19–006

108TH CONGRESS REPT. 108–277 " HOUSE OF REPRESENTATIVES ! 1st Session Part 1

FINANCIAL CONTRACTS BANKRUPTCY REFORM ACT OF 

2003

SEPTEMBER 18, 2003.—Ordered to be printed 

Mr. OXLEY, from the Committee on Financial Services, 

submitted the following 

R E P O R T 

[To accompany H.R. 2120] 

[Including cost estimate of the Congressional Budget Office]

The Committee on Financial Services, to whom was referred the 

bill (H.R. 2120) to revise the banking and bankruptcy insolvency 

laws with respect to the termination and netting of financial contracts, and for other purposes, having considered the same, reports 

favorably thereon without amendment and recommends that the 

bill do pass.

CONTENTS 

Page 

Purpose and Summary ............................................................................................ 2

Background and Need for Legislation .................................................................... 2

Hearings ................................................................................................................... 3

Committee Consideration ........................................................................................ 3

Committee Votes ...................................................................................................... 3

Committee Oversight Findings ............................................................................... 4

Performance Goals and Objectives ......................................................................... 4

New Budget Authority, Entitlement Authority, and Tax Expenditures ............. 4

Committee Cost Estimate ....................................................................................... 4

Congressional Budget Office Cost Estimate .......................................................... 4

Federal Mandates Statement ................................................................................. 5

Advisory Committee Statement .............................................................................. 6

Constitutional Authority Statement ...................................................................... 6

Applicability to Legislative Branch ........................................................................ 6

Section-by-Section Analysis .................................................................................... 6

Changes in Existing Law Made by the Bill, as Reported ..................................... 22

2

PURPOSE AND SUMMARY

H.R. 2120, the Financial Contracts Bankruptcy Reform Act of 

2003, will revise the banking and bankruptcy insolvency laws with 

respect to the netting of financial contracts. 

Specifically, the bill amends the U.S. Bankruptcy Code, the Federal Deposit Insurance Act (FDIA), as amended by the Financial 

Institutions Reform, Recovery, and Enforcement Act of 1989 

(FIRREA), the payment system risk reduction and netting provisions of the Federal Deposit Insurance Corporation Improvement 

Act of 1991 (FDICIA), and the Securities Investor Protection Act of 

1970 (SIPA). These amendments address the treatment of certain 

financial transactions following the insolvency of a party to those 

transactions. The amendments are designed to clarify and improve 

the consistency between the applicable statutes and to minimize 

the risk of a disruption within or between financial markets upon 

the insolvency of a market participant. 

BACKGROUND AND NEED FOR LEGISLATION

Financial institutions often utilize several different but related financial transactions to obtain and provide liquidity to the marketplace, while mitigating risk. For example, a financial institution 

may enter into a transaction which may entail exposure, but enter 

into an offsetting transaction which hedges that exposure. In these 

important market activities, which can involve huge sums and concentrated exposures, the inability of one party to exercise its contractual ‘‘self-help’’ rights in the event of the insolvency of the other 

party could cause ripple effects, given the interconnected nature of 

the financial markets, undermining the financial condition of the 

non-bankrupt party (and its counterparties) and the markets more 

generally. 

Recognizing the important role of these transactions in capital 

formation and market liquidity and the potential for a chain reaction of insolvencies should non-bankrupt parties’ contractual selfhelp rights be impaired, Congress has included provisions in the 

Bankruptcy Code and the bank insolvency laws that expressly protect the exercise of these rights in the event of bankruptcy or insolvency. However, it has been more than ten years since the last legislative update to the safe-harbor provisions. The financial markets 

have evolved during that time in ways that leave various transactions and parties subject to legal uncertainty. As a greater variety of market participants engage in a broader range of transactions, statutory inconsistencies have surfaced that make it difficult to conclude that Congress’s goal of minimizing systemic risk 

has been fully achieved through the existing market safe harbors. 

H.R. 2120 contains important technical corrections that are needed 

to minimize systemic risk in light of market developments. 

H.R. 2120 furthers the goals of prior amendments to the Bankruptcy Code and the FDIA regarding the treatment of those financial contracts and of the payment system risk reduction provisions 

in FDICIA. H.R. 2120 has four principal purposes: 

(1) To strengthen the provisions of the Bankruptcy Code and the 

FDIA that protect the enforceability of acceleration, termination, 

liquidation, close-out netting, collateral foreclosure and related provisions of certain financial agreements and transactions; 

3

1The Working Group consists of the Secretary of the Treasury, and the chairmen of the Federal Reseve Board of Governors, the Securities Exchange Commission, and the Commodities Futures Trading Commission, with the participation of the heads of the Federal Deposit Insurance 

Corporation, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and 

the New York Federal Reserve Bank. 

(2) To harmonize the treatment of these financial agreements 

and transactions under the Bankruptcy Code and the FDIA; 

(3) To amend the FDIA and FDICIA to clarify that certain rights 

of the FDIC acting as conservator or receiver for a failed insured 

depository institution (and in some situations, rights of SIPC and 

receivers of certain uninsured institutions) cannot be defeated by 

operation of the terms of FDICIA; and, 

(4) To make other substantive and technical amendments to clarify the enforceability of financial agreements and transactions in 

bankruptcy or insolvency. 

All these changes are designed to further minimize systemic risk 

to the banking system and the financial markets. 

H.R. 2120, the Financial Contracts Bankruptcy Reform Act of 

2003, is based on the work of the President’s Working Group on Financial Markets1 following a review of current statutory provisions 

governing the treatment of qualified financial contracts and similar 

financial contracts upon the insolvency of a counterparty. The provisions of this bill—which have historically been included in comprehensive bankruptcy reform legislation—have passed the House 

and Senate on numerous occasions without opposition. Both the 

Federal Reserve Board and the Administration support these provisions. Additionally, the provisions contained in H.R. 2120 have 

passed the House and Senate on numerous occasions with broad bipartisan support. 

H.R. 2120 would substantially improve the statutory regime that 

governs financial transactions when a party fails to meet its payment obligations. The legislation would harmonize the Bankruptcy 

Code and bank insolvency laws governing swaps, repurchase agreements, securities contacts, forward contracts, and commodity contracts. 

HEARINGS

No hearings were held on this legislation in the 108th Congress. 

COMMITTEE CONSIDERATION

The Committee on Financial Services met in open session on 

May 21, 2003 and ordered H.R. 2120 reported to the House with 

a favorable recommendation by a voice vote, without amendment. 

COMMITTEE VOTES

Clause 3(b) of rule XIII of the Rules of the House of Representatives requires the Committee to list the record votes on the motion 

to report legislation and amendments thereto. No record votes were 

taken in conjunction with the consideration of this legislation. A 

motion by Mr. Oxley to report the bill to the House with a favorable recommendation was agreed to by a voice vote. 

4

COMMITTEE OVERSIGHT FINDINGS

Pursuant to clause 3(c)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee made findings that are reflected 

in this report. 

PERFORMANCE GOALS AND OBJECTIVES

Pursuant to clause 3(c)(4) of rule XIII of the Rules of the House 

of Representatives, the Committee establishes the following performance related goals and objectives for this legislation: 

This legislation will clarify and improve the consistency between 

the applicable statutes and to minimize the risk of a disruption 

within or between financial markets upon the insolvency of a market participant. 

NEW BUDGET AUTHORITY, ENTITLEMENT AUTHORITY, AND TAX

EXPENDITURES

In compliance with clause 3(c)(2) of rule XIII of the Rules of the 

House of Representatives, the Committee adopts as its own the estimate of budget authority, entitlement authority, or tax expenditures or revenues contained in the cost estimate prepared by the 

Director of the Congressional Budget Office pursuant to section 402 

of the Congressional Budget Act of 1974. 

COMMITTEE COST ESTIMATE

The Committee adopts as its own the cost estimate prepared by 

the Director of the Congressional Budget Office pursuant to section 

402 of the Congressional Budget Act of 1974. 

CONGRESSIONAL BUDGET OFFICE ESTIMATE

Pursuant to clause 3(c)(3) of rule XIII of the Rules of the House 

of Representatives, the following is the cost estimate provided by 

the Congressional Budget Office pursuant to section 402 of the 

Congressional Budget Act of 1974:

U.S. CONGRESS, 

CONGRESSIONAL BUDGET OFFICE, 

Washington, DC, June 5, 2003. 

Hon. MICHAEL G. OXLEY, Chairman, Committee on Financial Services, 

House of Representatives, Washington, DC. 

DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for H.R. 2120, the Financial Contracts Bankruptcy Reform Act of 2003. 

If you wish further details on this estimate, we will be pleased 

to provide them. The CBO staff contact is Susanne S. Mehlman. 

Sincerely, 

DOUGLAS HOLTZ-EAKIN, 

Director. 

Enclosure.

H.R. 2120—Financial Contracts Bankruptcy Reform Act of 2003

H.R. 2120 would address the treatment of certain financial transactions when a party to such transactions can no longer meet its 

5

financial obligations. CBO estimates that implementing H.R. 2120 

would have no significant impact on the federal budget. By potentially increasing the costs of the Federal Deposit Insurance Corporation (FDIC) and the Federal Reserve, the bill could affect direct spending and revenues, but CBO estimates that any such impact would be negligible. 

Financial institutions often use various types of complex financial transactions, such as swaps and derivative contracts, to obtain 

and provide liquidity to the marketplace. Such transactions entail 

risk, while others can be used to hedge against such risk. Because 

of the interconnected nature of the financial markets, a default by 

one party could adversely affect another party and cause disruptions within financial markets. 

Under U.S. law, several statutes govern the insolvencies of participants in financial markets, but as financial transactions have 

become more complex and sophisticated, many statutory inconsistencies between these laws have emerged. Enacting H.R. 2120 

would make technical changes to the U.S. Bankruptcy Code, the 

Federal Deposit Insurance Act, the Federal Deposit Insurance Corporation Improvement Act of 1991, and the Securities Investor Protection Act of 1970 to improve consistency between these statutes. 

Such amendments include clarifying and expanding the definitions 

of various types of financial transactions, such as ‘‘repurchase 

agreement’’ and ‘‘swap agreement.’’ Other changes would address 

issues such as how to calculate damages when certain financial obligations are not met. 

Certain provisions of H.R. 2120, specifically in section 2 and 7, 

would explicitly preempt state laws that may relate to these types 

of financial transactions. Such preemptions are intergovernmental 

mandates as defined in the Unfunded Mandates Reform Act 

(UMRA), but CBO estimates any costs to states would be insignificant and would not exceed the threshold established in UMRA ($59 

million in 2003 adjusted annually for inflation). The bill contains 

no new private-sector mandates as defined in UMRA. 

According to the FDIC this bill would essentially ratify current 

practices involving the settlement of complex financial transactions 

during insolvencies or bankruptcy proceedings. Thus, CBO estimates that enacting H.R. 2120 would not result in any significant 

cost to the federal government. In addition, CBO estimates that 

any cost associated with the FDIC’s requirement to develop regulations for recordkeeping by insured depository institutions, as well 

as the Federal Reserve, under section 9 of this legislation would be 

negligible. 

The CBO staff contact for this estimate is Susanne S. Mehlman. 

This estimate was approved by Peter H. Fontaine, Deputy Assistant Director for Budget Analysis.

FEDERAL MANDATES STATEMENT

The Committee adopts as its own the estimate of Federal mandates prepared by the Director of the Congressional Budget Office 

pursuant to section 423 of the Unfunded Mandates Reform Act. 

6

ADVISORY COMMITTEE STATEMENT

No advisory committees within the meaning of section 5(b) of the 

Federal Advisory Committee Act were created by this legislation. 

CONSTITUTIONAL AUTHORITY STATEMENT

Pursuant to clause 3(d)(1) of rule XIII of the Rules of the House 

of Representatives, the Committee finds that the Constitutional 

Authority of Congress to enact this legislation is provided by Article 1, section 8, clause 1 (relating to the defense and general welfare of the United States), and clause 3 (relating to the power to 

regulate foreign and interstate commerce). 

APPLICABILITY TO LEGISLATIVE BRANCH

The Committee finds that the legislation does not relate to the 

terms and conditions of employment or access to public services or 

accommodations within the meaning of section 102(b)(3) of the Congressional Accountability Act. 

SECTION-BY-SECTION ANALYSIS OF THE LEGISLATION

Section 1. Short Title; Table of Contents 

This section provides the short title of the bill, the ‘‘Financial 

Contracts Bankruptcy Reform Act of 2002,’’ and a table of contents. 

Section 2. Treatment of Certain Agreements by Conservatiors or Receivers of Insured Depository Institutions 

Subsections (a) through (f) of section 2 of the bill amend the Federal Deposit Insurance Act’s (FDIA) definitions of ‘‘qualified financial contract,’’ ‘‘securities contract,’’ ‘‘commodity contract,’’ ‘‘forward 

contract,’’ ‘‘repurchase agreement’’ and ‘‘swap agreement’’ to make 

them consistent with the definitions in the Bankruptcy Code and 

to reflect the enactment of the Commodity Futures Modernization 

Act of 2000 (CFMA). It is intended that the legislative history and 

case law surrounding those terms, to the date of this amendment, 

be incorporated into the legislative history of the FDIA. 

Subsection (b) amends the definition of ‘‘securities contract’’ expressly to encompass margin loans, to clarify the coverage of securities options and to clarify the coverage of repurchase and reverse 

repurchase transactions. The inclusion of ‘‘margin loans’’ in the definition is intended to encompass only those loans commonly known 

in the securities industry as ‘‘margin loans,’’ such as arrangements 

where a securities broker or dealer extends credit to a customer in 

connection with the purchase, sale, or trading of securities, and 

does not include lonas that are not commonly referred to as ‘‘margin loans.’’ The reference in subsection (b) to a ‘‘guarantee by or to 

any securities clearing agency’’ is intended to cover other arrangements, such as novation, that have an effect similar to a guarantee. 

The reference to a ‘‘loan’’ of a security in the definition is intended 

to apply to loans of securities, whether or not for a ‘‘permitted purpose’’ under margin regulations. The reference to ‘‘repurchase and 

reverse repurchase transactions’’ is intended to eliminate any inquiry under the qualified financial contract provisions of the FDIA 

as to whether a repurchase or reverse repurchase transaction is a 

purchase and sale transaction or a secured financing. Repurchase 

7

and reverse repurchase transactions meeting certain criteria are already covered under the definition of ‘‘repurchase agreement’’ in 

the FDIA (and a regulation of the Federal Deposit Insurance Corporation (FDIC)). Repurchase and reverse repurchase transactions 

on all securities (including, for example, equity securities, assetbacked securities, corporate bonds and commercial paper) are included under the definition of ‘‘securities contract.’’ Subsection (b) 

also specifies that purchase, sale and repurchase obligations under 

a participation in a commercial mortgage loan do not constitute 

‘‘securities contracts.’’ While a contract for the purchase, sale or repurchase of a participation may constitute a ‘‘securities contract,’’ the purchase, sale or repurchase obligation embedded in a participation agreement does not make that agreement a ‘‘securities contract.’’ A number of terms used in the qualified financial contract provisions, but not defined therein, are intended to have the meanings 

set forth in the analogous provisions of the Bankruptcy Code or 

Federal Deposit Insurance Corporation Improvement Act, such as, 

for example, ‘‘securities clearing agency’’. The term ‘‘person,’’ however, is intended to have the meaning set forth in section 1 of title 

1 of the United States Code. 

