
            (2) When a recommendation of the Commission is found 
        unacceptable by one or more of the applicable Federal financial 
        institution regulatory agencies, the agency or agencies shall 
        submit to the Commission, within a time period specified by the 
        Commission, a written statement of the reasons the 
        recommendation is unacceptable and such statement shall be 
        published in the Federal Register.

SEC. 105. TRAINING FOR EXAMINERS AND ASSISTANT EXAMINERS.

    The Commission shall sponsor training programs concerning risk 
management techniques and derivatives activities for examiners, 
assistant examiners and other employees of the Federal financial 
institution regulatory agencies. Such training programs shall be open 
to enrollment by employees of State financial institutions supervisory 
agencies and employees of the Federal Housing Finance Board and the 
Department of Housing and Urban Development's Office of Federal Housing 
Enterprise Oversight under conditions specified by the Commission.

SEC. 106. RISK MANAGEMENT TRAINING.

    The Commission shall develop training seminars in risk management 
techniques related to derivatives activities for employees of state or 
local governments and financial institutions.

SEC. 107. EFFECT ON FEDERAL REGULATORY AGENCY RESEARCH AND DEVELOPMENT 
              OF NEW FINANCIAL INSTITUTIONS SUPERVISORY METHODS.

    Nothing in this title shall be construed to limit or discourage 
Federal financial institution regulatory agency research and 
development of new financial institutions supervisory methods and tools 
related to derivatives activities, nor to preclude the field testing of 
any innovation devised by any Federal financial institution regulatory 
agency.

SEC. 108. STATE LIAISON.

    To encourage the application of uniform examination principles and 
standards by State and Federal supervisory agencies, the Commission 
shall establish a liaison committee composed of five representatives of 
State agencies which supervise financial institutions which shall meet 
at least twice a year with the Commission. Members of the liaison 
committee shall receive a reasonable allowance for necessary expenses 
incurred in attending meetings.

SEC. 109. ADMINISTRATION.

    (a) Authority of Chairman of Commission.--The Chairman of the 
Commission is authorized to carry out and to delegate the authority to 
carry out the internal administration of the Commission, including the 
appointment and supervision of employees and the distribution of 
business among members, employees, and administrative units.
    (b) Use of Personnel, Services, and Facilities of Federal Financial 
Institution Regulatory Agencies.--In addition to any other authority 
conferred upon it by this title, in carrying out its functions under 
this title, the Commission may utilize, with their consent and to the 
extent practical, the personnel, services, and facilities of the 
Federal financial institution regulatory agencies, with or without 
reimbursement therefor.
    (c) Compensation, Authority, and Duties of Officers and Employees; 
Experts and Consultants.--In addition, the Commission may--
            (1) subject to the provisions of title 5 relating to the 
        competitive service, classification, and General Schedule pay 
        rates, appoint and fix the compensation of such officers and 
        employees as are necessary to carry out the provisions of this 
        title, and to prescribe the authority and duties of such 
        officers and employees; and
            (2) obtain the services of such experts and consultants as 
        are necessary to carry out the provisions of this title.

SEC. 110. INTERNATIONAL NEGOTIATIONS.

    The Chairman of the Board of Governors of the Federal Reserve 
System, in consultation with the members of the Commission, shall 
encourage governments, central banks, and regulatory authorities of 
other countries to work toward maintaining and, where appropriate, 
adopting comparable supervisory standards and regulations, particularly 
capital standards, for financial institutions engaged in derivatives 
activities.

SEC. 111. CREDIT UNIONS.

    Insured credit unions (as defined in section 101(7) of the Federal 
Credit Union Act) shall be supervised for purposes of derivatives 
activities by the National Credit Union Administration under standards 
no less stringent than standards under which Federal depository 
institutions (as defined in section 3(c) of the Federal Deposit 
Insurance Act) are supervised by the Federal banking agencies.

SEC. 112. ANNUAL REPORT.

    Not later than April 1 of each year, the Commission shall prepare a 
report covering its activities during the preceding calendar year.

                   TITLE II--SUPERVISORY IMPROVEMENTS

SEC. 201. UNSAFE OR UNSOUND BANKING PRACTICES.

    (a) In General.--Failure of an institution-affiliated party engaged 
in derivatives activities to have adequate technical expertise may be 
deemed by the appropriate federal banking agency to constitute an 
unsafe or unsound banking practice within the meaning of section 8 of 
the Federal Deposit Insurance Act (12 U.S.C. 1818).
    (b) Rule of Construction.--This section shall be in addition to and 
not in derogation of the authority of any appropriate Federal banking 
agency under section 8 of the Federal Deposit Insurance Act to 
determine unsafe or unsound banking practices.

SEC. 202. INTERNAL CONTROLS.

    Section 39(a)(1)(A) of the Federal Deposit Insurance Act (12 U.S.C. 
1831p-1(a)(1)(A)) is amended by striking ``internal controls'' and 
inserting ``internal controls (including internal controls for 
derivatives activities)''.

SEC. 203. FOREIGN BANK SUPERVISION.

    Section 7(d)(2)(A) of the International Banking Act of 1978 (12 
U.S.C. 3105(d)(2)(A)) is amended after ``country'' by inserting ``, 
including, in the case of a foreign bank engaged in derivatives 
activities, comprehensive supervision and regulation for derivatives 
activities (as that term is defined in the Risk Management Improvement 
and Derivatives Oversight Act of 1995). In making any determination 
under this paragraph, the Board shall consider whether the home country 
maintains comprehensive supervision and regulation of derivatives 
activities, including capital and disclosure standards, not less 
stringent than United States standards.''.

SEC. 204. CONFIDENTIAL EMERGENCY MANAGEMENT REPORTING.

    (a) In General.--Before the end of the 1-year period beginning on 
the date of the enactment of this Act, the Federal financial 
institution regulatory agencies shall develop the means to obtain all 
necessary information relating to any derivatives activity or any class 
of derivative financial instruments, whenever the appropriate Federal 
financial institution regulatory agency determines that receipt of such 
information from any financial institution engaged in derivates 
activities is necessary as a result of adverse market conditions or 
other emergency situations (as defined by the agency).
    (b) Accessibility of Information.--Each financial institution 
referred to in paragraph (1) shall--
            (1) assemble such information and retain such records as 
        the appropriate Federal financial institution regulatory agency 
        may require by regulation for purposes of such paragraph; and
            (2) promptly provide to the appropriate Federal financial 
        institution regulatory agency any information requested by the 
        agency pursuant to such paragraph.
    (c) Confidentiality of Information Provided.--No information 
provided to or obtained by an appropriate Federal financial institution 
regulatory agency pursuant to paragraph (1) with respect to any 
financial institution may be provided to any person or entity other 
than another Federal financial institution regulatory agency, except 
that such information may be provided with the prior written approval 
of the agency.
    (d) Definitions.--For purposes of this section, the terms ``Federal 
financial institution regulatory agencies'', ``financial institution'', 
``derivative financial instrument'', and ``derivatives activities'' 
have the same meaning as in title I of this Act.

          TITLE III--FINANCIAL INSTITUTION INSOLVENCY REFORMS

SEC. 301. TREATMENT OF CERTAIN SWAP AGREEMENTS BY CONSERVATORS OR 
              RECEIVERS OF INSURED DEPOSITORY INSTITUTIONS.