Section 2(c) amends the definition of ‘‘commodity contract’’ in section 11(e)(8)(D)(iii) of the Federal Deposit Insurance Act. Section 

2(d) amends section 11(e)(8)(D)(iv) of the Federal Deposit Insurance 

Act with respect to its definition of a ‘‘forward contract.’’ Subsection (e) amends the definition of ‘‘repurchase agreement’’ to codify the substance of the FDIC’s 1995 regulation defining repurchase agreement to include those on qualified foreign government securities. The term ‘‘qualified foreign government securities’’ is defined to include those that are direct obligations of, or fully 

guaranteed by, central governments of members of the Organization for Economic Cooperation and Development (OECD), as determined by rule, of the appropriate Federal banking agency. Subsection (e) reflects developments in the repurchase agreement markets, which increasingly use foreign government securities as the 

underlying asset. The securities are limited to those issued by or 

guaranteed by full members of the OECD, as well as countries that 

have concluded special lending arrangements with the International Monetary Fund associated with the Fund’s General Arrangements to Borrow. (See 12 C.F.R. 360.5.) 

Subsection (e) also amends the definition of ‘‘repurchase agreement’’ to include those on mortgage-related securities, mortgage 

loans and interests therein, and to include principal and interestonly U.S. government and agency securities as securities that can 

be the subject of a ‘‘repurchase agreement.’’ The reference in the 

definition to United States government- and agency-issued or fully 

guaranteed securities is intended to include obligations issued or 

guaranteed by Fannie Mae and the Federal Home Loan Mortgage 

Corporation (Freddie Mac) as well as all obligations eligible for 

purchase by Federal Reserve banks under the similar language of 

section 14(b) of the Federal Reserve Act. This amendment is not intended to affect the status of repos involving securities or commodities as securities contracts, commodity contracts, or forward contracts, and their consequent eligibility for similar treatment under 

the qualified financial contract provisions. In particular, an agreeVerDate jul 14 2003 10:23 Sep 19, 2003 Jkt 019006 PO 00000 Frm 00007 Fmt 6659 Sfmt 6602 E:\HR\OC\HR277P1.XXX HR277P1
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ment for the sale and repurchase of a security would continue to 

be a securities contract as defined in the FDIA, even if not a ‘‘repurchase agreement’’ as defined in the FDIA. Similarly, an agreement for the sale and repurchase of a commodity, even though not 

a ‘‘repurchase agreement’’ as defined in the FDIA, would continue 

to be a forward contract for purposes of the FDIA. 

Subsection (e), like subsection (b) for ‘‘securities contracts,’’ specifies that repurchase obligations under a participation in a commercial mortgage loan do not make the participation agreement a ‘‘repurchase agreement.’’ Such repurchase obligations embedded in 

participations in commercial loans (such as recourse obligations) do 

not constitute a ‘‘repurchase agreement.’’ A repurchase agreement 

involving the transfer of participations in commercial mortgage 

loans with a simultaneous agreement to repurchase the participation on demand or at a date certain 1 year or less after such transfer, however, would constitute a ‘‘repurchase agreement’’ as well as 

a ‘‘securities contract’’. Section 2(f) of the bill amends the definition of ‘‘swap agreement’’ to include an ‘‘interest rate swap, option, future, or forward agreement, including a rate floor, rate cap, rate collar, cross-currency 

rate swap, and basis swap; a spot, same day-tomorrow, tomorrownext, forward, or other foreign exchange or precious metals agreement; a currency swap, option, future, or forward agreement; an 

equity index or equity swap, option, future, or forward agreement; 

a debt index or debt swap, option, future, or forward agreement; a 

total return, credit spread or credit swap, option, future, or forward 

agreement; a commodity index or commodity swap, option, future, 

or forward agreement; or a weather swap, weather derivative, or 

weather option.’’ As amended, the definition of ‘‘swap agreement’’ will update the statutory definition and achieve contractual netting 

across economically similar transactions that are the subject of recurring dealings in the swap agreements. 

The definition of ‘‘swap agreement’’ was originally intended to 

provide sufficient flexibility to avoid the need to amend the definition as the nature and uses of swap transactions matured. To that 

end, the phrase ‘‘or any other similar agreement’’ was included in 

the definition. (The phrase ‘‘or any similar agreement’’ has been 

added to the definitions of ‘‘forward contract,’’ ‘‘commodity contract,’’ ‘‘repurchase agreement’’ and ‘‘securities contract’’ for the 

same reason.) To clarify this, subsection (f) expands the definition 

of ‘‘swap agreement’’ to include ‘‘any agreement or transaction that 

is similar to any other agreement or transaction referred to in [section 11(e)(8)(D)(vi) of the FDIA] and is of a type that has been, is 

presently, or in the future becomes, the subject of recurrent dealings in the swap markets * * * and that is a forward, swap, future, 

or option on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities or other debt 

instruments, quantitative measures associated with an occurrence, 

extent of an occurrence, or contingency associated with a financial, 

commercial, or economic consequence, or economic or financial indices or measures of economic or financial risk or value.’’

The definition of ‘‘swap agreement,’’ however, should not be interpreted to permit parties to document non-swaps as swap transactions. Traditional commercial arrangements, such as supply 

agreements, or other non-financial market transactions, such as 

9

commercial, residential or consumer loans, cannot be treated as 

‘‘swaps’’ under either the FDIA or the Bankruptcy Code simply because the parties purport to document or label the transactions as 

‘‘swap agreements.’’ In addition, these definitions apply only for 

purposes of the FDIA and the Bankruptcy Code. These definitions, 

and the characterization of a certain transaction as a ‘‘swap agreement,’’ are not intended to affect the characterization, definition, or 

treatment of any instruments under any other statute, regulation, 

or rule including, but not limited to, the statutes, regulations or 

rules enumerated in subsection (f). Similarly, section 17 and a new 

paragraph of section 11(e) of the FDIA provide that the definitions 

of ‘‘securities contract,’’ ‘‘repurchase agreement,’’ ‘‘forward contract,’’

and ‘‘commodity contract,’’ and the characterization of certain 

transactions as such a contract or agreement, are not intended to 

affect the characterization, definition, or treatment of any instruments under any other statute, regulation, or rule including, but 

not limited to, the statutes, regulations or rules enumerated in subsection (f). 

The definition also includes any security agreement or arrangement, or other credit enhancement, related to a swap agreement, 

including any guarantee or reimbursement obligation related to a 

swap agreement. This ensures that any such agreement, arrangement or enhancement is itself deemed to be a swap agreement, and 

therefore eligible for treatment as such for purposes of termination, 

liquidation, acceleration, offset and netting under the FDIA and 

the Bankruptcy Code. Similar changes are made in the definitions 

of ‘‘forward contract,’’ ‘‘commodity contract,’’ ‘‘repurchase agreement’’ and ‘‘securities contract.’’

The use of the term ‘‘forward’’ in the definition of ‘‘swap agreement’’ is not intended to refer only to transactions that fall within 

the definition of ‘‘forward contract.’’ Instead, a ‘‘forward’’ transaction could be a ‘‘swap agreement’’ even if not a ‘‘forward contract.’’

Section 2(g) amends the FDIA by adding a definition for ‘‘transfer,’’ which is a key term used in the FDIA, to ensure that it is 

broadly construed to encompass dispositions of property or interests in property. The definition tracks that in section 101 of the 

Bankruptcy Code. 

Section 2(h) makes clarifying technical changes to conform the 

receivership and conservatorship provisions of the FDIA. It also 

clarifies that the FDIA expressly protects rights under security 

agreements, arrangements or other credit enhancements related to 

one or more qualified financial contracts (QFCs). An example of a 

security arrangement is a right of setoff, and examples of other 

credit enhancements are letters of credit, guarantees, reimbursement obligations and other similar agreements. 

Section 2(i) of the bill clarifies that no provision of Federal or 

state law relating to the avoidance of preferential or fraudulent 

transfers (including the anti-preference provision of the National 

Bank Act) can be invoked to avoid a transfer made in connection 

with any QFC of an insured depository institution in conservatorship or receivership, absent actual fraudulent intent on the part of 

the transferee. 

10

Section 3. Authority of the FDIC and NCUAB with Respect to 

Failed and Failing Institutions 

Section 3 of the bill provides that no provision of law, including 

FDICIA, shall be construed to limit the power of the FDIC to transfer or to repudiate any QFC in accordance with its powers under 

the FDIA. As discussed below, there has been some uncertainty regarding whether or not FDICIA limits the authority of the FDIC 

to transfer or to repudiate QFCs of an insolvent financial institution. Section 3, as well as other provisions in the Act, clarify that 

FDICIA does not limit the transfer powers of the FDIC with respect to QFCs. 

Section 3 denies enforcement to ‘‘walkaway’’ clauses in QFCs. A 

walkaway clause is defined as a provision that, after calculation of 

a value of a party’s position or an amount due to or from one of 

the parties upon termination, liquidation or acceleration of the 

QFC, either does not create a payment obligation of a party or extinguishes a payment obligation of a party in whole or in part solely because of such party’s status as a non-defaulting party. 

Section 4. Amendments Relating to Transfers of Qualified Financial 

Contracts 

Section 4 of the bill amends the FDIA to expand the transfer authority of the FDIC to permit transfers of QFCs to ‘‘financial institutions’’ as defined in FDICIA or in regulations. This provision will 

allow the FDIC to transfer QFCs to a non-depository financial institution, provided the institution is not subject to bankruptcy or 

insolvency proceedings. 

The new FDIA provision specifies that when the FDIC transfers 

QFCs that are cleared on or subject to the rules of a particular 

clearing organization, the transfer will not require the clearing organization to accept the transferee as a member of the organization. This provision gives the FDIC flexibility in resolving QFCs 

cleared on or subject to the rules of a clearing organization, while 

preserving the ability of such organizations to enforce appropriate 

risk reducing membership requirements. The amendment does not 

require the clearing organization to accept for clearing any QFCs 

from the transferee, except on the terms and conditions applicable 

to other parties permitted to clear through that clearing organization. ‘‘Clearing organization’’ is defined to mean a ‘‘clearing organization’’ within the meaning of FDICIA (as amended both by the 

CFMA and by section 7 of the bill). 

The new FDIA provision also permits transfers to an eligible financial institution that is a non-U.S. person, or the branch or agency of a non-U.S. person or a U.S. financial institution that is not 

an FDIC-insured institution if, following the transfer, the contractual rights of the parties would be enforceable substantially to the 

same extent as under the FDIA. It is expected that the FDIC would 

not transfer QFCs to such a financial institution if there were an 

impending change of law that would impair the enforceability of 

the parties’ contractual rights. 

Section 4(b) amends the notification requirements following a 

transfer of the QFCs of a failed depository institution to require the 

FDIC to notify any party to a transferred QFC of such transfer by 

5 p.m. (Eastern Time) on the business day following the date of the 

appointment of the FDIC acting as receiver or following the date 

11

of such transfer by the FDIC acting as a conservator. This amendment is consistent with the policy statement on QFCs issued by the 

FDIC on December 12, 1989. 

Section 4(c) amends the FDIA to clarify the relationship between 

the FDIA and FDICIA. There has been some uncertainty whether 

FDICIA permits counterparties to terminate or liquidate a QFC before the expiration of the time period provided by the FDIA during 

which the FDIC may repudiate or transfer a QFC in a conservatorship or receivership. Subsection (c) provides that a party may not 

terminate a QFC based solely on the appointment of the FDIC as 

receiver until 5 p.m. (Eastern Time) on the business day following 

the appointment of the receiver or after the person has received notice of a transfer under FDIA section 11(d)(9), or based solely on 

the appointment of the FDIC as conservator, notwithstanding the 

provisions of FDICIA. This provides the FDIC with an opportunity 

to undertake an orderly resolution of the insured depository institution. 

Section 4(c) also prohibits the enforcement of rights of termination or liquidation that arise solely because of the insolvency of 

the institution or are based on the ‘‘financial condition’’ of the depository institution in receivership or conservatorship. For example, termination based on a cross-default provision in a QFC that 

is triggered upon a default under another contract could be rendered ineffective if such other default was caused by an acceleration of amounts due under that other contract, and such acceleration was based solely on the appointment of a conservator or receiver for that depository institution. Similarly, a provision in a 

QFC permitting termination of the QFC based solely on a downgraded credit rating of a party will not be enforceable in an FDIC 

receivership or conservatorship because the provision is based solely on the financial condition of the depository institution in default. 

However, any payment, delivery or other performance-based default, or breach of a representation or covenant putting in question 

the enforceability of the agreement, will not be deemed to be based 

solely on financial condition for purposes of this provision. The 

amendment is not intended to prevent counterparties from taking 

all actions permitted and recovering all damages authorized upon 

repudiation of any QFC by a conservator or receiver, or from taking 

actions based upon a receivership or other financial condition-triggered default in the absence of a transfer (as contemplated in Section 11(e)(10) of the FDIA). The amendment allows the FDIC to 

meet its obligation to provide notice to parties to transferred QFCs 

by taking steps reasonably calculated to provide notice to such parties by the required time. This is consistent with the existing policy 

statement on QFCs issued by the FDIC on December 12, 1989. 

Finally, the amendment permits the FDIC to transfer QFCs of a 

failed depository institution to a bridge bank or a depository institution organized by the FDIC for which a conservator is appointed 

either (i) immediately upon the organization of such institution or 

(ii) at the time of a purchase and assumption transaction between 

the FDIC and the institution. This provision clarifies that such institutions are not to be considered financial institutions that are ineligible to receive such transfers under FDIA section 11(e)(9). This 

is consistent with the existing policy statement on QFCs issued by 

the FDIC on December 12, 1989. 

12

Section 5. Amendments Relating to Disaffirmance or Repudiation of 

Qualified Financial Contracts 

Section 5 of the bill limits the disaffirmance and repudiation authority of the FDIC with respect to QFCs so that such authority 

is consistent with the FDIC’s transfer authority under FDIA section 11(e)(9). This ensures that no disaffirmance, repudiation or 

transfer authority of the FDIC may be exercised to ‘‘cherry-pick’’ or 

otherwise treat independently all the QFCs between a depository 

institution in default and a person or any affiliate of such person. 

The FDIC has announced that its policy is not to repudiate or disaffirm QFCs selectively. This unified treatment is fundamental to 

the reduction of systemic risk. 

Section 6. Clarifying Amendment Relating to Master Agreements 

Section 6 of the bill specifies that a master agreement for one or 

more securities contracts, commodity contracts, forward contracts, 

repurchase agreements or swap agreements will be treated as a 

single QFC under the FDIA (but only with respect to underlying 

agreements that are themselves QFCs). This provision ensures that 

cross-product netting pursuant to a master agreement, or pursuant 

to an umbrella agreement for separate master agreements between 

the same parties, each of which is used to document one or more 

qualified financial contracts, will be enforceable under the FDIA. 

Cross-product netting permits a wide variety of financial transactions between two parties to be netted, thereby maximizing the 

present and potential future risk-reducing benefits of the netting 

arrangement between the parties. Express recognition of the enforceability of such cross-product master agreements furthers the 

policy of increasing legal certainty and reducing systemic risks in 

the case of an insolvency of a large financial participant. 

Section 7. Federal Deposit Insurance Corporation Improvement Act 

of 1991

Section 7(a)(1) of the Act amends the definition of ‘‘clearing organization’’ to include clearinghouses that are subject to exemptions 

pursuant to orders of the Securities and Exchange Commission or 

the Commodity Futures Trading Commission and to include multilateral clearing organizations (the definition of which was added to 

FDICIA by the CFMA). 

FDICIA provides that a netting arrangement will be enforced 

pursuant to its terms, notwithstanding the failure of a party to the 

agreement. The current netting provisions of FDICIA, however, 

limit this protection to ‘‘financial institutions,’’ which include depository institutions. Section 7(a)(2) amends the FDICIA definition of 

covered institutions to include (i) uninsured national and State 

member banks, irrespective of their eligibility for deposit insurance 

and (ii) foreign banks (including the foreign bank and its branches 

or agencies as a combined group, or only the foreign bank parent 

of a branch or agency). The latter change will extend the protections of FDICIA to ensure that U.S. financial organizations participating in netting agreements with foreign banks are covered by the 

bill, thereby enhancing the safety and soundness of these arrangements. It is intended that a non-defaulting foreign bank and its 

branches and agencies be considered to be a single financial institution for purposes of the bilateral netting provisions of FDICIA 

13

(except to the extent that the non-defaulting foreign bank and its 

branches and agencies on the one hand, and the defaulting financial institution, on the other, have entered into agreements that 

clearly evidence an intention that the non-defaulting foreign bank 

and its branches and agencies be treated as separate financial institutions for purposes of the bilateral netting provisions of 

FDICIA). 

Subsection (a)(3) amends the FDICIA to provide that, for purposes of FDICIA, two or more clearing organizations that enter into 

a netting contract are considered ‘‘members’’ of each other. This 

assures the enforceability of netting arrangements involving two or 

more clearing organizations and a member common to all such organizations, thus reducing systemic risk in the event of the failure 

of such a member. Under the current FDICIA provisions, the enforceability of such arrangements depends on a case-by-case determination that clearing organizations could be regarded as members 

of each other for purposes of FDICIA. 

Section 7(a)(4) amends the FDICIA definition of netting contract 

and the general rules applicable to netting contracts. The current 

FDICIA provisions require that the netting agreement must be governed by the law of the United States or a State to receive the protections of FDICIA. Many of these agreements, however, particularly netting arrangements covering positions taken in foreign exchange dealings, are governed by the laws of a foreign country. 

This subsection broadens the definition of ‘‘netting contract’’ to include those agreements governed by foreign law, and preserves the 

FDICIA requirement that a netting contract not be invalid under, 

or precluded by, Federal law. 

Subsections (b) and (c) establish two exceptions to FDICIA’s protection of the enforceability of the provisions of netting contracts 

between financial institutions and among clearing organization 

members. First, the termination provisions of netting contracts will 

not be enforceable based solely on (i) the appointment of a conservator for an insolvent depository institution under the FDIA or (ii) 

the appointment of a receiver for such institution under the FDIA, 

if such receiver transfers or repudiates QFCs in accordance with 

the FDIA and gives notice of a transfer by 5 p.m. on the business 

day following the appointment of a receiver. This change is made 

to confirm the FDIC’s flexibility to transfer or repudiate the QFCs 

of an insolvent depository institution in accordance with the terms 

of the FDIA. This modification also provides important legal certainty regarding the treatment of QFCs under the FDIA, because 

the current relationship between the FDIA and FDICIA is unclear. 

The second exception provides that FDICIA does not override a 

stay order under SIPA with respect to foreclosure on securities (but 

not cash) collateral of a debtor (section 12 of the bill makes a conforming change to SIPA). There is also an exception relating to insolvent commodity brokers. Subsections (b) and (c) also clarify that 

a security agreement or other credit enhancement related to a netting contract is enforceable to the same extent as the underlying 

netting contract. 

Section 7(d) of the bill adds a new section 407 to FDICIA. This 

new section provides that, notwithstanding any other law, QFCs 

with uninsured national banks, an uninsured Federal branch or 

agency or Edge Act corporation, or an uninsured State member 

14

bank that operates, or operates as, a multilateral clearing organization will be treated in the same manner as if the contract were 

with an insured national bank or insured Federal branch for which 

a receiver or conservator was appointed. This provision will ensure 

that parties to QFCs with these institutions will have the same 

rights and obligations as parties entering into the same agreements 

with insured depository institutions. The new section also specifically limits the powers of a receiver or conservator for such an institution to those contained in 12 U.S.C. 1821(e)(8), (9), (10), and 

(11), which address QFCs. 

While the amendment would apply the same rules as apply to insured institutions, the provision would not change the rules that 

apply to insured institutions. Nothing in this section would amend 

the International Banking Act, the Federal Deposit Insurance Act, 

the National Bank Act, or other statutory provisions with respect 

to receiverships of insured national banks or Federal branches. 

Section 8. Bankruptcy Law Amendments 

Section 8 of the bill makes a series of amendments to the Bankruptcy Code. Subsection (a)(1) amends the Bankruptcy Code definitions of ‘‘repurchase agreement’’ and ‘‘swap agreement’’ to conform 

with the amendments to the FDIA contained in sections 2(e) and 

2(f). 

In connection with the definition of ‘‘repurchase agreement,’’ the 

term ‘‘qualified foreign government securities’’ is defined to include 

securities that are direct obligations of, or fully guaranteed by, central governments of members of the Organization for Economic Cooperation and Development (OECD). This language reflects developments in the repurchase agreement markets, which increasingly 

use foreign government securities as the underlying asset. The securities are limited to those issued by or guaranteed by full members of the OECD, as well as countries that have concluded special 

lending arrangements with the International Monetary Fund associated with the Fund’s General Arrangements to Borrow. 

Subsection (a)(1) also amends the definition of ‘‘repurchase agreement’’ to include those on mortgage-related securities, mortgage 

loans and interests therein, and to include principal and interestonly U.S. Government and agency securities as securities that can 

be the subject of a ‘‘repurchase agreement.’’ The reference in the 

definition to United States government- and agency-issued or fully 

guaranteed securities is intended to include obligations issued or 

guaranteed by Fannie Mae and the Federal Home Loan Mortgage 

Corporation (Freddie Mac) as well as all obligations eligible for 

purchase by Federal Reserve banks under the similar language of 

section 14(b) of the Federal Reserve Act. 

This amendment is not intended to affect the status of repos involving securities or commodities as securities contracts, commodity contracts, or forward contracts, and their consequent eligibility for similar treatment under other provisions of the Bankruptcy Code. In particular, an agreement for the sale and repurchase of a security would continue to be a securities contract as defined in the Bankruptcy Code and thus also would be subject to the 

Bankruptcy Code provisions pertaining to securities contracts, even 

if not a ‘‘repurchase agreement’’ as defined in the Bankruptcy Code. 

Similarly, an agreement for the sale and repurchase of a comVerDate jul 14 2003 10:23 Sep 19, 2003 Jkt 019006 PO 00000 Frm 00014 Fmt 6659 Sfmt 6602 E:\HR\OC\HR277P1.XXX HR277P1
15

modity, even though not a ‘‘repurchase agreement’’ as defined in 

the Bankruptcy Code, would continue to be a forward contract for 

purposes of the Bankruptcy Code and would be subject to the 

Bankruptcy Code provisions pertaining to forward contracts. 

Subsection (a)(1) specifies that repurchase obligations under a 

participation in a commercial mortgage loan do not make the participation agreement a ‘‘repurchase agreement.’’ These repurchase 

obligations embedded in participations in commercial loans (such 

as recourse obligations) do not constitute a ‘‘repurchase agreement.’’ However, a repurchase agreement involving the transfer of 

participations in commercial mortgage loans with a simultaneous 

agreement to repurchase the participation on demand or at a date 

certain 1 year or less after such transfer would constitute a ‘‘repurchase agreement’’ (as well as a ‘‘securities contract’’). 

The definition of ‘‘swap agreement’’ is amended to include an ‘‘interest rate swap, option, future, or forward agreement, including a 

rate floor, rate cap, rate collar, cross-currency rate swap, and basis 

swap; a spot, same day-tomorrow, tomorrow-next, forward, or other 

foreign exchange or precious metals agreement; a currency swap, 

option, future, or forward agreement; an equity index or equity 

swap, option, future, or forward agreement; a debt index or debt 

swap, option, future, or forward agreement; a total return, credit 

spread or credit swap, option, future, or forward agreement; a commodity index or commodity swap, option, future, or forward agreement; or a weather swap, weather derivative, or weather option.’’ As amended, the definition of ‘‘swap agreement’’ will update the 

statutory definition and achieve contractual netting across economically similar transactions. 

The definition of ‘‘swap agreement’’ was originally intended to 

provide sufficient flexibility to avoid the need to amend the definition as the nature and uses of swap transactions matured. To that 

end, the phrase ‘‘or any other similar agreement’’ was included in 

the definition. (The phrase ‘‘or any similar agreement’’ has been 

added to the definitions of ‘‘forward contract,’’ ‘‘commodity contract,’’ ‘‘repurchase agreement,’’ and ‘‘securities contract’’ for the 

same reason.) To clarify this, subsection (a)(1) expands the definition of ‘‘swap agreement’’ to include ‘‘any agreement or transaction 

that is similar to any other agreement or transaction referred to in 

[section 101(53B) of the Bankruptcy Code] and that is of a type 

that has been, is presently, or in the future becomes, the subject 

of recurrent dealings in the swap markets’’ and [that] is a forward, 

swap, future, or option on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities 

or other debt instruments, quantitative measures associated with 

an occurrence, extent of an occurrence, or contingency associated 

with a financial, commercial, or economic consequence, or economic 

or financial indices or measures of economic or financial risk or 

value.’’

The definition of ‘‘swap agreement’’ in this subsection should not 

be interpreted to permit parties to document non-swaps as swap 

transactions. Traditional commercial arrangements, such as supply 

agreements, or other non-financial market transactions, such as 

commercial, residential or consumer loans, cannot be treated as 

‘‘swaps’’ under either the FDIA or the Bankruptcy Code because 

the parties purport to document or label the transactions as ‘‘swap 

16

agreements.’’ These definitions, and the characterization of a certain transaction as a ‘‘swap agreement,’’ are not intended to affect 

the characterization, definition, or treatment of any instruments 

under any other statute, regulation, or rule including, but not limited to, the statutes, regulations or rules enumerated in subsection 

(a)(1)(C). Similarly, the definitions of ‘‘securities contract’’, ‘‘repurchase agreement’’, and ‘‘commodity contract’’ and the characterization of certain transactions as such a contract or agreement, are 

not intended to affect the characterization, definition, or treatment 

of any instrument under any other statute regulation, or rule including, but not limited to, the statutes, regulations, or rules enumerated in subsection (f). 

The definition also includes any security agreement or arrangement, or other credit enhancement, related to a swap agreement, 

including any guarantee or reimbursement obligation related to a 

swap agreement. This ensures that any such agreement, arrangement or enhancement is itself deemed to be a swap agreement, and 

therefore eligible for treatment as such for purposes of termination, 

liquidation, acceleration, offset and netting under the Bankruptcy 

Code and the FDIA. Similar changes are made in the definitions 

of ‘‘forward contract,’’ ‘‘commodity contract,’’ ‘‘repurchase agreement,’’ and ‘‘securities contract.’’ An example of a security arrangement is a right of setoff; examples of other credit enhancements are 

letters of credit and other similar agreements. A security agreement or arrangement or guarantee or reimbursement obligation related to a ‘‘swap agreement,’’ ‘‘forward contract,’’ ‘‘commodity contract,’’ ‘‘repurchase agreement’’ or ‘‘securities contract’’ will be such 

an agreement or contract only to the extent of the damages in connection with such agreement measured in accordance with Section 

562 of the Bankruptcy Code (added by the bill). This limitation 

does not affect, however, the other provisions of the Bankruptcy 

Code (including section 362(b)) relating to security arrangements in 

connection with agreements or contracts that otherwise qualify as 

‘‘swap agreements,’’ ‘‘forward contracts,’’ ‘‘commodity contracts,’’

‘‘repurchase agreements’’ or ‘‘securities contracts.’’

The use of the term ‘‘forward’’ in the definition of ‘‘swap agreement’’ is not intended to refer only to transactions that fall within 

the definition of ‘‘forward contract.’’ Instead, a ‘‘forward’’ transaction could be a ‘‘swap agreement’’ even if not a ‘‘forward contract.’’

Subsections (a)(2) and (a)(3) amend the Bankruptcy Code definitions of ‘‘securities contract’’ and ‘‘commodity contract,’’ respectively, to conform them to the definitions in the FDIA. 

Subsection (a)(2), like the amendments to the FDIA, amends the 

definition of ‘‘securities contract’’ expressly to encompass margin 

loans, to clarify the coverage of securities options and to clarify the 

coverage of repurchase and reverse repurchase transactions. The 

inclusion of ‘‘margin loans’’ in the definition is intended to encompass only those loans commonly kinown in the securities industry 

as ‘‘margin loans’’, such as arrangements where a securities broker 

or dealer extends credit to a customer in connection with the purchase, sale, or trading of securities, and does not include loans that 

are not commonly referred to as ‘‘margin loans.’’ The reference in 

subsection (b) to a ‘‘guarantee’’ by or to a ‘‘securities clearing agency’’ is intended to cover other arrangements, such as novation, that 

17

have an effect similar to a guarantee. The reference to a ‘‘loan’’ of 

a security in the definition is intended to apply to loans of securities, whether or not for a ‘‘permitted purpose’’ under margin regulations. The reference to ‘‘repurchase and reverse repurchase transactions’’ is intended to eliminate any inquiry under section 555 and 

related provisions as to whether a repurchase or reverse repurchase transaction is a purchase and sale transaction or a secured 

financing. Repurchase and reverse repurchase transactions meeting 

certain criteria are already covered under the definition of ‘‘repurchase agreement’’ in the Bankruptcy Code. Repurchase and reverse 

repurchase transactions on all securities (including, for example, 

equity securities, asset-backed securities, corporate bonds and commercial paper) are included under the definition of ‘‘securities contract’’. A repurchase or reverse repurchase transaction which is a ‘‘securities contract’’ but not a ‘‘repurchase agreement’’ would thus 

be subject to the ‘‘counterparty limitations’’ contained in section 

555 of the Bankruptcy Code (i.e., only stockbrokers, financial institutions, securities clearing agencies and financial participants can 

avail themselves of section 555 and related provisions). 

Subsection (a)(2) also specifies that purchase, sale and repurchase obligations under a participation in a commercial mortgage 

loan do not constitute ‘‘securities contracts.’’ While a contract for 

the purchase, sale or repurchase of a participation may constitute 

a ‘‘securities contract,’’ the purchase, sale or repurchase obligation 

embedded in a participation agreement does not make that agreement a ‘‘securities contract.’’ Section 8(a) clarifies the reference to 

guarantee or reimbursement obligation. 

Section 8(b) amends the Bankruptcy Code definitions of ‘‘financial institution’’ and ‘‘forward contract merchant.’’ The definition for ‘‘financial institution’’ includes Federal Reserve Banks and the receivers or conservators of insolvent depository institutions. With respect to securities contracts, the definition of ‘‘financial institution’’ expressly includes investment companies registered under the Investment Company Act of 1940. 