    Section 11(e)(8)(D)(vi)(I) of the Federal Deposit Insurance Act (12 
U.S.C. 1821(e)(8)(D)(vi)(I)) is amended to read as follows:
                                    ``(I) means any agreement, 
                                including the terms and conditions 
                                incorporated by reference in any such 
                                agreement, which is a rate swap 
                                agreement, basis swap, commodity swap, 
                                forward rate agreement, interest rate 
                                future, interest rate option, foreign 
                                exchange agreement, rate cap agreement, 
                                rate floor agreement, rate collar 
                                agreement, currency swap agreement, 
                                cross-currency rate swap agreement, 
                                currency future, currency option, 
                                equity or equity index swap, equity or 
                                equity index option, bond option, or 
                                any other similar agreement, and''

SEC. 302. AUTHORITY OF THE CORPORATION WITH RESPECT TO FAILED AND 
              FAILING INSTITUTIONS.

    Section 11(e)(8) of the Federal Deposit Insurance Act (12 U.S.C. 
1821(e)(8)) is amended--
            (1) in subparagraph (E)--
                    (A) by striking ``paragraph (12) of this 
                subsection''; and
                    (B) by striking ``subsection (d)(9)'' and inserting 
                ``subsections (d)(9), (e)(10), and (n)(4)(I)''; and
            (2) by adding the following new subparagraphs:
                    ``(F) Clarification.--No provision of law shall be 
                construed as limiting the right or power of the 
                Corporation, or authorizing any court or agency to 
                limit or delay, in any manner, the right or power of 
                the Corporation to transfer any qualified financial 
                contract in accordance with paragraph (9) and (10) or 
                to liquidate any such contract.
                    ``(G) Recordkeeping requirements.--The Corporation, 
                in consultation with the appropriate Federal banking 
                agencies, may prescribe regulations requiring more 
                detailed recordkeeping with respect to qualified 
                financial contracts (including market valuations) by 
                insured depository institutions.''.

SEC. 303. AMENDMENTS RELATING TO TRANSFERS OF QUALIFIED FINANCIAL 
              CONTRACTS.

    (a) Transfers of Qualified Financial Contracts to Persons Other 
Than Depository Institutions.--Section 11(e)(9)(A) of the Federal 
Deposit Insurance Act (12 U.S.C. 1821(e)(9)(A)) is amended to read as 
follows:
            ``(A) transfer to 1 depository institution (other than a 
        depository institution in default) or to 1 person that is not a 
        depository institution (other than a person for which a 
        conservator, receiver, trustee in bankruptcy, or other legal 
        custodian has been appointed or which is otherwise the subject 
        of a bankruptcy or insolvency proceeding)--''.
    (b) Notice to Qualified Financial Contract Counterparties.--Section 
11(e)(10)(A) of the Federal Deposit Insurance Act (12 U.S.C. 
1821(e)(10)(A)) is amended to read as follows:
                    ``(A) In general.--If--
                            ``(i) the receiver for an insured 
                        depository institution in default makes any 
                        transfer of the assets and liabilities of such 
                        institution; and
                            ``(ii) the transfer includes any qualified 
                        financial contract; the receiver shall notify 
                        any person who is a party to any such contract 
                        of such transfer by 5:00 p.m. (Eastern Time) on 
                        the business day following the date of the 
                        appointment of the receiver.''.
    (c) Rights Against Receiver and Treatment of Bridge Banks.--Section 
11(e)(10) of the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(10)) 
is amended--
            (1) by redesignating subparagraph (B) as subparagraph (D);
            (2) by inserting after subparagraph (A) the following new 
        subparagraphs:
                    ``(B) Certain rights not enforceable.--
                            ``(i) In general.--A person who is a party 
                        to a qualified financial contract with an 
                        insured depository institution may not exercise 
                        any right such person has to net or close out 
                        such contract under paragraph (8)(A) or section 
                        403 or 404 of the Federal Deposit Insurance 
                        Corporation Improvement Act of 1991 solely by 
                        reason of the appointment of a receiver for the 
                        depository institution (or the insolvency or 
                        financial condition of the institution for 
                        which the receiver has been appointed)--
                                    ``(I) until 5:00 p.m. (Eastern 
                                time) of the business day following the 
                                date of the appointment of the 
                                receiver; or
                                    ``(II) after the person has 
                                received notice that the contract has 
                                been transferred pursuant to paragraph 
                                (9)(A).
                            ``(ii) Notice to last-known address.--For 
                        purposes of this subparagraph, the Corporation 
                        as receiver of an insured depository 
                        institution shall be deemed to have notified a 
                        person who is a party to a qualified financial 
                        contract with such depository institution if 
                        the Corporation has sent notice to the last 
                        address of such person shown on the books and 
                        records of the depository institution with 
                        respect to such contract in the manner provided 
                        for in the contract or by other means 
                        reasonably calculated to reach such person by 
                        the time specified in subparagraphs (A) and 
                        (B)(i)(I) of this subsection.
                            ``(iii) Exception to right of contracting 
                        party to net or close out contracts.--A person 
                        who is a party to a qualified financial 
                        contract with an insured depository institution 
                        may not exercise any right such person has to 
                        net or close out such contract under paragraph 
                        (8)(E) or sections 403 or 404 of the Federal 
                        Deposit Insurance Corporation Improvement Act 
                        of 1991, solely by reason of the appointment of 
                        a conservator for the depository institution.
                    ``(C) Treatment of bridge banks.--The following 
                institutions shall not be considered depository 
                institutions in default for purposes of 
                subsection(e)(9):
                            ``(i) A bridge bank.
                            ``(ii) An institution organized by the 
                        Corporation, for which a conservator is 
                        appointed either, (I) immediately upon the 
                        organization of the institution, or (II) at the 
                        time of a purchase and assumption transaction 
                        between such institution and the Corporation as 
                        receiver for a failed depository 
                        institution.''.

SEC. 304. CLARIFYING AMENDMENT RELATING TO MASTER AGREEMENTS.

    Section 11(e)(8)(D)(vii) of the Federal Deposit Insurance Act (12 
U.S.C. 1821(e)(8)(D)(vii)) is amended to read as follows:
                            ``(vii) Treatment of master agreement as 
                        one agreement.--Any master agreement for any 
                        contract or agreement described in any 
                        preceeding clause of this subparagraph (or any 
                        master agreement for such master agreement or 
                        agreements), together with all supplements to 
                        such master agreement, shall be treated as a 
                        single agreement and a single qualified 
                        financial contract.''.

SEC. 305. QUALIFIED FINANCIAL CONTRACTS.

    (a) Definition of Qualified Financial Contract.--
Section 11(e)(8)(D) of the Federal Deposit Insurance Act (12 U.S.C. 
1821(e)(8)(D)) is amended--
            (1) in clause (iv), by striking ``(24)'' and inserting 
        ``(25)''; and
            (2) in clause (v), by striking ``101(41)'' and inserting 
        ``101(47)''.
    (b) Federal Deposit Insurance Corporation Improvement Act of 
1991.--Sections 403(a) and 404(a) of the Federal Deposit Insurance 
Corporation Improvement Act of 1991 (12 U.S.C. 4403(a), 4404(a)) are 
each amended by inserting ``other than paragraphs (8)(E) and (10)(B) of 
section 11(e) of the Federal Deposit Insurance Act'' after ``other 
provisions of law''.

SEC. 306. TECHNICAL AND CONFORMING AMENDMENTS.

    (a) Definition of Swap Agreement.--Section 101 of title 11, United 
States Code, is amended in paragraph (53B)--
            (1) by inserting ``equity or equity index swap, equity or 
        equity index option, bond option,'' after ``basis swap,'';
            (2) by inserting ``interest rate future,'' after 
        ``commodity swap,''; and
            (3) by inserting ``currency future,'' after ``cross-
        currency rate swap agreement,''.
    (b) Definition of Master Netting Agreement and Master Netting 
Agreement Participant.--Section 101 of title 11, United States Code, is 
amended by adding, after paragraph (38), the following new paragraphs:
            ``(38A) `master netting agreement' means an agreement 
        providing for the exercise of rights, including rights of 
        setoff, liquidation, termination, acceleration, or closeout, in 
        connection with one or more contracts with the debtor that are 
        described in paragraphs (1) through (5) of section 561(a);
            ``(38B) `master netting agreement participant' means an 
        entity that, at any time before the filing of the petition, has 
        an outstanding master netting agreement with the debtor.''.
    (c) Master Agreements Under the Auto-Stay.--Section 362(b)(17) of 
title 11, United States Code, is amended to read as follows:
            ``(17) under subsection (a), of the setoff by a swap 
        participant or master netting agreement participant of any 
        mutual debt and claim under or in connection with any swap 
        agreement or master netting agreement that constitutes the 
        setoff of a claim against the debtor for any payment due from 
        the debtor under or in connection with any such agreement 
        against--
                    ``(A) any payment due to the debtor from such 
                participant under or in connection with any such 
                agreement; or
                    ``(B) cash, securities, or other property of the 
                debtor held by or due from such participant to 
                guarantee, secure or settle any such agreement.''.
    (d) Limitation of Avoidance Powers Under Master Netting 
Agreement.--Section 546(g) of title 11, United States Code, is 
amended--
            (1) by inserting ``or a master netting agreement'' after 
        ``under a swap agreement'';
            (2) by inserting ``or a master netting agreement 
        participant'' after ``swap participant''; and
            (3) by inserting ``or any master netting agreement'' after 
        ``with a swap agreement''.
    (e) Fraudulent Transfers of Master Netting Agreements.--Section 
548(d)(2) of title 11, United States Code, is amended--
            (1) in subparagraph (C), by striking ``and'';
            (2) in subparagraph (D), by striking the period and 
        inserting ``; and''; and
            (3) by adding at the end the following new subparagraph:
            ``(E) a master netting agreement participant that receives 
        a transfer in connection with a master netting agreement takes 
        for value to the extent of such transfer.''.
    (f) Termination or Acceleration of Securities Contracts.--Section 
555 of title 11, United States Code, is amended--
            (1) in the section heading, by inserting ``, terminate, or 
        accelerate'' after ``liquidate''; and
            (2) in the first sentence, by inserting ``, termination, or 
        acceleration'' after ``liquidation''.
    (g) Termination or Acceleration of Commodities or Forward 
Contracts.--Section 556 of title 11, United States Code, is amended--
            (1) in the section heading, by inserting ``, terminate, or 
        accelerate'' after ``liquidate''; and
            (2) in the first sentence, by inserting ``, termination, or 
        acceleration'' after ``liquidation''.
    (h) Termination or Acceleration of Repurchase Agreements.--Section 
559 of title 11, United States Code, is amended--
            (1) in the section heading, by inserting ``, terminate, or 
        accelerate'' after ``liquidate''; and
            (2) in the first sentence, by inserting ``, termination, or 
        acceleration'' after ``liquidation''.
    (i) Liquidation, Termination or Acceleration of Swap Agreements.--
Section 560 of title 11, United States Code, is amended--
            (1) in the section heading, by striking ``terminate'' and 
        inserting ``liquidate, terminate, or accelerate''; and
            (2) in the first sentence, by striking ``termination'' and 
        inserting ``liquidation, termination, or acceleration''.
    (j) Liquidation, Termination, Acceleration, or Offset Under a 
Master Netting Agreement.--Chapter 5 of title 11, United States Code, 
is amended by adding at the end of the following new section:

``SEC. 561. CONTRACTUAL RIGHT TO TERMINATE, LIQUIDATE, ACCELERATE, OR 
              OFFSET UNDER A MASTER NETTING AGREEMENT.

    ``(a) In General.--Subject to subsection (b), the exercise of any 
contractual right, because of a condition of the kind specified in 
section 365(e)(1), to cause termination, liquidation, acceleration, 
offset, or netting of values or payment amounts arising under or in 
connection with one or more--
            ``(1) securities contracts, as defined in section 741(7);
            ``(2) commodities contracts, as defined in section 761(4);
            ``(3) forward contracts;
            ``(4) repurchase agreements; or
            ``(5) swap agreements;
under a master netting agreement covering such contracts shall not be 
stayed, avoided, or otherwise limited by operation of any provision of 
this title or by any order of a court or administrative agency in any 
proceeding under this title.
    ``(b) Exception.--A party may exercise a contractual right 
described in subsection (a) only if that party could exercise such a 
right under section 555, 556, 559, or 560 for each individual contract 
covered by the master netting agreement in issue.
    ``(c) Definition.--As used in this section, the term `contractual 
right' includes, but is not limited to, a right set forth in a rule or 
bylaw of a national securities exchange, a national securities 
association or a securities clearing agency, and a right set forth in a 
bylaw of a clearing organization or contract market or in a resolution 
of the governing board thereof.''.
    (k) Municipal Bankruptcies.--Section 901 of title 11, United States 
Code, is amended--
            (1) by inserting ``555, 556,'' after ``553,''; and
            (2) by inserting ``559, 560 561'' after ``557,''.

SEC. 307. COLLATERALIZATION OF QUALIFIED FINANCIAL CONTRACTS AND 
              CERTAIN OTHER LIABILITIES.

    Section 13(e) of the Federal Deposit Insurance Act (12 U.S.C. 
1823(e)) is amended by striking paragraph (2) and adding the following 
new paragraph:
            ``(2) Exemptions from contemporaneous execution 
        requirement.--An agreement to provide for the lawful 
        collateralization of--
                    ``(A) deposits of, or other credit extension by, a 
                Federal, state, or local governmental entity, or of any 
                depositor referred to in section 11(a)(2), including an 
                agreement to provide collateral in lieu of a surety 
                bond;
                    ``(B) bankruptcy estate funds pursuant to section 
                345(b)(2) of title 11, United States Code;
                    ``(C) extensions of credit, including any 
                overdraft, from a Federal Reserve Bank or Federal Home 
                Loan Bank; or
                    ``(D) a qualified financial contract, as defined in 
                section 1821(e)(8)(D); shall not be deemed to be 
                invalid pursuant to paragraph (1)(B) solely because 
                such agreement was not executed contemporaneously with 
                the acquisition of the collateral or because of 
                pledges, delivery, or substitution of the collateral 
                made in accordance with such agreement.''.

              TITLE IV--DERIVATIVES DEALER SELF-REGULATION

SEC. 401. SHORT TITLE.

    This title may be cited as the ``Derivatives Dealer Self-Regulation 
Act of 1995''.

SEC. 402. DECLARATION OF PURPOSE.

    It is the purpose of this title to authorize the establishment of a 
self-regulatory system for the supervision of derivatives dealers.

SEC. 403. DEFINITIONS.