Subsection (b) also adds a new definition of ‘‘financial participant’’ to limit the potential impact of insolvencies upon other major 

market participants. This definition will allow such market participants to close-out and net agreements with insolvent entities under 

sections 362(b)(6), 555, and 556 even if the creditor could not qualify as, for example, a commodity broker. Sections 362(b)(6), 555 and 

556 preserve the limitations of the right to close-out and net such 

contracts, in most cases, to entities who qualify under the Bankruptcy Code’s counterparty limitations. However, where the 

counterparty has transactions with a total gross dollar value of at 

least $1 billion in notional or actual principal amount outstanding 

on any day during the previous 15-month period, or has gross 

mark-to-market positions of at least $100 million (aggregated 

across counterparties) in one or more agreements or transactions 

on any day during the previous 15-month period, sections 362(b)(6), 

555 and 556 and corresponding amendments would permit it to exercise netting and related rights irrespective of its inability otherwise to satisfy those counterparty limitations. This change will help 

prevent systemic impact upon the markets from a single failure, 

and is derived from threshold tests contained in Regulation EE 

promulgated by the Federal Reserve Board in implementing the 

18

netting provisions of the Federal Deposit Insurance Corporation 

Improvement Act. It is intended that the 15-month period be measured with reference to the 15 months preceding the filing of a petition by or against the debtor. ‘‘Financial participant’’ is also defined to include ‘‘clearing organizations’’ within the meaning of FDICIA (as amended by the CFMA 

and section 7 of the bill). This amendment, together with the inclusion of ‘‘financial participants’’ as eligible counterparties in connection with ‘‘commodity contracts,’’ ‘‘forward contracts’’ and ‘‘securities contracts’’ and the amendments made in other sections of the 

bill to include ‘‘financial participants’’ as counterparties eligible for 

the protections in respect of ‘‘swap agreements’’ and ‘‘repurchase 

agreements’’, take into account the CFMA and will allow clearing 

organizations to benefit from the protections of all of the provisions 

of the Bankruptcy Code relating to these contracts and agreements. 

This will further the goal of promoting the clearing of derivatives 

and other transactions as a way to reduce systemic risk. The definition of ‘‘financial participant’’ (as with the other provisions of the 

Bankruptcy Code relating to ‘‘securities contracts,’’ ‘‘forward contracts,’’ ‘‘commodity contracts,’’ ‘‘repurchase agreements’’ and ‘‘swap 

agreements’’) is not mutually exclusive, i.e., an entity that qualifies 

as a ‘‘financial participant’’ could also be a ‘‘swap participant,’’ ‘‘repo participant,’’ ‘‘forward contract merchant,’’ ‘‘commodity 

broker,’’ ‘‘stockbroker,’’ ‘‘securities clearing agency’’ and/or ‘‘financial institution.’’ Section 8(c) adds to the Bankruptcy Code new definitions for the 

terms ‘‘master netting agreement’’ and ‘‘master netting agreement 

participant.’’ The definition of ‘‘master netting agreement’’ is designed to protect the termination and close-out netting provisions 

of cross-product master agreements between parties. Such an 

agreement may be used (i) to document a wide variety of securities 

contracts, commodity contracts, forward contracts, repurchase 

agreements and swap agreements or (ii) as an umbrella agreement 

for separate master agreements between the same parties, each of 

which is used to document a discrete type of transaction. The definition includes security agreements or arrangements or other credit 

enhancements related to one or more such agreements and clarifies 

that a master netting agreement will be treated as such even if it 

documents transactions that are not within the enumerated categories of qualifying transactions (but the provisions of the Bankruptcy Code relating to master netting agreements and the other 

categories of transactions will not apply to such other transactions). 

A ‘‘master netting agreement participant’’ is any entity that is a 

party to an outstanding master netting agreement with a debtor 

before the filing of a bankruptcy petition. 

Subsection (d) amends section 362(b) of the Bankruptcy Code to 

protect enforcement, free from the automatic stay, of setoff or netting provisions in swap agreements and in master netting agreements and security agreements or arrangements related to one or 

more swap agreements or master netting agreements. This provision parallels the other provisions of the Bankruptcy Code that protect netting provisions of securities contracts, commodity contracts, 

forward contracts, and repurchase agreements. Because the relevant definitions include related security agreements, the references to ‘‘setoff’’ in these provisions, as well as in section 

19

362(b)(6) and (7) of the Bankruptcy Code, are intended to refer also 

to rights to foreclose on, and to set off against obligations to return, 

collateral securing swap agreements, master netting agreements, 

repurchase agreements, securities contracts, commodity contracts, 

or forward contracts. Collateral may be pledged to cover the cost 

of replacing the defaulted transactions in the relevant market, as 

well as other costs and expenses incurred or estimated to be incurred for the purpose of hedging or reducing the risks arising out 

of such termination. Enforcement of these agreements and arrangements free from the automatic stay is consistent with the policy 

goal of minimizing systemic risk. 

Subsection (d) also clarifies that the provisions protecting setoff 

and foreclosure in relation to securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements, and master netting agreements free from the automatic 

stay apply to collateral pledged by the debtor but that cannot technically be ‘‘held by’’ the creditor, such as receivables and book-entry 

securities, and to collateral that has been repledged by the creditor 

and securities re-sold pursuant to repurchase agreements. 

Subsections (e) and (f) amend sections 546 and 548(d) of the 

Bankruptcy Code to provide that transfers made under or in connection with a master netting agreement may not be avoided by a 

trustee except where such transfer is made with actual intent to 

hinder, delay or defraud and not taken in good faith. This amendment provides the same protections for a transfer made under, or 

in connection with, a master netting agreement as currently is provided for margin payments, settlement payments and other transfers received by commodity brokers, forward contract merchants, 

stockbrokers, financial institutions, securities clearing agencies, 

repo participants, and swap participants under sections 546 and 

548(d), except to the extent the trustee could otherwise avoid such 

a transfer made under an individual contract covered by such master netting agreement. 

Subsections (g), (h), (i), and (j) clarify that the provisions of the 

Bankruptcy Code that protect (i) rights of liquidation under securities contracts, commodity contracts, forward contracts and repurchase agreements also protect rights of termination or acceleration 

under such contracts, and (ii) rights to terminate under swap 

agreements also protect rights of liquidation and acceleration. 

Section 8(k) adds a new section 561 to the Bankruptcy Code to 

protect the contractual right of a master netting agreement participant to enforce any rights of termination, liquidation, acceleration, 

offset or netting under a master netting agreement. These rights 

include rights arising (i) from the rules of a derivatives clearing organization, multilateral clearing organization, securities clearing 

agency, securities exchange, securities association, contract market, 

derivatives transaction execution facility or board of trade, (ii) 

under common law, law merchant or (iii) by reason of normal business practice. This reflects the enactment of the CFMA and the 

current treatment of rights under swap agreements under section 

560 of the Bankruptcy Code. Similar changes to reflect the enactment of the CFMA have been made to the definition of ‘‘contractual 

right’’ for purposes of sections 555, 556, 559 and 560 of the Bankruptcy Code. 

20

Subsections (b)(2)(A) and (b)(2)(B) of new section 561 limit the 

exercise of contractual rights to net or to offset obligations where 

the debtor is a commodity broker and one leg of the obligations 

sought to be netted relates to commodity contracts traded on or 

subject to the rules of a contract market designated under the 

Commodity Exchange Act or a derivatives transaction execution facility registered under the Commodity Exchange Act. Under subsection (b)(2)(A) netting or offsetting is not permitted in these circumstances if the party seeking to net or to offset has no positive 

net equity in the commodity accounts at the debtor. Subsection 

(b)(2)(B) applies only if the debtor is a commodity broker, acting on 

behalf of its own customer, and is in turn a customer of another 

commodity broker. In that case, the latter commodity broker may 

not net or offset obligations under such commodity contracts with 

other claims against its customer, the debtor. Subsections (b)(2)(A) 

and (b)(2)(B) limit the depletion of assets available for distribution 

to customers of commodity brokers. Subsection (b)(2)(C) provides an 

exception to subsections (b)(2)(A) and (b)(2)(B) for cross-margining 

and other similar arrangements approved by, or submitted to and 

not rendered ineffective by, the Commodity Futures Trading Commission, as well as certain other netting arrangements. 

For the purposes of Bankruptcy Code sections 555, 556, 559, 560 

and 561, it is intended that the normal business practice in the 

event of a default of a party based on bankruptcy or insolvency is 

to terminate, liquidate or accelerate securities contracts, commodity 

contracts, forward contracts, repurchase agreements, swap agreements and master netting agreements with the bankrupt or insolvent party. The protection of netting and offset rights in sections 

560 and 561 is in addition to the protections afforded in sections 

362(b)(6), (b)(7), (b)(17) and (b)(28) of the Bankruptcy Code. 

Under this bill, the termination, liquidation or acceleration rights 

of a master netting agreement participant are subject to limitations 

contained in other provisions of the Bankruptcy Code relating to 

securities contracts and repurchase agreements. In particular, if a 

securities contract or repurchase agreement is documented under 

a master netting agreement, a party’s termination, liquidation and 

acceleration rights would be subject to the provisions of the Bankruptcy Code relating to orders authorized under the provisions of 

SIPA or any statute administered by the SEC. In addition, the netting rights of a party to a master netting agreement would be subject to any contractual terms between the parties limiting or 

waiving netting or set off rights. Similarly, a waiver by a bank or 

a counterparty of netting or set off rights in connection with QFCs 

would be enforceable under the FDIA. 

New section 561 of the Bankruptcy Code clarifies that the provisions of the Bankruptcy Code related to securities contracts, commodity contracts, forward contracts, repurchase agreements, swap 

agreements and master netting agreements apply in a proceeding 

ancillary to a foreign insolvency proceeding under section 304 of 

the Bankruptcy Code. 

Subsections (l) and (m) clarify that the exercise of termination 

and netting rights will not otherwise affect the priority of the creditor’s claim after the exercise of netting, foreclosure and related 

rights. 

21

Subsection (n) amends section 553 of the Bankruptcy Code to 

clarify that the acquisition by a creditor of setoff rights in connection with swap agreements, repurchase agreements, securities contracts, forward contracts, commodity contracts and master netting 

agreements cannot be avoided as a preference. This subsection also 

adds setoff of the kinds described in sections 555, 556, 559, 560, 

and 561 of the Bankruptcy Code to the types of setoff excepted 

from section 553(b). 

Section 8(o), as well as other subsections of the bill, adds references to ‘‘financial participant’’ in all the provisions of the Bankruptcy Code relating to securities, forward and commodity contracts and repurchase and swap agreements. 

Section 9. Recordkeeping Requirements 

Section 9 amends section 11(e)(8) of the Federal Deposit Insurance Act to explicitly authorize the FDIC, in consultation with appropriate Federal banking agencies, to prescribe regulations on recordkeeping by any insured depository institution with respect to 

QFCs only if the insured financial institution is in a troubled condition (as such term is defined in the FDIA). 

Section 10. Exemptions from Contemporaneous Execution Requirement 

Section 10 amends FDIA section 13(e)(2) to provide that an 

agreement for the collateralization of governmental deposits, bankruptcy estate funds, Federal Reserve Bank or Federal Home Loan 

Bank extensions of credit or one or more QFCs shall not be deemed 

invalid solely because such agreement was not entered into contemporaneously with the acquisition of the collateral or because of 

pledges, delivery or substitution of the collateral made in accordance with such agreement. 

The amendment codifies portions of policy statements issued by 

the FDIC regarding the application of section 13(e), which codifies 

the ‘‘D’Oench Duhme’’ doctrine. With respect to QFCs, this codification recognizes that QFCs often are subject to collateral and other 

security arrangements that may require posting and return of collateral on an ongoing basis based on the mark-to-market values of 

the collateralized transactions. The codification of only portions of 

the existing FDIC policy statements on these and related issues 

should not give rise to any negative implication regarding the continued validity of these policy statements. 

Section 11. Damage Measure 

Section 11 adds a new section 562 to the Bankruptcy Code providing that damages under any swap agreement, securities contract, forward contract, commodity contract, repurchase agreement 

or master netting agreement will be calculated as of the earlier of 

(i) the date of rejection of such agreement by a trustee or (ii) the 

date or dates of liquidation, termination or acceleration of such contract or agreement. 

Section 562 provides an exception to the rules in (i) and (ii) if 

there are no commercially reasonable determinants of value as of 

such date or dates, in which case damages are to be measured as 

of the earliest subsequent date or dates on which there are commercially reasonable determinants of value. Although it is expected 

22

that in most circumstances damages would be measured as of the 

date or dates of either rejection or liquidation, termination or acceleration, in certain unusual circumstances, such as dysfunctional 

markets or liquidation of very large portfolios, there may be no 

commercially reasonable determinants of value for liquidating any 

such agreements or contracts or for liquidating all such agreements 

and contracts in a large portfolio on a single day. It is expected 

that measuring damages as of a date or dates before the date of 

liquidation, termination, or acceleration, will occur only in very unusual circumstances. 

The party determining damages is given limited discretion to determine the dates as of which damages are to be measured. Its actions are circumscribed unless there are no ‘‘commercially reasonable’’ determinants of value for it to measure damages on the date 

or dates of either rejection or liquidation, termination or acceleration. The references to ‘‘commercially reasonable’’ are intended to 

reflect existing state law standards relating to a creditor’s actions 

in determining damages. New section 562 provides that if damages 

are not measured as of either the date of rejection or the date or 

dates of liquidation, termination or acceleration and the trustee 

challenges the timing of the measurement of damages by the nondefaulting party determining the damages, the non-defaulting 

party, rather than the trustee, has the burden of proving the absence of any commercially reasonable determinants of value. 

New section 562 is not intended to have any impact on the determination under the Bankruptcy Code of the timing of damages for 

contracts and agreements other than those specified in section 562. 

Also, section 562 does not apply to proceedings under the FDIA, 

and it is not intended that Section 562 have any impact on the interpretation of the provisions of the FDIA relating to timing of 

damages in respect of QFCs or other contracts. 

Section 12. SIPC Stay 

Section 12 amends SIPA to provide that an order or decree 

issued pursuant to SIPA shall not operate as a stay of any right 

of liquidation, termination, acceleration, offset or netting under one 

or more securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements or master netting 

agreements (as defined in the Bankruptcy Code and including 

rights of foreclosure on collateral), except that such order or decree 

may stay any right to foreclose on or dispose of securities (but not 

cash) collateral pledged by the debtor or sold by the debtor under 

a repurchase agreement or lent by the debtor under a securities 

lending agreement. A corresponding amendment to FDICIA is 

made by section 7. A creditor that was stayed in exercising rights 

against such securities would be entitled to post-insolvency interest 

to the extent of the value of such securities.