    As used in this title:
            (1) Board.--The term ``Board'' means the Board of Governors 
        of the Federal Reserve System.
            (2) Derivatives dealer.--The term ``derivatives dealer'' 
        means any financial institution engaged in the business of 
        brokering or dealing in derivative financial instruments, as 
        determined by the Board, except that such term does not include 
        any person that is registered as a broker or dealer of 
        securities or as a futures commission merchant.
            (3) Financial institution.--The term ``financial 
        institution'' means any institution described in section 402(9) 
        of the Federal Deposit Insurance Corporation Improvement Act of 
        1991, and any other institution that the Board determines to be 
        a financial institution.
            (4) Derivative financial instrument.--The term ``derivative 
        financial instrument'' means any securities contract, commodity 
        contract, forward contract, swap agreement, or any other 
        similar agreement or instrument which the Board determines to 
        be a derivative financial instrument for purposes of this 
        title.
            (5) Commodity contract; forward contract; swap agreement.--
        The terms ``commodity contract'', ``forward contract'', and 
        ``swap agreement'' have the same meaning as in section 
        11(e)(8)(D) of the Federal Deposit Insurance Act (12 U.S.C. 
        1821(e)(8)(D)).
            (6) Securities contract.--The term ``securities contract'' 
        has the same meaning as in section 741(7) of title 11, United 
        States Code and includes a structured note.
            (7) Statutory disqualification.--A person is subject to a 
        ``statutory disqualification'' with respect to membership or 
        participation in, or association with a member of, a national 
        derivatives association, if such person--
                    (A) has been and is expelled or suspended from 
                membership or participation in, or barred or suspended 
                from being associated with a member of, any self-
                regulatory organization under the Federal securities 
                laws, foreign equivalent of a self-regulatory 
                organization, foreign or international securities 
                exchange, contract market designated pursuant to 
                section 5 of the Commodity Exchange Act (7 U.S.C. 7), 
                or any substantially equivalent foreign statute or 
                regulation, or futures association registered under 
                section 17 of such Act (7 U.S.C. 21), or any 
                substantially equivalent foreign statute or regulation, 
                or has been and is denied trading privileges on any 
                such contract market or foreign equivalent;
                    (B) is subject to--
                            (i) an order to the Board, other 
                        appropriate regulatory agency, or foreign 
                        financial regulatory authority--
                                    (I) denying, suspending for a 
                                period not exceeding 12 months, or 
                                revoking his or her registration as a 
                                broker, dealer, municipal securities 
                                dealer, government securities broker, 
                                or government securities dealer or 
                                limiting his or her activities as a 
                                foreign person performing a function 
                                substantially equivalent to any of the 
                                above; or
                                    (II) barring or suspending for a 
                                period not exceeding 12 months his or 
                                her being associated with a broker, 
                                dealer, municipal securities dealer, 
                                government securities broker, 
                                government securities dealer, or 
                                foreign person performing a function 
                                substantially equivalent to any of the 
                                above;
                            (ii) an order of the Commodity Futures 
                        Trading Commission denying, suspending, or 
                        revoking his or her registration under the 
                        Commodity Exchange Act (7 U.S.C. 1 et seq.); or
                            (iii) an order by a foreign financial 
                        regulatory authority denying, suspending, or 
                        revoking the person's authority to engage in 
                        transactions in contracts of sale of a 
                        commodity for future delivery or other 
                        instruments traded on or subject to the rules 
                        of a contract market, board of trade, or 
                        foreign equivalent thereof;
                    (C) by his or her conduct while associated with a 
                broker, dealer, municipal securities dealer, government 
                securities broker, or government securities dealer, or 
while associated with an entity or person required to be registered 
under the Commodity Exchange Act, has been found to be a cause of any 
effective suspension, expulsion, or order of the character described in 
subparagraph (A) or (B) of this paragraph, and in entering such a 
suspension, expulsion, or order, the Board, an appropriate regulatory 
agency, or any such self-regulatory organization shall have 
jurisdiction to find whether or not any person was a cause thereof;
                    (D) by his or her conduct while associated with any 
                broker, dealer, municipal securities dealer, government 
                securities broker, government securities dealer, or any 
                other entity engaged in transactions in securities, or 
                while associated with an entity engaged in transactions 
                in contracts of sale of a commodity for future delivery 
                or other instruments traded on or subject to the rules 
                of a contract market, board of trade, or foreign 
                equivalent thereof, has been found to be a cause of any 
                effective suspension, expulsion, or order by a foreign 
                or international securities exchange or foreign 
                financial regulatory authority empowered by a foreign 
                government to administer or enforce its laws relating 
                to financial transactions as described in subparagraph 
                (A) or (B) of this paragraph;
                    (E) has associated with him any person who is 
                known, or in the exercise of reasonable care should be 
                known, to him to be a person described by subparagraph 
                (A), (B), (C), or (D) of this paragraph; or
                    (F) has committed or omitted any act enumerated in 
                subparagraph (D), (E), or (F) of section 408(g)(2) of 
                this title, has been convicted of any offense specified 
                in subparagraph (B) of such section or any other felony 
                within ten years of the date of the filing of an 
                application for membership or participation in, or to 
                become associated with a member of, such national 
                derivatives association, is enjoined from any action, 
                conduct, or practice specified in subparagraph (C) of 
                such section, has willfully made or caused to be made 
                in any application for membership or participation in, 
                or to become associated with a member of, a national 
                derivatives association, report required to be filed 
                with a national derivatives association, or proceeding 
                before a national derivatives association, any 
                statement which was at the time, and in the light of 
                the circumstances under which it was made, false or 
                misleading with respect to any material fact, or has 
                omitted to state in any such application, report, or 
                proceeding any material fact which is required to be 
                stated therein.
            (8) Appropriate regulatory agency.--The term ``appropriate 
        regulatory agency'' includes the Board, the Securities and 
        Exchange Commission, the Commodity Futures Trading Commission, 
        the Comptroller of the Currency, and the Federal Deposit 
        Insurance Corporation.

SEC. 404. AUTHORITY OF BOARD TO REQUIRE SELF-REGULATORY ORGANIZATION.

    (a) Authority To Require Self-Regulation.--The provisions of this 
title, requiring the establishment of a self-regulatory system for the 
supervision of derivatives dealers, shall be effective at such time (or 
at such different times for different provisions) as the Board shall 
specify in a determination made pursuant to subsection (b).
    (b) Grounds for Determination.--The Board may provide for the 
taking effect of this title if the Board determines that the 
establishment of a self-regulatory system for the supervision of 
derivatives dealers is in the public interest. In making such 
determination, the Board shall take into account the following factors:
            (1) Promotion of fair and orderly markets for derivative 
        financial instruments.
            (2) Control of risks associated with derivative financial 
        instruments, including market risk, legal risk, and systemic 
        risk.
            (3) Establishment of uniformity and comparability in 
        regulatory principles and standards applied to derivatives 
        dealers.
            (4) Improvement in regulatory coordination among those 
        responsible for supervision of derivatives dealers.
            (5) Closure of gaps and loopholes in the supervision of 
        derivatives dealers.
            (6) Strengthened enforcement of rules and regulations 
        applicable to derivatives dealers.
            (7) Maintenance of high standards and qualifications for 
        derivatives dealers.
            (8) Prevention of fraud and manipulation in the derivatives 
        markets and protection of investors in derivative financial 
        instruments.
            (9) General improvement in the supervision and functioning 
        of the markets for derivative financial instruments.
    (c) Procedures To Impose Requirements.--The Board shall not issue a 
determination under subsection (b) except after notice and opportunity 
for comment.

SEC. 405. REGISTRATION OF SELF-REGULATORY ORGANIZATION.