CHANGES IN EXISTING LAW MADE BY THE BILL, AS REPORTED

In compliance with clause 3(e) of rule XIII of the Rules of the 

House of Representatives, changes in existing law made by the bill, 

as reported, are shown as follows (existing law proposed to be omitted is enclosed in black brackets, new matter is printed in italic, 

existing law in which no change is proposed is shown in roman): 

23

FEDERAL DEPOSIT INSURANCE ACT 

* * * * * * *

SEC. 11. (a)***

* * * * * * *

(e) PROVISIONS RELATING TO CONTRACTS ENTERED INTO BEFORE

APPOINTMENT OF CONSERVATOR OR RECEIVER.—

(1) * * *

* * * * * * *

(8) CERTAIN QUALIFIED FINANCIAL CONTRACTS.—

(A) RIGHTS OF PARTIES TO CONTRACTS.—Subject to øparagraph (10)¿ paragraphs (9) and (10) of this subsection and 

notwithstanding any other provision of this Act (other than 

subsection (d)(9) of this section and section 13(e)), any 

other Federal law, or the law of any State, no person shall 

be stayed or prohibited from exercising—

(i) any right øto cause the termination or liquidation¿ such person has to cause the termination, liquidation, or acceleration of any qualified financial contract with an insured depository institution which 

arises upon the appointment of the Corporation as receiver for such institution at any time after such appointment; 

ø(ii) any right under any security arrangement relating to any contract or agreement described in clause 

(i); or¿

(ii) any right under any security agreement or arrangement or other credit enhancement related to one 

or more qualified financial contracts described in 

clause (i);

* * * * * * *

(C) CERTAIN TRANSFERS NOT AVOIDABLE.—

(i) IN GENERAL.—Notwithstanding paragraph (11), 

section 5242 of the Revised Statutes of the United 

States or any other Federal or State law relating to the 

avoidance of preferential or fraudulent transfers, the 

Corporation, whether acting as such or as conservator 

or receiver of an insured depository institution, may 

not avoid any transfer of money or other property in 

connection with any qualified financial contract with 

an insured depository institution. 

* * * * * * *

(D) CERTAIN CONTRACTS AND AGREEMENTS DEFINED.—

For purposes of this øsubsection—¿ subsection, the following definitions shall apply:

(i) QUALIFIED FINANCIAL CONTRACT.—The term 

‘‘qualified financial contract’’ means any securities contract, commodity contract, forward contract, repurchase agreement, swap agreement, and any similar 

agreement that the Corporation determines by regulation, resolution, or order to be a qualified financial 

contract for purposes of this paragraph. 

24

ø(ii) SECURITIES CONTRACT.—The term ‘‘securities 

contract’’—

ø(I) has the meaning given to such term in section 741 of title 11, United States Code, except 

that the term ‘‘security’’ (as used in such section) 

shall be deemed to include any mortgage loan, any 

mortgage-related security (as defined in section 

3(a)(41) of the Securities Exchange Act of 1934), 

and any interest in any mortgage loan or mortgage-related security; and 

ø(II) does not include any participation in a 

commercial mortgage loan unless the Corporation 

determines by regulation, resolution, or order to 

include any such participation within the meaning 

of such term. 

ø(iii) COMMODITY CONTRACT.—The term ‘‘commodity 

contract’’ has the meaning given to such term in section 761 of title 11, United States Code. 

ø(iv) FORWARD CONTRACT.—The term ‘‘forward contract’’ has the meaning given to such term in section 

101 of title 11, United States Code. 

ø(v) REPURCHASE AGREEMENT.—The term ‘‘repurchase agreement’’—

ø(I) has the meaning given to such term in section 101 of title 11, the United States Code, except 

that the items (as described in such section) which 

may be subject to any such agreement shall be 

deemed to include mortgage-related securities (as 

such term is defined in section 3(a)(41) of the Securities Exchange Act of 1934), any mortgage 

loan, and any interest in any mortgage loan; and

ø(II) does not include any participation in a 

commercial mortgage loan unless the Corporation 

determines by regulation, resolution, or order to 

include any such participation within the meaning 

of such term. 

ø(vi) SWAP AGREEMENT.—The term ‘‘swap agreement’’—

ø(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 

purchased, forward foreign exchange agreement, 

rate cap agreement, rate floor agreement, rate collar agreement, currency swap agreement, crosscurrency rate swap agreement, currency future, or 

currency option purchased or any other similar 

agreement, and 

ø(II) includes any combination of such agreements and any option to enter into any such 

agreement. 

ø(vii) TREATMENT OF MASTER AGREEMENT AS 1 SWAP

AGREEMENT.—Any master agreement for any agreements described in clause (vi)(I) together with all supVerDate jul 14 2003 10:23 Sep 19, 2003 Jkt 019006 PO 00000 Frm 00024 Fmt 6659 Sfmt 9001 E:\HR\OC\HR277P1.XXX HR277P1
25

plements to such master agreement shall be treated as 

1 swap agreement. 

ø(viii) TRANSFER.—The term ‘‘transfer’’ has the 

meaning given to such term in section 101 of title 11, 

United States Code.¿

(ii) SECURITIES CONTRACT.—The term ‘‘securities contract’’—

(I) means a contract for the purchase, sale, or 

loan of a security, a certificate of deposit, a mortgage loan, or any interest in a mortgage loan, a 

group or index of securities, certificates of deposit, 

or mortgage loans or interests therein (including 

any interest therein or based on the value thereof) 

or any option on any of the foregoing, including 

any option to purchase or sell any such security, 

certificate of deposit, mortgage loan, interest, group 

or index, or option, and including any repurchase 

or reverse repurchase transaction on any such security, certificate of deposit, mortgage loan, interest, group or index, or option; 

(II) does not include any purchase, sale, or repurchase obligation under a participation in a 

commercial mortgage loan unless the Corporation 

determines by regulation, resolution, or order to include any such agreement within the meaning of 

such term; 

(III) means any option entered into on a national 

securities exchange relating to foreign currencies; 

(IV) means the guarantee by or to any securities 

clearing agency of any settlement of cash, securities, certificates of deposit, mortgage loans or interests therein, group or index of securities, certificates of deposit, or mortgage loans or interests 

therein (including any interest therein or based on 

the value thereof) or option on any of the foregoing, 

including any option to purchase or sell any such 

security, certificate of deposit, mortgage loan, interest, group or index, or option; 

(V) means any margin loan; 

(VI) means any other agreement or transaction 

that is similar to any agreement or transaction referred to in this clause; 

(VII) means any combination of the agreements 

or transactions referred to in this clause; 

(VIII) means any option to enter into any agreement or transaction referred to in this clause; 

(IX) means a master agreement that provides for 

an agreement or transaction referred to in subclause (I), (III), (IV), (V), (VI), (VII), or (VIII), together with all supplements to any such master 

agreement, without regard to whether the master 

agreement provides for an agreement or transaction that is not a securities contract under this 

clause, except that the master agreement shall be 

considered to be a securities contract under this 

26

clause only with respect to each agreement or 

transaction under the master agreement that is referred to in subclause (I), (III), (IV), (V), (VI), (VII), 

or (VIII); and 

(X) means any security agreement or arrangement or other credit enhancement related to any 

agreement or transaction referred to in this clause, 

including any guarantee or reimbursement obligation in connection with any agreement or transaction referred to in this clause. 

(iii) COMMODITY CONTRACT.—The term ‘‘commodity 

contract’’ means—

(I) with respect to a futures commission merchant, a contract for the purchase or sale of a commodity for future delivery on, or subject to the 

rules of, a contract market or board of trade; 

(II) with respect to a foreign futures commission 

merchant, a foreign future; 

(III) with respect to a leverage transaction merchant, a leverage transaction; 

(IV) with respect to a clearing organization, a 

contract for the purchase or sale of a commodity 

for future delivery on, or subject to the rules of, a 

contract market or board of trade that is cleared 

by such clearing organization, or commodity option traded on, or subject to the rules of, a contract 

market or board of trade that is cleared by such 

clearing organization; 

(V) with respect to a commodity options dealer, 

a commodity option; 

(VI) any other agreement or transaction that is 

similar to any agreement or transaction referred to 

in this clause; 

(VII) any combination of the agreements or 

transactions referred to in this clause; 

(VIII) any option to enter into any agreement or 

transaction referred to in this clause; 

(IX) a master agreement that provides for an 

agreement or transaction referred to in subclause 

(I), (II), (III), (IV), (V), (VI), (VII), or (VIII), together with all supplements to any such master 

agreement, without regard to whether the master 

agreement provides for an agreement or transaction that is not a commodity contract under this 

clause, except that the master agreement shall be 

considered to be a commodity contract under this 

clause only with respect to each agreement or 

transaction under the master agreement that is referred to in subclause (I), (II), (III), (IV), (V), (VI), 

(VII), or (VIII); or 

(X) any security agreement or arrangement or 

other credit enhancement related to any agreement 

or transaction referred to in this clause, including 

any guarantee or reimbursement obligation in conVerDate jul 14 2003 10:23 Sep 19, 2003 Jkt 019006 PO 00000 Frm 00026 Fmt 6659 Sfmt 6603 E:\HR\OC\HR277P1.XXX HR277P1
27

nection with any agreement or transaction referred 

to in this clause. 

(iv) FORWARD CONTRACT.—The term ‘‘forward contract’’ means— (I) a contract (other than a commodity contract) 

for the purchase, sale, or transfer of a commodity 

or any similar good, article, service, right, or interest which is presently or in the future becomes the 

subject of dealing in the forward contract trade, or 

product or byproduct thereof, with a maturity date 

more than 2 days after the date the contract is entered into, including, a repurchase transaction, reverse repurchase transaction, consignment, lease, 

swap, hedge transaction, deposit, loan, option, allocated transaction, unallocated transaction, or 

any other similar agreement; 

(II) any combination of agreements or transactions referred to in subclauses (I) and (III); 

(III) any option to enter into any agreement or 

transaction referred to in subclause (I) or (II); 

(IV) a master agreement that provides for an 

agreement or transaction referred to in subclauses 

(I), (II), or (III), together with all supplements to 

any such master agreement, without regard to 

whether the master agreement provides for an 

agreement or transaction that is not a forward 

contract under this clause, except that the master 

agreement shall be considered to be a forward contract under this clause only with respect to each 

agreement or transaction under the master agreement that is referred to in subclause (I), (II), or 

(III); or 

(V) any security agreement or arrangement or 

other credit enhancement related to any agreement 

or transaction referred to in subclause (I), (II), 

(III), or (IV), including any guarantee or reimbursement obligation in connection with any agreement or transaction referred to in any such subclause. 

(v) REPURCHASE AGREEMENT.—The term ‘‘repurchase 

agreement’’ (which definition also applies to a reverse 

repurchase agreement)—

(I) means an agreement, including related terms, 

which provides for the transfer of one or more certificates of deposit, mortgage-related securities (as 

such term is defined in the Securities Exchange 

Act of 1934), mortgage loans, interests in mortgage-related securities or mortgage loans, eligible 

bankers’ acceptances, qualified foreign government 

securities or securities that are direct obligations 

of, or that are fully guaranteed by, the United 

States or any agency of the United States against 

the transfer of funds by the transferee of such certificates of deposit, eligible bankers’ acceptances, 

securities, mortgage loans, or interests with a siVerDate jul 14 2003 10:23 Sep 19, 2003 Jkt 019006 PO 00000 Frm 00027 Fmt 6659 Sfmt 6603 E:\HR\OC\HR277P1.XXX HR277P1
28

multaneous agreement by such transferee to transfer to the transferor thereof certificates of deposit, 

eligible bankers’ acceptances, securities, mortgage 

loans, or interests as described above, at a date 

certain not later than 1 year after such transfers or 

on demand, against the transfer of funds, or any 

other similar agreement; 

(II) does not include any repurchase obligation 

under a participation in a commercial mortgage 

loan unless the Corporation determines by regulation, resolution, or order to include any such participation within the meaning of such term; 

(III) means any combination of agreements or 

transactions referred to in subclauses (I) and (IV); 

(IV) means any option to enter into any agreement or transaction referred to in subclause (I) or 

(III); 

(V) means a master agreement that provides for 

an agreement or transaction referred to in subclause (I), (III), or (IV), together with all supplements to any such master agreement, without regard to whether the master agreement provides for 

an agreement or transaction that is not a repurchase agreement under this clause, except that the 

master agreement shall be considered to be a repurchase agreement under this subclause only 

with respect to each agreement or transaction 

under the master agreement that is referred to in 

subclause (I), (III), or (IV); and 

(VI) means any security agreement or arrangement or other credit enhancement related to any 

agreement or transaction referred to in subclause 

(I), (III), (IV), or (V), including any guarantee or 

reimbursement obligation in connection with any 

agreement or transaction referred to in any such 

subclause. 

For purposes of this clause, the term ‘‘qualified foreign 

government security’’ means a security that is a direct 

obligation of, or that is fully guaranteed by, the central 

government of a member of the Organization for Economic Cooperation and Development (as determined by 

regulation or order adopted by the appropriate Federal 

banking authority). 

(vi) SWAP AGREEMENT.—The term ‘‘swap agreement’’

means—

(I) any agreement, including the terms and conditions incorporated by reference in any such 

agreement, which is an interest rate swap, option, 

future, or forward agreement, including a rate 

floor, rate cap, rate collar, cross-currency rate 

swap, and basis swap; a spot, same day-tomorrow, 

tomorrow-next, forward, or other foreign exchange 

or precious metals agreement; a currency swap, option, future, or forward agreement; an equity index 

or equity swap, option, future, or forward agreeVerDate jul 14 2003 10:23 Sep 19, 2003 Jkt 019006 PO 00000 Frm 00028 Fmt 6659 Sfmt 6603 E:\HR\OC\HR277P1.XXX HR277P1
29

ment; a debt index or debt swap, option, future, or 

forward agreement; a total return, credit spread or 

credit swap, option, future, or forward agreement; 

a commodity index or commodity swap, option, future, or forward agreement; or a weather swap, 

weather derivative, or weather option; 

(II) any agreement or transaction that is similar 

to any other agreement or transaction referred to 

in this clause and that is of a type that has been, 

is presently, or in the future becomes, the subject 

of recurrent dealings in the swap markets (including terms and conditions incorporated by reference 

in such agreement) and that is a forward, swap, 

future, or option on one or more rates, currencies, 

commodities, equity securities or other equity instruments, debt securities or other debt instruments, quantitative measures associated with an 

occurrence, extent of an occurrence, or contingency 

associated with a financial, commercial, or economic consequence, or economic or financial indices or measures of economic or financial risk or 

value; 

(III) any combination of agreements or transactions referred to in this clause; 

(IV) any option to enter into any agreement or 

transaction referred to in this clause; 

(V) a master agreement that provides for an 

agreement or transaction referred to in subclause 

(I), (II), (III), or (IV), together with all supplements 

to any such master agreement, without regard to 

whether the master agreement contains an agreement or transaction that is not a swap agreement 

under this clause, except that the master agreement shall be considered to be a swap agreement 

under this clause only with respect to each agreement or transaction under the master agreement 

that is referred to in subclause (I), (II), (III), or 

(IV); and 

(VI) any security agreement or arrangement or 

other credit enhancement related to any agreements or transactions referred to in subclause (I), 

(II), (III), (IV), or (V), including any guarantee or 

reimbursement obligation in connection with any 

agreement or transaction referred to in any such 

subclause. 

Such term is applicable for purposes of this subsection 

only and shall not be construed or applied so as to 

challenge or affect the characterization, definition, or 

treatment of any swap agreement under any other statute, regulation, or rule, including the Securities Act of 

1933, the Securities Exchange Act of 1934, the Public 

Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, 

the Investment Advisers Act of 1940, the Securities Investor Protection Act of 1970, the Commodity Exchange 

30

Act, the Gramm-Leach-Bliley Act, and the Legal Certainty for Bank Products Act of 2000. 