    (a) Registration.--
            (1) Filing.--An association of derivatives dealers may be 
        registered as a national derivatives association pursuant to 
        subsection (b) under the terms and conditions hereinafter 
        provided in this section by filing with the Board an 
        application for registration in such form as the Board, by 
        rule, may prescribe containing the rules of the association and 
        such other information and documents as the Board, by rule, may 
        prescribe as necessary or appropriate in the public interest or 
        for the protection of investors.
            (2) Notice of filing.--The Board shall, upon the filing of 
        an application for registration as a national derivatives 
        exchange, publish notice of such filing and afford interested 
        persons an opportunity to submit written data, views, and 
        arguments concerning such application.
            (3) Grant of registration or initiation of proceedings.--
        Within ninety days of the date of publication of such notice 
        (or within such longer period as to which the applicant 
        consents), the Board shall--
                    (A) by order grant such registration, or
                    (B) institute proceedings to determine whether 
                registration should be denied.
        Such proceedings shall include notice of the grounds for denial 
        under consideration and opportunity for hearing and shall be 
        concluded within one hundred eighty days of the date of a 
        publication of notice of the filing of the application for 
        registration. At the conclusion of such proceedings the Board, 
        by order, shall grant or deny such registration. The Board may 
        extend the time for conclusion of such proceedings for up to 
        ninety days if it finds good cause for such extension and 
        publishes its reasons for so finding or for such longer period 
        as to which the applicant consents.
    (b) Grounds for Decisions on Applications for Registration.--
            (1) In general.--The Board shall grant such registration if 
        it finds that the requirements of this title and the rules and 
        regulations thereunder with respect to the applicant are 
        satisfied. The Board shall deny such registration if it does 
        not make such finding.
            (2) Criteria for approval.--An association of derivatives 
        dealers shall not be registered as a national derivatives 
        association unless the Board determines that:
                    (A) By reason of the number and geographical 
                distribution of its members and the scope of their 
                transactions, such association will be able to carry 
                out the purposes of this section.
                    (B) Such association is so organized and has the 
                capacity to be able to carry out the purposes of this 
                Act and to comply, and to enforce compliance by its 
                members and persons associated with its members, with 
                the provisions of this Act, and the rules and 
                regulations thereunder, and the rules of the 
                association.
                    (C) Subject to the provisions of section 406, the 
                rules of the association provide that any derivatives 
                dealer may become a member of such association and any 
                person may become associated with a member thereof.
                    (D) The rules of the association assure a fair 
                representation of its members in the selection of its 
                directors and administration of its affairs.
                    (E) The rules of the association provide for the 
                equitable allocation of reasonable dues, fees, and 
                other charges among members and other persons using any 
                facility or system which the association operates or 
                controls.
                    (F) The rules of the association are designed to 
                prevent fraudulent and manipulative acts and practices, 
                to promote just and equitable principles of trade, to 
                foster cooperation and coordination with persons 
                engaged in regulating, clearing, settling, processing 
                information with respect to, and facilitating 
                transactions in derivatives, and, in general, to 
                protect investors and the public interest.
                    (G) The rules of the association provide that its 
                members and persons associated with its members shall 
                be appropriately disciplined for violation of any 
                provision of this Act, the rules or regulations 
                thereunder, or the rules of the association, by 
                expulsion, suspension, limitation of activities, 
                functions, and operations, fine, censure, being 
                suspended or barred from being associated with a 
                member, or any other fitting sanction.
                    (H) The rules of the association provide a fair 
                procedure for the disciplining of members and persons 
                associated with members, the denial of membership to 
                any person seeking membership therein, the barring of 
                any person from becoming associated with a member 
                thereof, and the prohibition or limitation by the 
                association of any person with respect to access to 
                services offered by the association or a member 
                thereof.
                    (I) The rules of the association do not impose any 
                burden on competition not necessary or appropriate in 
                furtherance of the purposes of this Act.
                    (J) The rules of the association to promote just 
                and equitable principles of trade.
    (c) Withdrawal from Registration.--A national derivatives 
association may, upon such terms and conditions as the Board, by rule, 
deems necessary or appropriate in the public interest or for the 
protection of investors, withdraw from registration by filing a written 
notice of withdrawal with the Board. If the Board finds that any 
national derivatives association is no longer in existence or has 
ceased to do business in the capacity specified in its application for 
registration, the Board, by order, shall cancel its registration. Upon 
the withdrawal of a national derivatives association from registration 
or the cancellation, suspension, or revocation of the registration of a 
national derivatives association, the registration of any association 
affiliated therewith shall automatically terminate.

SEC. 406. REGISTRATION OF DERIVATIVES DEALERS WITH ASSOCIATION.

    (a) Denial of Membership.--
            (1) Statutory disqualifications.--A national derivatives 
        association may, and in cases in which the Board, by order, 
        directs as necessary or appropriate in the public interest or 
        for the protection of investors shall, deny membership to any 
        derivatives dealer, and bar from becoming associated with a 
        member any person, who is subject to a statutory 
        disqualification. A national derivatives association shall file 
        notice with the Board not less than thirty days prior to 
        admitting any derivatives dealer to membership or permitting 
        any person to become associated with a member, if the 
        association knew, or in the exercise of reasonable care should 
        have known, that such derivatives dealer or person was subject 
        to a statutory disqualification. The notice shall be in such 
        form and contain such information as the Board, by rule, may 
        prescribe as necessary or appropriate in the public interest or 
        for the protection of investors.
            (2) Additional disqualifications.--A national derivatives 
        association may deny membership to, or condition the membership 
        of, a derivatives dealer if (A) such derivatives dealer does 
        not meet such standards of financial responsibility or 
        operational capability or such derivatives dealer or any 
        natural person associated with such derivatives dealer does not 
        meet such standards of training, experience, and competence as 
        are prescribed by the rules of the association or (B) such 
        derivatives dealer or person associated with such derivatives 
        dealer has engaged and there is a reasonable likelihood he will 
        again engage in acts or practices inconsistent with just and 
        equitable principles of trade. A national derivatives 
        association may examine and verify the qualifications of an 
        applicant to become a member and the natural persons associated 
        with such an applicant in accordance with procedures 
        established by the rules of the association.
            (3) Associations based on business type permitted.--A 
        national derivatives association may deny membership to a 
        derivatives dealer not engaged in a type of business in which 
        the rules of the association require members to be engaged, 
        except that no national derivatives association may deny 
        membership to a derivatives dealer by reason of the amount of 
        such type of business done by such derivatives dealer or the 
        other types of business in which he is engaged.
    (b) Denial of Association.--
            (1) Association with members.--A national derivatives 
        association may bar a natural person from becoming associated 
        with a member or condition the association of a natural person 
        with a member if such natural person (A) does not meet such 
        standards of training, experience, and competence as are 
        prescribed by the rules of the association or (B) has engaged 
        and there is a reasonable likelihood he will again engage in 
        acts or practices inconsistent with just and equitable 
        principles of trade. A national derivatives association may 
        examine and verify the qualifications of an applicant to become 
        a person associated with a member in accordance with procedures 
        established by the rules of the association and require a 
        natural person associated with a member, or any class of such 
        natural persons, to be registered with the association in 
        accordance with procedures so established.
            (2) Information and records access.--A national derivatives 
        association may bar any person from becoming associated with a 
        member if such person does not agree (A) to supply the 
        association with such information with respect to its 
        relationship and dealings with the member as may be specified 
        in the rules of the association and (B) to permit examination 
        of its books and records to verify the accuracy of any 
        information so supplied.

SEC. 407. PROCEDURES FOR SELF-REGULATION OF MEMBERS.