(vii) TREATMENT OF MASTER AGREEMENT AS ONE

AGREEMENT.—Any master agreement for any contract 

or agreement described in any preceding 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. If a master agreement contains provisions relating to agreements or transactions that are not themselves qualified financial contracts, the master agreement shall be deemed to be a qualified financial contract only with respect to those transactions that are 

themselves qualified financial contracts. 

(viii) TRANSFER.—The term ‘‘transfer’’ means every 

mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with 

property or with an interest in property, including retention of title as a security interest and foreclosure of 

the depository institution’s equity of redemption.

(E) CERTAIN PROTECTIONS IN EVENT OF APPOINTMENT OF

CONSERVATOR.—Notwithstanding any other provision of 

this Act (øother than paragraph (12) of this subsection, 

subsection (d)(9)¿ other than subsections (d)(9) and (e)(10)

of this section, and section 13(e) of this Act), any other 

Federal law, or the law of any State, no person shall be 

stayed or prohibited from exercising— (i) * * *

ø(ii) any right under any security arrangement relating to such qualified financial contracts; or¿

(ii) any right under any security agreement or arrangement or other credit enhancement related to one 

or more qualified financial contracts described in 

clause (i);

* * * * * * *

(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 paragraphs (9) and (10) of this subsection or to disaffirm or repudiate any such contract in accordance with subsection 

(e)(1) of this section. 

(G) WALKAWAY CLAUSES NOT EFFECTIVE.— (i) IN GENERAL.—Notwithstanding the provisions of 

subparagraphs (A) and (E), and sections 403 and 404 

of the Federal Deposit Insurance Corporation Improvement Act of 1991, no walkaway clause shall be enforceable in a qualified financial contract of an insured depository institution in default. 

(ii) WALKAWAY CLAUSE DEFINED.—For purposes of 

this subparagraph, the term ‘‘walkaway clause’’ means 

a provision in a qualified financial contract that, after 

calculation of a value of a party’s position or an 

31

amount due to or from 1 of the parties in accordance 

with its terms upon termination, liquidation, or acceleration of the qualified financial contract, either does 

not create a payment obligation of a party or extinguishes a payment obligation of a party in whole or in 

part solely because of such party’s status as a nondefaulting party. 

(H) RECORDKEEPING REQUIREMENTS.—The Corporation, 

in consultation with the appropriate Federal banking agencies and the National Credit Union Administration Board, 

may prescribe regulations requiring more detailed recordkeeping by any insured depository institution with respect 

to qualified financial contracts (including market valuations) only if such insured depository institution is in a 

troubled condition (as such term is defined by the Corporation pursuant to section 32).

ø(9) TRANSFER OF QUALIFIED FINANCIAL CONTRACTS.—In 

making any transfer of assets or liabilities of a depository institution in default which includes any qualified financial contract, the conservator or receiver for such depository institution 

shall either—

ø(A) transfer to 1 depository institution (other than a depository institution in default)—

ø(i) all qualified financial contracts between—

ø(I) any person or any affiliate of such person; 

and 

ø(II) the depository institution in default; 

ø(ii) all claims of such person or any affiliate of such 

person against such depository institution under any 

such contract (other than any claim which, under the 

terms of any such contract, is subordinated to the 

claims of general unsecured creditors of such institution); 

ø(iii) all claims of such depository institution against 

such person or any affiliate of such person under any 

such contract; and 

ø(iv) all property securing any claim described in 

clause (ii) or (iii) under any such contract; or 

ø(B) transfer none of the financial contracts, claims, or 

property referred to in subparagraph (A) (with respect to 

such person and any affiliate of such person).¿

(9) TRANSFER OF QUALIFIED FINANCIAL CONTRACTS.—

(A) IN GENERAL.—In making any transfer of assets or liabilities of a depository institution in default which includes any qualified financial contract, the conservator or 

receiver for such depository institution shall either—

(i) transfer to one financial institution, other than a 

financial institution 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—

(I) all qualified financial contracts between any 

person or any affiliate of such person and the depository institution in default; 

32

(II) all claims of such person or any affiliate of 

such person against such depository institution 

under any such contract (other than any claim 

which, under the terms of any such contract, is 

subordinated to the claims of general unsecured 

creditors of such institution); 

(III) all claims of such depository institution 

against such person or any affiliate of such person 

under any such contract; and 

(IV) all property securing or any other credit enhancement for any contract described in subclause 

(I) or any claim described in subclause (II) or (III) 

under any such contract; or 

(ii) transfer none of the qualified financial contracts, 

claims, property or other credit enhancement referred 

to in clause (i) (with respect to such person and any affiliate of such person). 

(B) TRANSFER TO FOREIGN BANK, FOREIGN FINANCIAL INSTITUTION, OR BRANCH OR AGENCY OF A FOREIGN BANK OR

FINANCIAL INSTITUTION.—In transferring any qualified financial contracts and related claims and property under 

subparagraph (A)(i), the conservator or receiver for the depository institution shall not make such transfer to a foreign bank, financial institution organized under the laws of 

a foreign country, or a branch or agency of a foreign bank 

or financial institution unless, under the law applicable to 

such bank, financial institution, branch or agency, to the 

qualified financial contracts, and to any netting contract, 

any security agreement or arrangement or other credit enhancement related to one or more qualified financial contracts, the contractual rights of the parties to such qualified 

financial contracts, netting contracts, security agreements 

or arrangements, or other credit enhancements are enforceable substantially to the same extent as permitted under 

this section. 

(C) TRANSFER OF CONTRACTS SUBJECT TO THE RULES OF

A CLEARING ORGANIZATION.—In the event that a conservator 

or receiver transfers any qualified financial contract and 

related claims, property, and credit enhancements pursuant 

to subparagraph (A)(i) and such contract is cleared by or 

subject to the rules of a clearing organization, the clearing 

organization shall not be required to accept the transferee 

as a member by virtue of the transfer. 

(D) DEFINITIONS.—For purposes of this paragraph, the 

term ‘‘financial institution’’ means a broker or dealer, a depository institution, a futures commission merchant, or any 

other institution, as determined by the Corporation by regulation to be a financial institution, and the term ‘‘clearing 

organization’’ has the same meaning as in section 402 of 

the Federal Deposit Insurance Corporation Improvement 

Act of 1991.

(10) NOTIFICATION OF TRANSFER.—

(A) IN GENERAL.—If—

33

(i) the conservator or 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, 

øthe conservator or receiver shall use such conservator’s or 

receiver’s best efforts to notify any person who is a party 

to any such contract of such transfer by 12:00, noon (local 

time) on the business day following such transfer.¿ the 

conservator or 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 in the case of a receivership, or 

the business day following such transfer in the case of a 

conservatorship.

(B) CERTAIN RIGHTS NOT ENFORCEABLE.— (i) RECEIVERSHIP.—A person who is a party to a 

qualified financial contract with an insured depository 

institution may not exercise any right that such person 

has to terminate, liquidate, or net such contract under 

paragraph (8)(A) of this subsection or section 403 or 

404 of the Federal Deposit Insurance Corporation Improvement Act of 1991, solely by reason of or incidental 

to the appointment of a receiver for the depository institution (or the insolvency or financial condition of the 

depository institution for which the receiver has been 

appointed)— (I) until 5:00 p.m. (eastern time) on 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) CONSERVATORSHIP.—A person who is a party to 

a qualified financial contract with an insured depository institution may not exercise any right that such 

person has to terminate, liquidate, or net such contract 

under paragraph (8)(E) of this subsection or section 

403 or 404 of the Federal Deposit Insurance Corporation Improvement Act of 1991, solely by reason of or incidental to the appointment of a conservator for the depository institution (or the insolvency or financial condition of the depository institution for which the conservator has been appointed). 

(iii) NOTICE.—For purposes of this paragraph, the 

Corporation as receiver or conservator 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 taken steps reasonably calculated to provide 

notice to such person by the time specified in subparagraph (A). 

(C) TREATMENT OF BRIDGE BANKS.—The following institutions shall not be considered to be a financial institution 

for which a conservator, receiver, trustee in bankruptcy, or 

34

other legal custodian has been appointed or which is otherwise the subject of a bankruptcy or insolvency proceeding 

for purposes of paragraph (9): 

(i) A bridge bank. 

(ii) A depository 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 the depository institution and 

the Corporation as receiver for a depository institution in default.

ø(B)¿ (D) BUSINESS DAY DEFINED.—For purposes of this 

paragraph, the term ‘‘business day’’ means any day other 

than any Saturday, Sunday, or any day on which either 

the New York Stock Exchange or the Federal Reserve 

Bank of New York is closed.

(11) DISAFFIRMANCE OR REPUDIATION OF QUALIFIED FINANCIAL CONTRACTS.—In exercising the rights of disaffirmance or 

repudiation of a conservator or receiver with respect to any 

qualified financial contract to which an insured depository institution is a party, the conservator or receiver for such institution shall either—

(A) disaffirm or repudiate all qualified financial contracts between—

(i) any person or any affiliate of such person; and 

(ii) the depository institution in default; or 

(B) disaffirm or repudiate none of the qualified financial 

contracts referred to in subparagraph (A) (with respect to 

such person or any affiliate of such person).

ø(11)¿ (12) CERTAIN SECURITY INTERESTS NOT AVOIDABLE.—

No provision of this subsection shall be construed as permitting the avoidance of any legally enforceable or perfected security interest in any of the assets of any depository institution 

except where such an interest is taken in contemplation of the 

institution’s insolvency or with the intent to hinder, delay, or 

defraud the institution or the creditors of such institution. 

ø(12)¿ (13) AUTHORITY TO ENFORCE CONTRACTS.—

(A) IN GENERAL.—The conservator or receiver may enforce any contract, other than a director’s or officer’s liability insurance contract or a depository institution bond, entered into by the depository institution notwithstanding 

any provision of the contract providing for termination, default, acceleration, or exercise of rights upon, or solely by 

reason of, insolvency or the appointment of or the exercise 

of rights or powers by a conservator or receiver. 

* * * * * * *

ø(13)¿ (14) EXCEPTION FOR FEDERAL RESERVE AND FEDERAL

HOME LOAN BANKS.—No provision of this subsection shall apply 

with respect to— (A) * * *

* * * * * * *

ø(14)¿ (15) SELLING CREDIT CARD ACCOUNTS RECEIVABLE.—

35

(A) * * *

* * * * * * *

ø(15)¿ (16) CERTAIN CREDIT CARD CUSTOMER LISTS PROTECTED.—

(A) * * *

* * * * * * *

(17) SAVINGS CLAUSE.—The meanings of terms used in this 

subsection are applicable for purposes of this subsection only, 

and shall not be construed or applied so as to challenge or affect the characterization, definition, or treatment of any similar 

terms under any other statute, regulation, or rule, including the 

Gramm-Leach-Bliley Act, the Legal Certainty for Bank Products Act of 2000, the securities laws (as that term is defined in 

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

Commodity Exchange Act.

* * * * * * *

SEC. 13. (a)***

* * * * * * *

(e) AGREEMENTS AGAINST INTERESTS OF CORPORATION.—

(1) * * *

ø(2) PUBLIC DEPOSITS.—An agreement to provide for the lawful collateralization of deposits of a Federal, State, or local governmental entity or of any depositor referred to in section 

11(a)(2) 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 

with any changes in the collateral made in accordance with 

such agreement.¿

(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) one or more qualified financial contracts, as defined 

in section 11(e)(8)(D), 

shall not be deemed 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.

* * * * * * *

36

FEDERAL CREDIT UNION ACT

TITLE II—SHARE INSURANCE 

* * * * * * *

PAYMENT OF INSURANCE

SEC. 207. (a)***

* * * * * * *

(c) PROVISIONS RELATING TO CONTRACTS ENTERED INTO BEFORE

APPOINTMENT OF CONSERVATOR OR LIQUIDATING AGENT.—

(1) * * *

* * * * * * *

(8) CERTAIN QUALIFIED FINANCIAL CONTRACTS.—

(A) RIGHTS OF PARTIES TO CONTRACTS.—Subject to øparagraph (12)¿ paragraphs (9) and (10) of this subsection and 

notwithstanding any other provision of this Act (other than 

subsection (b)(9) of this section and section 208(a)(3)), any 

other Federal law, or the law of any State, no person shall 

be stayed or prohibited from exercising—

(i) any right øto cause the termination or liquidation¿ such person has to cause the termination, liquidation, or acceleration of any qualified financial contract with an insured credit union which arises upon 

the appointment of the Board as liquidating agent for 

such credit union at any time after such appointment; 

ø(ii) any right under any security arrangement relating to any contract or agreement described in clause 

(i); or¿

(ii) any right under any security agreement or arrangement or other credit enhancement related to 1 or 

more qualified financial contracts described in clause 

(i);

* * * * * * *

(C) CERTAIN TRANSFERS NOT AVOIDABLE.— (i) IN GENERAL.—Notwithstanding paragraph (11), 

section 5242 of the Revised Statutes of the United 

States or any other Federal or State law relating to the 

avoidance of preferential or fraudulent transfers, the 

Board, whether acting as such or as conservator or liquidating agent of an insured credit union, may not 

avoid any transfer of money or other property in connection with any qualified financial contract with an 

insured credit union. 

* * * * * * *

(D) CERTAIN CONTRACTS AND AGREEMENTS DEFINED.—

For purposes of this øsubsection—¿ subsection, the following definitions shall apply:

(i) QUALIFIED FINANCIAL CONTRACT.—The term 

‘‘qualified financial contract’’ means any securities contract, forward contract, repurchase agreement, and 

any similar agreement that the Board determines by 

37

regulation, resolution, or order to be a qualified financial contract for purposes of this paragraph. 

ø(ii) SECURITIES CONTRACT.—The term ‘‘securities 

contract’’—

ø(I) has the meaning given to such term in section 741 of title 11, United States Code, except 

that the term ‘‘security’’ (as used in such section) 

shall be deemed to include any mortgage loan, any 

mortgage-related security (as defined in section 

3(a)(41) of the Securities Exchange Act of 1934, 

and any interest in any mortgage loan or mortgage-related security; and 

ø(II) does not include any participation in a 

commercial mortgage loan unless the Board determines by regulation, resolution, or order to include any such participation within the meaning 

of such term. 

ø(iii) FORWARD CONTRACT.—The term ‘‘forward contract’’ has the meaning given to such term in section 

101 of title 11, United States Code. 

ø(iv) REPURCHASE AGREEMENT.—The term ‘‘repurchase agreement’’—

ø(I) has the meaning given to such term in section 101 of title 11, the United States Code, except 

that the items (as described in such section) which 

may be subject to any such agreement shall be 

deemed to include mortgage-related securities (as 

such term is defined in section 3(a)(41) of the Securities Exchange Act of 1934, any mortgage loan, 

and any interest in any mortgage loan; and 

ø(II) does not include any participation in a 

commercial mortgage loan unless the Board determines by regulation, resolution, or order to include any such participation within the meaning 

of such term. 