    (a) In General.--In any proceeding by a national derivatives 
association to determine whether a member or person associated with a 
member should be disciplined (other than a summary proceeding pursuant 
to subsection (c) of this section) the association shall bring specific 
charges, notify such member or person of, and give him an opportunity 
to defend against, such charges, and keep a record. A determination by 
the association to impose a disciplinary sanction shall be supported by 
a statement setting forth--
            (1) any act or practice in which such member or person 
        associated with a member has been found to have engaged, or 
        which such member or person has been found to have omitted;
            (2) the specific provision of this Act, the rules or 
        regulations thereunder, or the rules of the association which 
        any such act or practice, or omission to act, is deemed to 
        violate; and
            (3) the sanction imposed and the reason therefor.
    (b) Procedures Prior to Sanction.--In any proceeding by a national 
derivatives association to determine whether a person shall be denied 
membership, barred from becoming associated with a member, or 
prohibited or limited with respect to access to services offered by the 
association or a member thereof (other than a summary proceeding 
pursuant to subsection (c) of this section), the association shall 
notify such person of and give him an opportunity to be heard upon, the 
specific grounds for denial, bar, or prohibition or limitation under 
consideration and keep a record. A determination by the association to 
deny membership, bar a person from becoming associated with a member, 
or prohibit or limit a person with respect to access to services 
offered by the association or a member thereof shall be supported by a 
statement setting forth the specific grounds on which the denial, bar, 
or prohibition or limitation is based.
    (c) Summary Suspensions.--A national derivatives association may 
summarily (1) suspend a member or person associated with a member who 
has been and is expelled or suspended from any national derivatives 
association or barred or suspended from being associated with a member 
of any national derivatives association, (2) suspend a member who is in 
such financial or operating difficulty that the association determines 
and so notifies the Board that the member cannot be permitted to 
continue to do business as a member with safety to investors, 
creditors, other members, or the association, or (3) limit or prohibit 
any person with respect to access to services offered by the 
association if paragraph (1) or (2) of this subsection is applicable to 
such person or, in the case of a person who is not a member, if the 
association determines that such person does not meet the qualification 
requirements or other prerequisites for such access and such person 
cannot be permitted to continue to have such access with safety to 
investors, creditors, members, or the association. Any person aggrieved 
by any such summary action shall be promptly afforded an opportunity 
for a hearing by the association in accordance with the provisions of 
subsection (a) or (b) of this section. The Board, by order, may stay 
any such summary action on its own motion or upon application by any 
person aggrieved thereby, if the Board determines summarily or after 
notice and opportunity for hearing (which hearing may consist solely of 
the submission of affidavits or presentation of oral arguments) that 
such stay is consistent with the public interest and the protection of 
investors.

SEC. 408. ENFORCEMENT.

    (a) Membership Required To Engage in Derivatives Business..--If the 
Board has made a determination under section 404, it shall be unlawful, 
after the effective date of this title (as determined under such 
section), for any derivatives dealer to effect any transaction in, or 
induce or attempt to induce the purchase or sale of, any derivative 
financial instrument, unless such derivatives dealer is a member of a 
national derivatives association registered pursuant to section 405 of 
this Act.
    (b) Criminal Penalty for Violation.--Any person who willfully 
violates any provision of this title, or any rule or regulation 
thereunder the violation of which is made unlawful or the observance of 
which is required under the terms of this title, or any person who 
willfully and knowingly makes, or causes to be made, any statement in 
any application, report, or document required to be filed under this 
title or any rule or regulation thereunder or by any self-regulatory 
organization in connection with an application for membership or 
participation therein or to become associated with a member thereof, 
which statement was false or misleading with respect to any material 
fact, shall upon conviction be fined not more than $1,000,000, or 
imprisoned not more than 10 years, or both, except that when such 
person is a person other than a natural person, a fine not exceeding 
$2,500,000 may be imposed; but no person shall be subject to 
imprisonment under this section for the violation of any rule or 
regulation if he proves that he had no knowledge of such rule or 
regulation.
    (c) Obligation To Enforce.--
            (1) In general.--Every national derivatives association 
        shall comply with the provisions of this Act, the rules and 
        regulations thereunder, and its own rules, and (subject to 
        paragraph (2) of this subsection, and the rules thereunder) 
        absent reasonable justification or excuse enforce compliance 
        with such provisions by its members and persons associated with 
        its members.
            (2) Exceptions.--The Board, by rule, consistent with the 
        public interest, the protection of investors, and the other 
        purposes of this Act, may relieve any national derivatives 
        association of any responsibility under this Act to enforce 
        compliance with any specified provision of this Act or the 
        rules or regulations thereunder by any member of such 
        organization or person associated with such a member, or any 
        class of such members or persons associated with a member.
    (d) Filing and Approval of Rules.--
            (1) Rules and changes required to be filed.--Each national 
        derivatives association shall file with the Board, in 
        accordance with such rules as the Board may prescribe, copies 
        of any proposed rule or any proposed change in, addition to, or 
        deletion from the rules of such national derivatives 
        association (hereinafter in this subsection collectively 
        referred to as a ``proposed rule change'') accompanied by a 
        concise general statement of the basis and purpose of such 
        proposed rule change. The Board shall, upon the filing of any 
        proposed rule change, publish notice thereof together with the 
        terms of substance of the proposed rule change or a description 
        of the subjects and issues involved. The Board shall give 
        interested persons an opportunity to submit written data, 
        views, and arguments concerning such proposed rule change. No 
        proposed rule change shall take effect unless approved by the 
        Board or otherwise permitted in accordance with the provisions 
        of this subsection.
            (2) Approval or initiation of proceedings.--Within thirty-
        five days of the date of publication of notice of the filing of 
        a proposed rule change in accordance with paragraph (1) of this 
        subsection, or within such longer period as the Board may 
        designate up to ninety days of such date if it finds such 
        longer period to be appropriate and publishes its reasons for 
        so finding or as to which the national derivatives association 
        consents, the Board shall--
                    (A) by order approve such proposed rule change, or
                    (B) institute proceedings to determine whether the 
                proposed rule change should be disapproved.
            (2) Approval or disapproval.--Such proceedings shall 
        include notice of the grounds for disapproval under 
        consideration and opportunity for hearing and be concluded 
        within one hundred eighty days of the date of publication of 
        notice of the filing of the proposed rule change. At the 
        conclusion of such proceedings the Board, by order, shall 
        approve or disapprove such proposed rule change. The Board may 
        extend the time for conclusion of such proceedings for up to 
        sixty days if it finds good cause for such extension and 
        publishes its reasons for so finding or for such longer period 
        as to which the national derivatives association consents.
            (3) Grounds for approval or disapproval.--The Board shall 
        approve a proposed rule change of a national derivatives 
        association if it finds that such proposed rule change is 
        consistent with the requirements of this Act and the rules and 
        regulations thereunder applicable to such organization. The 
        Board shall disapprove a proposed rule change of a national 
        derivatives association if it does not make such finding. The 
        Board shall not approve any proposed rule change prior to the 
        thirtieth day after the date of publication of notice of the 
        filing thereof, unless the Board finds good cause for so doing 
        and publishes its reasons for so finding.
            (4) Expedited effectiveness.--(A) Notwithstanding the 
        provisions of paragraphs (2) and (3) of this subsection, a 
        proposed rule change may take effect upon filing with the Board 
        if designated by the national derivatives association as (i) 
        constituting a stated policy, practice, or interpretation with 
        respect to the meaning, administration, or enforcement of an 
        existing rule of the national derivatives association, (ii) 
        establishing or changing a due, fee, or other charged imposed 
        by the national derivatives association, or (iii) concerned 
        solely with the administration of the national derivatives 
        association or other matters which the Board, by rule, 
        consistent with the public interest and the purposes of this 
        subsection, may specify as without the provisions of such 
        paragraph (2) or (3).
            (B) Notwithstanding any other provision of this subsection, 
        a proposed rule change may be put into effect summarily if it 
        appears to the Board that such action is necessary for the 
        protection of investors, the maintenance of fair and orderly 
        markets, the safeguarding of securities or funds, or the 
        protection against systemic risk. Any proposed rule change so 
        put into effect shall be filed promptly thereafter in 
        accordance with the provisions of paragraph (1) of this 
        subsection.
            (C) Any proposed rule change of a national derivatives 
        association which has taken effect pursuant to subparagraph (A) 
        or (B) of this paragraph may be enforced by such organization 
        to the extent it is not inconsistent with the provisions of 
        this Act, the rules and regulations thereunder, and applicable 
        Federal and State law. At any time within sixty days of the 
        date of filing of such a proposed rule change in accordance 
        with the provisions of paragraph (1) of this subsection, the 
        Board summarily may abrogate the change in the rules of the 
        national derivatives association made thereby and require that 
        the proposed rule change be refiled in accordance with the 
        provisions of paragraph (1) of this subsection and reviewed in 
        accordance with the provisions of paragraph (2) of this 
        subsection, if it appears to the Board that such action is 
        necessary or appropriate in the public interest, for the 
        protection of investors, or otherwise in furtherance of the 
        purposes of this Act. Board action pursuant to the preceding 
        sentence shall not affect the validity or force of the rule 
        change during the period it was in effect and shall not be 
        reviewable nor deemed to be ``final agency action'' for 
        purposes of section 704 of title 5, United States Code.
    (e) Authority of Board To Modify Association Rules.--The Board, by 
rule, may abrogate, add to, and delete from (hereinafter in this 
subsection collectively referred to as ``amend'') the rules of a 
national derivatives association as the Board deems necessary or 
appropriate to insure the fair administration of the national 
derivatives association, to conform its rules to requirements of this 
Act and the rules and regulations thereunder applicable to such 
organization, or otherwise in furtherance of the purposes of this Act, 
in the following manner:
            (1) The Board shall notify the national derivatives 
        association and publish notice of the proposed rulemaking in 
        the Federal Register. The notice shall include the text of the 
        proposed amendment to the rules of the national derivatives 
        association and a statement of the Board's reasons, including 
        any pertinent facts, for commencing such proposed rulemaking.
            (2) The Board shall give interested persons an opportunity 
        for the oral presentation of data, views, and arguments, in 
        addition to an opportunity to make written submissions. A 
        transcript shall be kept of any oral presentation.
            (3) A rule adopted pursuant to this subsection shall 
        incorporate the text of the amendment to the rules of the 
        national derivatives association and a statement of the Board's 
        basis for and purpose in so amending such rules. This statement 
        shall include an identification of any facts on which the Board 
        considers its determination so to amend the rules of the self-
        regulatory agency to be based, including the reasons for the 
        Board's conclusions as to any of such facts which were disputed 
        in the rulemaking.
            (4)(A) Except as provided in paragraphs (1) through (3) of 
        this subsection, rulemaking under this subsection shall be in 
        accordance with the procedures specified in section 553 of 
        title 5, United States Code, for rulemaking not on the record.
            (B) Nothing in this subsection shall be construed to impair 
        or limit the Board's power to make, or to modify or alter the 
        procedures the Board may follow in making, rules and 
        regulations pursuant to any other authority under this Act.
            (C) Any amendment to the rules of a national derivatives 
        association made by the Board pursuant to this subsection shall 
        be considered for all purposes of this Act to be part of the 
        rules of such national derivatives association and shall not be 
        considered to be a rule of the Board.
    (f) Review by Board of Association Disciplinary Actions.--
            (1) Notice.--If any national derivatives association 
        imposes any final disciplinary sanction on any member thereof 
        or participant therein, denies membership or participation to 
        any applicant, or prohibits or limits any person in respect to 
        access to services offered by such organization or member 
        thereof, or if any national derivatives association imposes any 
        final disciplinary sanction on any person associated with a 
        member or bars any person from becoming associated with a 
        member, the national derivatives association shall promptly 
        file notice thereof with the Board. The notice shall be in such 
        form and contain such information as the Board, by rule, may 
        prescribe as necessary or appropriate in furtherance of the 
        purposes of this Act.
            (2) Authority to review.--Any action with respect to which 
        a national derivatives association is required by paragraph (1) 
        of this subsection to file notice shall be subject to review by 
        the Board on its own motion, or upon application by any person 
        aggrieved thereby filed within thirty days after the date such 
        notice was filed with such Board and received by such aggrieved 
        person, or within such longer period as such Board may 
        determine. Application to the Board for review, or the 
        institution of review by such Board on its own motion, shall 
        not operate as a stay of such action unless the Board otherwise 
        orders, summarily or after notice and opportunity for hearing 
        on the question of a stay (which hearing may consist solely of 
        the submission of affidavits or presentation of oral 
        arguments). The Board shall establish for appropriate cases an 
        expedited procedure for consideration and determination of the 
        question of a stay.
            (3) Decision after review.--In any proceeding to review a 
        final disciplinary sanction imposed by a national derivatives 
        association on a member thereof or participant therein or a 
        person associated with such a member, after notice and 
        opportunity for hearing (which hearing may consist solely of 
        consideration of the record before the national derivatives 
        association and opportunity for the presentation of supporting 
        reasons to affirm, modify, or set aside the sanction)--
                    (A) if the Board finds that such member, 
                participant, or person associated with a member has 
                engaged in such acts or practices, or has omitted such 
                acts, as the national derivatives association has found 