ø(v) TRANSFER.—The term ‘‘transfer’’ has the meaning given to such term in section 101 of title 11, 

United States Code.¿

(ii) SECURITIES CONTRACT.—The term ‘‘securities contract’’—

(I) means a contract for the purchase, sale, or 

loan of a security, a certificate of deposit, a mortgage loan, or any interest in a mortgage loan, a 

group or index of securities, certificates of deposit, 

or mortgage loans or interests therein (including 

any interest therein or based on the value thereof) 

or any option on any of the foregoing, including 

any option to purchase or sell any such security, 

certificate of deposit, mortgage loan, interest, group 

or index, or option, and including any repurchase 

or reverse repurchase transaction on any such security, certificate of deposit, mortgage loan, interest, group or index, or option; 

(II) does not include any purchase, sale, or repurchase obligation under a participation in a 

38

commercial mortgage loan unless the Board determines by regulation, resolution, or order to include 

any such agreement within the meaning of such 

term; 

(III) means any option entered into on a national 

securities exchange relating to foreign currencies; 

(IV) means the guarantee by or to any securities 

clearing agency of any settlement of cash, securities, certificates of deposit, mortgage loans or interests therein, group or index of securities, certificates of deposit, or mortgage loans or interests 

therein (including any interest therein or based on 

the value thereof) or option on any of the foregoing, 

including any option to purchase or sell any such 

security, certificate of deposit, mortgage loan, interest, group or index, or option; 

(V) means any margin loan; 

(VI) means any other agreement or transaction 

that is similar to any agreement or transaction referred to in this clause; 

(VII) means any combination of the agreements 

or transactions referred to in this clause; 

(VIII) means any option to enter into any agreement or transaction referred to in this clause; 

(IX) means a master agreement that provides for 

an agreement or transaction referred to in subclause (I), (III), (IV), (V), (VI), (VII), or (VIII), together with all supplements to any such master 

agreement, without regard to whether the master 

agreement provides for an agreement or transaction that is not a securities contract under this 

clause, except that the master agreement shall be 

considered to be a securities contract under this 

clause only with respect to each agreement or 

transaction under the master agreement that is referred to in subclause (I), (III), (IV), (V), (VI), (VII), 

or (VIII); and 

(X) means any security agreement or arrangement or other credit enhancement related to any 

agreement or transaction referred to in this clause, 

including any guarantee or reimbursement obligation in connection with any agreement or transaction referred to in this clause. 

(iii) COMMODITY CONTRACT.—The term ‘‘commodity 

contract’’ means—

(I) with respect to a futures commission merchant, a contract for the purchase or sale of a commodity for future delivery on, or subject to the 

rules of, a contract market or board of trade; 

(II) with respect to a foreign futures commission 

merchant, a foreign future; 

(III) with respect to a leverage transaction merchant, a leverage transaction; 

(IV) with respect to a clearing organization, a 

contract for the purchase or sale of a commodity 

39

for future delivery on, or subject to the rules of, a 

contract market or board of trade that is cleared 

by such clearing organization, or commodity option traded on, or subject to the rules of, a contract 

market or board of trade that is cleared by such 

clearing organization; 

(V) with respect to a commodity options dealer, 

a commodity option; 

(VI) any other agreement or transaction that is 

similar to any agreement or transaction referred to 

in this clause; 

(VII) any combination of the agreements or 

transactions referred to in this clause; 

(VIII) any option to enter into any agreement or 

transaction referred to in this clause; 

(IX) a master agreement that provides for an 

agreement or transaction referred to in subclause 

(I), (II), (III), (IV), (V), (VI), (VII), or (VIII), together with all supplements to any such master 

agreement, without regard to whether the master 

agreement provides for an agreement or transaction that is not a commodity contract under this 

clause, except that the master agreement shall be 

considered to be a commodity contract under this 

clause only with respect to each agreement or 

transaction under the master agreement that is referred to in subclause (I), (II), (III), (IV), (V), (VI), 

(VII), or (VIII); or 

(X) any security agreement or arrangement or 

other credit enhancement related to any agreement 

or transaction referred to in this clause, including 

any guarantee or reimbursement obligation in connection with any agreement or transaction referred 

to in this clause. 

(iv) FORWARD CONTRACT.—The term ‘‘forward contract’’ means— (I) a contract (other than a commodity contract) 

for the purchase, sale, or transfer of a commodity 

or any similar good, article, service, right, or interest which is presently or in the future becomes the 

subject of dealing in the forward contract trade, or 

product or byproduct thereof, with a maturity date 

more than 2 days after the date the contract is entered into, including, a repurchase transaction, reverse repurchase transaction, consignment, lease, 

swap, hedge transaction, deposit, loan, option, allocated transaction, unallocated transaction, or 

any other similar agreement; 

(II) any combination of agreements or transactions referred to in subclauses (I) and (III); 

(III) any option to enter into any agreement or 

transaction referred to in subclause (I) or (II); 

(IV) a master agreement that provides for an 

agreement or transaction referred to in subclauses 

(I), (II), or (III), together with all supplements to 

40

any such master agreement, without regard to 

whether the master agreement provides for an 

agreement or transaction that is not a forward 

contract under this clause, except that the master 

agreement shall be considered to be a forward contract under this clause only with respect to each 

agreement or transaction under the master agreement that is referred to in subclause (I), (II), or 

(III); or 

(V) any security agreement or arrangement or 

other credit enhancement related to any agreement 

or transaction referred to in subclause (I), (II), 

(III), or (IV), including any guarantee or reimbursement obligation in connection with any agreement or transaction referred to in any such subclause. 

(v) REPURCHASE AGREEMENT.—The term ‘‘repurchase 

agreement’’ (which definition also applies to a reverse 

repurchase agreement)— (I) means an agreement, including related terms, 

which provides for the transfer of one or more certificates of deposit, mortgage-related securities (as 

such term is defined in the Securities Exchange 

Act of 1934), mortgage loans, interests in mortgage-related securities or mortgage loans, eligible 

bankers’ acceptances, qualified foreign government 

securities or securities that are direct obligations 

of, or that are fully guaranteed by, the United 

States or any agency of the United States against 

the transfer of funds by the transferee of such certificates of deposit, eligible bankers’ acceptances, 

securities, mortgage loans, or interests with a simultaneous agreement by such transferee to transfer to the transferor thereof certificates of deposit, 

eligible bankers’ acceptances, securities, mortgage 

loans, or interests as described above, at a date 

certain not later than 1 year after such transfers or 

on demand, against the transfer of funds, or any 

other similar agreement; 

(II) does not include any repurchase obligation 

under a participation in a commercial mortgage 

loan unless the Board determines by regulation, 

resolution, or order to include any such participation within the meaning of such term; 

(III) means any combination of agreements or 

transactions referred to in subclauses (I) and (IV); 

(IV) means any option to enter into any agreement or transaction referred to in subclause (I) or 

(III); 

(V) means a master agreement that provides for 

an agreement or transaction referred to in subclause (I), (III), or (IV), together with all supplements to any such master agreement, without regard to whether the master agreement provides for 

an agreement or transaction that is not a repurVerDate jul 14 2003 10:23 Sep 19, 2003 Jkt 019006 PO 00000 Frm 00040 Fmt 6659 Sfmt 6603 E:\HR\OC\HR277P1.XXX HR277P1
41

chase agreement under this clause, except that the 

master agreement shall be considered to be a repurchase agreement under this subclause only 

with respect to each agreement or transaction 

under the master agreement that is referred to in 

subclause (I), (III), or (IV); and 

(VI) means any security agreement or arrangement or other credit enhancement related to any 

agreement or transaction referred to in subclause 

(I), (III), (IV), or (V), including any guarantee or 

reimbursement obligation in connection with any 

agreement or transaction referred to in any such 

subclause. 

For purposes of this clause, the term ‘‘qualified foreign 

government security’’ means a security that is a direct 

obligation of, or that is fully guaranteed by, the central 

government of a member of the Organization for Economic Cooperation and Development (as determined by 

regulation or order adopted by the appropriate Federal 

banking authority). 

(vi) SWAP AGREEMENT.—The term ‘‘swap agreement’’

means—

(I) any agreement, including the terms and conditions incorporated by reference in any such 

agreement, which is an interest rate swap, option, 

future, or forward agreement, including a rate 

floor, rate cap, rate collar, cross-currency rate 

swap, and basis swap; a spot, same day-tomorrow, 

tomorrow-next, forward, or other foreign exchange 

or precious metals agreement; a currency swap, option, future, or forward agreement; an equity index 

or equity swap, option, future, or forward agreement; a debt index or debt swap, option, future, or 

forward agreement; a total return, credit spread or 

credit swap, option, future, or forward agreement; 

a commodity index or commodity swap, option, future, or forward agreement; or a weather swap, 

weather derivative, or weather option; 

(II) any agreement or transaction that is similar 

to any other agreement or transaction referred to 

in this clause and that is of a type that has been, 

is presently, or in the future becomes, the subject 

of recurrent dealings in the swap markets (including terms and conditions incorporated by reference 

in such agreement) and that is a forward, swap, 

future, or option on one or more rates, currencies, 

commodities, equity securities or other equity instruments, debt securities or other debt instruments, quantitative measures associated with an 

occurrence, extent of an occurrence, or contingency 

associated with a financial, commercial, or economic consequence, or economic or financial indices or measures of economic or financial risk or 

value; 

42

(III) any combination of agreements or transactions referred to in this clause; 

(IV) any option to enter into any agreement or 

transaction referred to in this clause; 

(V) a master agreement that provides for an 

agreement or transaction referred to in subclause 

(I), (II), (III), or (IV), together with all supplements 

to any such master agreement, without regard to 

whether the master agreement contains an agreement or transaction that is not a swap agreement 

under this clause, except that the master agreement shall be considered to be a swap agreement 

under this clause only with respect to each agreement or transaction under the master agreement 

that is referred to in subclause (I), (II), (III), or 

(IV); and 

(VI) any security agreement or arrangement or 

other credit enhancement related to any agreements or transactions referred to in subclause (I), 

(II), (III), (IV), or (V), including any guarantee or 

reimbursement obligation in connection with any 

agreement or transaction referred to in any such 

subclause. 

Such term is applicable for purposes of this subsection 

only and shall not be construed or applied so as to 

challenge or affect the characterization, definition, or 

treatment of any swap agreement under any other statute, regulation, or rule, including the Securities Act of 

1933, the Securities Exchange Act of 1934, the Public 

Utility Holding Company Act of 1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, 

the Investment Advisers Act of 1940, the Securities Investor Protection Act of 1970, the Commodity Exchange 

Act, the Gramm-Leach-Bliley Act, and the Legal Certainty for Bank Products Act of 2000. 

(vii) TREATMENT OF MASTER AGREEMENT AS ONE

AGREEMENT.—Any master agreement for any contract 

or agreement described in any preceding 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. If a master agreement contains provisions relating to agreements or transactions that are not themselves qualified financial contracts, the master agreement shall be deemed to be a qualified financial contract only with respect to those transactions that are 

themselves qualified financial contracts. 

(viii) TRANSFER.—The term ‘‘transfer’’ means every 

mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with 

property or with an interest in property, including retention of title as a security interest and foreclosure of 

the depository institution’s equity of redemption.

43

(E) CERTAIN PROTECTIONS IN EVENT OF APPOINTMENT OF

CONSERVATOR.—Notwithstanding any other provision of 

this Act (øother than paragraph (12) of this subsection, 

subsection (b)(9)¿ other than subsections (b)(9) and (c)(10)

of this section, and section 208(a)(3) of this Act), any other 

Federal law, or the law of any State, no person shall be 

stayed or prohibited from exercising— (i) * * *

ø(ii) any right under any security arrangement relating to such qualified financial contracts; or¿

(ii) any right under any security agreement or arrangement or other credit enhancement related to 1 or 

more qualified financial contracts described in clause 

(i);

* * * * * * *

(F) CLARIFICATION.—No provision of law shall be construed as limiting the right or power of the Board, or authorizing any court or agency to limit or delay, in any manner, the right or power of the Board to transfer any qualified financial contract in accordance with paragraphs (9) 

and (10) of this subsection or to disaffirm or repudiate any 

such contract in accordance with subsection (c)(1) of this 

section. 

(G) WALKAWAY CLAUSES NOT EFFECTIVE.— (i) IN GENERAL.—Notwithstanding the provisions of 

subparagraphs (A) and (E), and sections 403 and 404 

of the Federal Deposit Insurance Corporation Improvement Act of 1991, no walkaway clause shall be enforceable in a qualified financial contract of an insured 

credit union in default. 

(ii) WALKAWAY CLAUSE DEFINED.—For purposes of 

this subparagraph, the term ‘‘walkaway clause’’ means 

a provision in a qualified financial contract that, after 

calculation of a value of a party’s position or an 

amount due to or from 1 of the parties in accordance 

with its terms upon termination, liquidation, or acceleration of the qualified financial contract, either does 

not create a payment obligation of a party or extinguishes a payment obligation of a party in whole or in 

part solely because of such party’s status as a nondefaulting party. 

(H) RECORDKEEPING REQUIREMENTS.—The Board, in consultation with the appropriate Federal banking agencies, 

may prescribe regulations requiring more detailed recordkeeping by any insured credit union with respect to qualified financial contracts (including market valuations) only 

if such insured credit union is in a troubled condition (as 

such term is defined by the Board pursuant to section 212).

ø(9) TRANSFER OF QUALIFIED FINANCIAL CONTRACTS.—In 

making any transfer of assets or liabilities of a credit union in 

default which includes any qualified financial contract, the conservator or liquidating agent for such credit union shall either—ø(A) transfer to 1 credit union (other than a credit union 

in default)—

44

ø(i) all qualified financial contracts between— ø(I) any person or any affiliate of such person; 

and 

ø(II) the credit union in default; 

ø(ii) all claims of such person or any affiliate of such 

person against such credit union under any such contract (other than any claim which, under the terms of 

any such contract, is subordinated to the claims of 

general unsecured creditors of such credit union); 

ø(iii) all claims of such credit union against such 

person or any affiliate of such person under any such 

contract; and 

ø(iv) all property securing any claim described in 

clause (ii) or (iii) under any such contract; or 

ø(B) transfer none of the financial contracts, claims, or 

property referred to in subparagraph (A) (with respect to 

such person and any affiliate of such person).¿

(9) TRANSFER OF QUALIFIED FINANCIAL CONTRACTS.— (A) IN GENERAL.—In making any transfer of assets or liabilities of a credit union in default which includes any 

qualified financial contract, the conservator or liquidating 

agent for such credit union shall either— (i) transfer to 1 financial institution, other than a financial institution 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— (I) all qualified financial contracts between any 

person or any affiliate of such person and the credit union in default; 

(II) all claims of such person or any affiliate of 

such person against such credit union under any 

such contract (other than any claim which, under 

the terms of any such contract, is subordinated to 

the claims of general unsecured creditors of such 

credit union); 

(III) all claims of such credit union against such 

person or any affiliate of such person under any 

such contract; and 

(IV) all property securing or any other credit enhancement for any contract described in subclause 

(I) or any claim described in subclause (II) or (III) 

under any such contract; or 

(ii) transfer none of the qualified financial contracts, 

claims, property or other credit enhancement referred 

to in clause (i) (with respect to such person and any affiliate of such person). 