                him to have engaged in or omitted, that such acts or 
                practices, or omissions to act, are in violation of 
                such provisions of this Act, the rules or regulations 
                thereunder, or the rules of the national derivatives 
                association, as have been specified in the 
                determination of the national derivatives association, 
                and that such provisions are, and were applied in a 
                manner, consistent with the purposes of this Act, the 
                Board, by order, shall so declare and, as appropriate, 
                affirm the sanction imposed by the national derivatives 
                association, modify the sanction in accordance with 
                paragraph (2) of this subsection, or remand to the 
                national derivatives association for further 
                proceedings; or
                    (B) if the Board does not make any such finding it 
                shall, by order, set aside the sanction imposed by the 
                national derivatives association and, if appropriate, 
                remand to the national derivatives association for 
                further proceedings.
            (4) Authority to cancel or reduce sanctions.--If the Board 
        for a member, participant, or person associated with a member, 
        having due regard for the public interest and the protection of 
        investors, finds after a proceeding in accordance with this 
        subsection that a sanction imposed by a national derivatives 
        association upon such member, participant, or person associated 
        with a member imposes any burden on competition not necessary 
        or appropriate in furtherance of the proposes of this Act or is 
        excessive or oppressive, the Board may cancel, reduce, or 
        require the remission of such sanction.
    (g) Authority of Board To Sanction Association.--
            (1) In general.--The Board is authorized, by order, if in 
        its opinion such action is necessary or appropriate in the 
        public interest, for the protection of investors, or otherwise 
        in furtherance of the purposes of this Act to suspend for a 
        period not exceeding twelve months or revoke the registration 
        of such national derivatives association, or to censure or 
        impose limitations upon the activities, functions, and 
        operations of such national derivatives association, if the 
        Board finds, on the record after notice and opportunity for 
        hearing, that such national derivatives association has 
        violated or is unable to comply with any provision of this Act, 
        the rules or regulations thereunder, or its own rules or 
        without reasonable justification or excuse has failed to 
        enforce compliance with any such provision by a member thereof 
        or a person associated with a member thereof.
            (2) Authority to suspend or expel members.--The Board is 
        authorized, by order, if in its opinion such action is 
        necessary or appropriate in the public interest, for the 
        protection of investors, or otherwise in furtherance of the 
        purposes of this Act, to suspend for a period not exceeding 
        twelve months or expel from such national derivatives 
        association any member thereof or participant therein, if the 
        Board finds, on the record after notice and opportunity for 
        hearing, that such suspension or expulsion is in the public 
        interest and that such member, whether prior or subsequent to 
        becoming such, or any person associated with such broker or 
        dealer, whether prior or subsequent to becoming so associated--
                    (A) has willfully made or caused to be made in any 
                application for registration or report required to be 
                filed with the Board, or in any proceeding before the 
                Board with respect to registration, any statement which 
                was at the time and in the light of the circumstances 
                under which it was made false or misleading with 
                respect to any material fact, or has omitted to state 
                in any such application or report any material fact 
                which is required to be stated therein;
                    (B) has been convicted within ten years preceding 
                the filing of any application for registration or at 
                any time thereafter of any felony or misdemeanor or of 
                a substantially equivalent crime by a foreign court of 
                competent jurisdiction which the Board finds--
                            (i) involves the purchase or sale of any 
                        derivative financial instrument, the taking of 
                        a false oath, the making of a false report, 
                        bribery, perjury, burglary, any substantially 
                        equivalent activity however denominated by the 
                        laws of the relevant foreign government, or 
                        conspiracy to commit any such offense;
                            (ii) arises out of the conduct of the 
                        business of a derivatives dealer, broker, 
                        dealer, municipal securities dealer, government 
                        securities broker, government securities 
                        dealer, investment adviser, bank, insurance 
                        company, fiduciary, transfer agent, foreign 
                        person performing a function substantially 
                        equivalent to any of the above, or entity or 
                        person required to be registered under the 
                        Commodity Exchange Act (7 U.S.C. 1 et seq.) or 
                        any substantially equivalent foreign statute or 
                        regulation;
                            (iii) involves the larceny, theft, robbery, 
                        extortion, forgery, counterfeiting, fraudulent 
                        concealment, embezzlement, fraudulent 
                        conversion, or misappropriation of funds, 
                        securities, or derivative financial 
                        instruments, or substantially equivalent 
                        activity however denominated by the laws of the 
                        relevant foreign government; or
                            (iv) involves the violation of section 152, 
                        1341, 1342, or 1343 or chapter 25 or 47 of 
                        title 18, United States Code, or a violation of 
                        a substantially equivalent foreign statute;
                    (C) is permanently or temporarily enjoined by 
                order, judgment, or decree of any court of competent 
                jurisdiction from acting as an derivatives dealer, 
                investment adviser, underwriter, broker, dealer, 
                municipal securities dealer, government securities 
                broker, government securities dealer, transfer agent, 
                foreign person performing a function substantially 
                equivalent to any of the above, or entity or person 
                required to be registered under the Commodity Exchange 
                Act or any substantially equivalent foreign statute or 
                regulation, or as an affiliated person or employee of 
                any investment company, bank, insurance company, 
                foreign entity substantially equivalent to any of the 
                above, or entity or person required to be registered 
                under the Commodity Exchange Act or any substantially 
                equivalent foreign statute or regulation, or from 
                engaging in or continuing any conduct or practice in 
                connection with any such activity, or in connection 
                with the purchase or sale of any derivative financial 
                instrument or security;
                    (D) has willfully violated any provision of any 
                Federal banking, securities, or commodities laws, this 
                title, the rules or regulations under any of such 
                statutes, or is unable to comply with any such 
                provision;
                    (E) has willfully aided, abetted, counseled, 
                commanded, induced, or procured the violation by any 
                other person of any provision of any Federal banking, 
                securities, or commodities laws, this title, the rules 
                or regulations under any of such statutes, or has 
                failed reasonably to supervise, with a view to 
                preventing violations of the provisions of such 
                statutes, rules, and regulations, another person who 
                commits such a violation, if such other person is 
                subject to his supervision. For the purposes of this 
                subparagraph (E) no person shall be deemed to have 
                failed reasonably to supervise any other person, if--
                            (i) there have been established procedures, 
                        and a system for applying such procedures, 
                        which would reasonably be expected to prevent 
                        and detect, insofar as practicable, any such 
                        violation by such other person, and
                            (ii) such person has reasonably discharged 
                        the duties and obligations incumbent upon him 
                        by reason of such procedures and system without 
                        reasonable cause to believe that such 
                        procedures and system were not being complied 
                        with; or
                    (F) has been found by a foreign financial 
                regulatory authority to have--
                            (i) made or caused to be made in any 
                        application for registration or report required 
                        to be filed with a foreign financial regulatory 
                        authority, or in any proceeding before a 
                        foreign financial regulatory authority with 
                        respect to registration, any statement that was 
                        at the time and in the light of the 
                        circumstances under which it was made false or 
                        misleading with respect to any material fact, 
                        or has omitted to state in any application or 
                        report to the foreign financial regulatory 
                        authority any material fact that is required to 
                        be stated therein;
                            (ii) violated any foreign statute or 
                        regulation regarding transactions in 
                        securities, or contracts of sale of a commodity 
                        for future delivery, traded on or subject to 
                        the rules of a contract market or any board of 
                        trade; or
                            (iii) aided, abetted, counseled, commanded, 
                        induced, or procured the violation by any 
                        person of any provision of any statutory 
                        provisions enacted by a foreign government, or 
                        rules or regulations thereunder, empowering a 
                        foreign financial regulatory authority 
                        regarding transactions in securities, or 
                        contracts of sale of a commodity for future 
                        delivery, traded on or subject to the rules of 
                        a contract market or any board of trade, or has 
                        been found, by a foreign financial regulatory 
                        authority, to have failed reasonably to 
                        supervise, with a view to preventing violations 
                        of such statutory provisions, rules, and 
                        regulations, another person who commits such a 
                        violation, if such other person is subject to 
                        his supervision.
            (3) Authority to remove officers.--The Board is authorized, 
        by order, if in its opinion such action is necessary or 
        appropriate in the public interest, for the protection of 
        investors, or otherwise in furtherance of the purposes of this 
        Act, to remove from office or censure any officer or director 
        of a national derivatives association, if the Board finds, on 
        the record after notice and opportunity for hearing, that such 
        officer or director has willfully violated any provision of 
        this Act, the rules or regulations thereunder, or the rules of 
        such national derivatives association, willfully abused his or 
        her authority, or without reasonable justification or excuse 
        has failed to enforce compliance with any such provision by any 
        member or person associated with a member.

SEC. 409. GENERAL AUTHORITY.

    In carrying out this title, the Board is authorized--
            (1) to conduct investigations and issue administrative 
        subpoenas;
            (2) to seek and obtain injunctions of violations of this 
        title and the rules and regulations thereunder;
            (3) to issue and enforce cease and desist orders with 
        respect to such violations;
            (4) to impose and collect civil penalties with respect to 
        such violations; and
            (5) to issue such rules and regulations and take such other 
        actions as may be necessary and appropriate in furtherance of 
        the purposes of this title.

                         TITLE V--MISCELLANEOUS

SEC. 501. SAVINGS PROVISION.

    The provisions of this Act shall be in addition to and not in 
derogation of any existing authority of a Federal financial institution 
regulatory agency to supervise or regulate derivatives activities 
provided under any other applicable law.
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