(B) TRANSFER TO FOREIGN BANK, FOREIGN FINANCIAL INSTITUTION, OR BRANCH OR AGENCY OF A FOREIGN BANK OR

FINANCIAL INSTITUTION.—In transferring any qualified financial contracts and related claims and property under 

subparagraph (A)(i), the conservator or liquidating agent 

for the credit union shall not make such transfer to a foreign bank, financial institution organized under the laws of 

a foreign country, or a branch or agency of a foreign bank 

45

or financial institution unless, under the law applicable to 

such bank, financial institution, branch or agency, to the 

qualified financial contracts, and to any netting contract, 

any security agreement or arrangement or other credit enhancement related to 1 or more qualified financial contracts, the contractual rights of the parties to such qualified 

financial contracts, netting contracts, security agreements 

or arrangements, or other credit enhancements are enforceable substantially to the same extent as permitted under 

this section. 

(C) TRANSFER OF CONTRACTS SUBJECT TO THE RULES OF

A CLEARING ORGANIZATION.—In the event that a conservator 

or liquidating agent transfers any qualified financial contract and related claims, property, and credit enhancements 

pursuant to subparagraph (A)(i) and such contract is 

cleared by or subject to the rules of a clearing organization, 

the clearing organization shall not be required to accept the 

transferee as a member by virtue of the transfer. 

(D) DEFINITIONS.—For purposes of this paragraph—

(i) the term ‘‘financial institution’’ means a broker or 

dealer, a depository institution, a futures commission 

merchant, a credit union, or any other institution, as 

determined by the Board by regulation to be a financial institution; and 

(ii) the term ‘‘clearing organization’’ has the same 

meaning as in section 402 of the Federal Deposit Insurance Corporation Improvement Act of 1991.

(10) NOTIFICATION OF TRANSFER.—

(A) IN GENERAL.—If—

(i) * * *

(ii) the transfer includes any qualified financial contract, 

øthe conservator or liquidating agent shall use such conservator’s or liquidating agent’s best efforts to notify any 

person who is a party to any such contract of such transfer 

by 12:00, noon (local time), on the business day following 

such transfer.¿ the conservator or liquidating agent 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 liquidating 

agent in the case of a liquidation, or the business day following such transfer in the case of a conservatorship.

(B) CERTAIN RIGHTS NOT ENFORCEABLE.—

(i) LIQUIDATION.—A person who is a party to a qualified financial contract with an insured credit union 

may not exercise any right that such person has to terminate, liquidate, or net such contract under paragraph (8)(A) of this subsection or section 403 or 404 of 

the Federal Deposit Insurance Corporation Improvement Act of 1991, solely by reason of or incidental to 

the appointment of a liquidating agent for the credit 

union institution (or the insolvency or financial condition of the credit union for which the liquidating agent 

has been appointed)—

46

(I) until 5:00 p.m. (eastern time) on the business 

day following the date of the appointment of the 

liquidating agent; or 

(II) after the person has received notice that the 

contract has been transferred pursuant to paragraph (9)(A). 

(ii) CONSERVATORSHIP.—A person who is a party to 

a qualified financial contract with an insured credit 

union may not exercise any right that such person has 

to terminate, liquidate, or net such contract under 

paragraph (8)(E) of this subsection or section 403 or 

404 of the Federal Deposit Insurance Corporation Improvement Act of 1991, solely by reason of or incidental 

to the appointment of a conservator for the credit union 

or the insolvency or financial condition of the credit 

union for which the conservator has been appointed). 

(iii) NOTICE.—For purposes of this paragraph, the 

Board as conservator or liquidating agent of an insured credit union shall be deemed to have notified a 

person who is a party to a qualified financial contract 

with such credit union if the Board has taken steps 

reasonably calculated to provide notice to such person 

by the time specified in subparagraph (A). 

(C) TREATMENT OF BRIDGE BANKS.—The following institutions shall not be considered to be a financial institution 

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 

for purposes of paragraph (9): 

(i) A bridge bank. 

(ii) A credit union organized by the Board, for which 

a conservator is appointed either— (I) immediately upon the organization of the 

credit union; or 

(II) at the time of a purchase and assumption 

transaction between the credit union and the 

Board as receiver for a credit union in default.

ø(B)¿ (D) BUSINESS DAY DEFINED.—For purposes of this 

paragraph, the term ‘‘business day’’ means any day other 

than any Saturday, Sunday, or any day on which either 

the New York Stock Exchange or the Federal Reserve 

Bank of New York is closed.

(11) DISAFFIRMANCE OR REPUDIATION OF QUALIFIED FINANCIAL CONTRACTS.—In exercising the rights of disaffirmance or 

repudiation of a conservator or liquidating agent with respect 

to any qualified financial contract to which an insured credit 

union is a party, the conservator or liquidating agent for such 

credit union shall either—

(A) disaffirm or repudiate all qualified financial contracts between— (i) any person or any affiliate of such person; and 

(ii) the credit union in default; or 

(B) disaffirm or repudiate none of the qualified financial 

contracts referred to in subparagraph (A) (with respect to 

such person or any affiliate of such person).

47

ø(11)¿ (12) CERTAIN SECURITY INTERESTS NOT AVOIDABLE.— No provision of this subsection shall be construed as permitting the avoidance of any legally enforceable or perfected security interest in any of the assets of any credit union except 

where such an interest is taken in contemplation of the credit 

union’s insolvency or with the intent to hinder, delay, or defraud the credit union or the creditors of such credit union. 

ø(12)¿ (13) AUTHORITY TO ENFORCE CONTRACTS.— (A) IN GENERAL.—The conservator or liquidating agent 

may enforce any contract, other than a director’s or officer’s liability insurance contract or a credit union bond, entered into by the credit union notwithstanding any provision of the contract providing for termination, default, acceleration, or exercise of rights upon, or solely by reason 

of, insolvency or the appointment of or the exercise of 

rights or powers by a conservator or liquidating agent. 

* * * * * * *

ø(13)¿ (14) EXCEPTION FOR FEDERAL RESERVE AND FEDERAL

HOME LOAN BANKS.—No provision of this subsection shall apply 

with respect to— (A) * * *

* * * * * * *

(15) SAVINGS CLAUSE.—The meanings of terms used in this 

subsection are applicable for purposes of this subsection only, 

and shall not be construed or applied so as to challenge or affect the characterization, definition, or treatment of any similar 

terms under any other statute, regulation, or rule, including the 

Gramm-Leach-Bliley Act, the Legal Certainty for Bank Products Act of 2000, the securities laws (as that term is defined in 

section (a)(47) of the Securities Exchange Act of 1934), and the 

Commodity Exchange Act.

* * * * * * *

FEDERAL DEPOSIT INSURANCE CORPORATION 

IMPROVEMENT ACT OF 1991

* * * * * * *

TITLE IV—MISCELLANEOUS 

PROVISIONS 

Subtitle A—Payment System Risk 

Reduction 

CHAPTER 1—BILATERAL AND CLEARING 

ORGANIZATION NETTING 

* * * * * * *

SEC. 402. DEFINITIONS. 

For purposes of this chapter—

48

(1) * * *

(2) CLEARING ORGANIZATION.—The term ‘‘clearing organization’’ means a clearinghouse, clearing association, clearing corporation, or similar organization— (A) that provides clearing, netting, or settlement services 

for its members and— (i) * * *

(ii) which is registered as a clearing agency under 

the Securities Exchange Act of 1934, or is exempt from 

such registration by order of the Securities and Exchange Commission; or 

(B) that is registered as a derivatives clearing organization under section 5b of the Commodity Exchange Act, that 

has been granted an exemption under section 4(c)(1) of the 

Commodity Exchange Act, or that is a multilateral clearing 

organization (as defined in section 408 of this Act). 

* * * * * * *

(6) DEPOSITORY INSTITUTION.—The term ‘‘depository institution’’ means—

(A) * * *

(B) an uninsured national bank or an uninsured State 

bank that is a member of the Federal Reserve System, if the 

national bank or State member bank is not eligible to make 

application to become an insured bank under section 5 of 

the Federal Deposit Insurance Act;

ø(B) a branch or agency as defined in section 1(b) of the 

International Banking Act of 1978;¿

(C) a branch or agency of a foreign bank, a foreign bank 

and any branch or agency of the foreign bank, or the foreign bank that established the branch or agency, as those 

terms are defined in section 1(b) of the International Banking Act of 1978;

ø(C)¿ (D) a corporation chartered under section 25(a) of 

the Federal Reserve Act; or 

ø(D)¿ (E) a corporation having an agreement or undertaking with the Board of Governors of the Federal Reserve 

System under section 25 of the Federal Reserve Act. 

* * * * * * *

(11) MEMBER.—The term ‘‘member’’ means a member of or 

participant in a clearing organization, and includes the clearing organization and any other clearing organization with 

which such clearing organization has a netting contract. 

* * * * * * *

(14) NETTING CONTRACT.—

(A) IN GENERAL.—The term ‘‘netting contract’’—

ø(i) means a contract or agreement between 2 or 

more financial institutions or members, that—

ø(I) is governed by the laws of the United 

States, any State, or any political subdivision of 

any State, and 

ø(II) provides for netting present or future payment obligations or payment entitlements (including liquidation or close-out values relating to the 

49

obligations or entitlements) among the parties to 

the agreement; and¿

(i) means a contract or agreement between 2 or more 

financial institutions, clearing organizations, or members that provides for netting present or future payment 

obligations or payment entitlements (including liquidation or close out values relating to such obligations or 

entitlements) among the parties to the agreement; and

* * * * * * *

(15) PAYMENT.—The term ‘‘payment’’ means a payment of 

United States dollars, another currency, or a composite currency, and a noncash delivery, including a payment or delivery 

to liquidate an unmatured obligation.

SEC. 403. BILATERAL NETTING. 

ø(a) GENERAL RULE.—Notwithstanding any other provision of 

law, the covered contractual payment obligations and the covered 

contractual payment entitlements between any 2 financial institutions shall be netted in accordance with, and subject to the conditions of, the terms of any applicable netting contract.¿

(a) GENERAL RULE.—Notwithstanding any other provision of 

State or Federal law (other than paragraphs (8)(E), (8)(F), and 

(10)(B) of section 11(e) of the Federal Deposit Insurance Act, paragraphs (8)(E), (8)(F), and (10)(B) of section 207(c) of the Federal 

Credit Union Act, or any order authorized under section 5(b)(2) of 

the Securities Investor Protection Act of 1970), the covered contractual payment obligations and the covered contractual payment entitlements between any 2 financial institutions shall be netted in accordance with, and subject to the conditions of, the terms of any applicable netting contract (except as provided in section 561(b)(2) of 

title 11, United States Code). 

* * * * * * *

(f) ENFORCEABILITY OF SECURITY AGREEMENTS.—The provisions 

of any security agreement or arrangement or other credit enhancement related to one or more netting contracts between any 2 financial institutions shall be enforceable in accordance with their terms 

(except as provided in section 561(b)(2) of title 11, United States 

Code), and shall not be stayed, avoided, or otherwise limited by any 

State or Federal law (other than paragraphs (8)(E), (8)(F), and 

(10)(B) of section 11(e) of the Federal Deposit Insurance Act, paragraphs (8)(E), (8)(F), and (10)(B) of section 207(c) of the Federal 

Credit Union Act, and section 5(b)(2) of the Securities Investor Protection Act of 1970).

SEC. 404. CLEARING ORGANIZATION NETTING. 

ø(a) GENERAL NETTING RULE.—Notwithstanding any other provision of law, the covered contractual payment obligations and covered contractual payment entitlements of a member of a clearing 

organization to and from all other members of a clearing organization shall be netted in accordance with and subject to the conditions of any applicable netting contract.¿

(a) GENERAL RULE.—Notwithstanding any other provision of 

State or Federal law (other than paragraphs (8)(E), (8)(F), and 

(10)(B) of section 11(e) of the Federal Deposit Insurance Act, paragraphs (8)(E), (8)(F), and (10)(B) of section 207(c) of the Federal 

50

Credit Union Act, and any order authorized under section 5(b)(2) of 

the Securities Investor Protection Act of 1970), the covered contractual payment obligations and the covered contractual payment entitlements of a member of a clearing organization to and from all 

other members of a clearing organization shall be netted in accordance with and subject to the conditions of any applicable netting 

contract (except as provided in section 561(b)(2) of title 11, United 

States Code). 

* * * * * * *

(h) ENFORCEABILITY OF SECURITY AGREEMENTS.—The provisions 

of any security agreement or arrangement or other credit enhancement related to one or more netting contracts between any 2 members of a clearing organization shall be enforceable in accordance 

with their terms (except as provided in section 561(b)(2) of title 11, 

United States Code), and shall not be stayed, avoided, or otherwise 

limited by any State or Federal law (other than paragraphs (8)(E), 

(8)(F), and (10)(B) of section 11(e) of the Federal Deposit Insurance 

Act, paragraphs (8)(E), (8)(F), and (10)(B) of section 207(c) of the 

Federal Credit Union Act, and section 5(b)(2) of the Securities Investor Protection Act of 1970). 

* * * * * * *

SEC. 407. TREATMENT OF CONTRACTS WITH UNINSURED NATIONAL 

BANKS, UNINSURED FEDERAL BRANCHES AND AGENCIES, 

CERTAIN UNINSURED STATE MEMBER BANKS, AND EDGE 

ACT CORPORATIONS. 

(a) IN GENERAL.—Notwithstanding any other provision of law, 

paragraphs (8), (9), (10), and (11) of section 11(e) of the Federal Deposit Insurance Act shall apply to an uninsured national bank or 

uninsured Federal branch or Federal agency, a corporation chartered under section 25A of the Federal Reserve Act, or an uninsured 

State member bank which operates, or operates as, a multilateral 

clearing organization pursuant to section 409 of this Act, except that 

for such purpose—

(1) any reference to the ‘‘Corporation as receiver’’ or ‘‘the receiver or the Corporation’’ shall refer to the receiver appointed 

by the Comptroller of the Currency in the case of an uninsured 

national bank or uninsured Federal branch or agency, or to the 

receiver appointed by the Board of Governors of the Federal Reserve System in the case of a corporation chartered under section 25A of the Federal Reserve Act or an uninsured State member bank; 

(2) any reference to the ‘‘Corporation’’ (other than in section 

11(e)(8)(D) of such Act), the ‘‘Corporation, whether acting as 

such or as conservator or receiver’’, a ‘‘receiver’’, or a ‘‘conservator’’ shall refer to the receiver or conservator appointed by the 

Comptroller of the Currency in the case of an uninsured national bank or uninsured Federal branch or agency, or to the 

receiver or conservator appointed by the Board of Governors of 

the Federal Reserve System in the case of a corporation chartered under section 25A of the Federal Reserve Act or an uninsured State member bank; and 

(3) any reference to an ‘‘insured depository institution’’ or ‘‘depository institution’’ shall refer to an uninsured national bank, 

an uninsured Federal branch or Federal agency, a corporation 

51

chartered under section 25A of the Federal Reserve Act, or an 

uninsured State member bank which operates, or operates as, 

a multilateral clearing organization pursuant to section 409 of 

this Act. 

(b) LIABILITY.—The liability of a receiver or conservator of an uninsured national bank, uninsured Federal branch or agency, a corporation chartered under section 25A of the Federal Reserve Act, or 

an uninsured State member bank which operates, or operates as, a 

multilateral clearing organization pursuant to section 409 of this 

Act, shall be determined in the same manner and subject to the 

same limitations that apply to receivers and conservators of insured 

depository institutions under section 11(e) of the Federal Deposit Insurance Act. 

(c) REGULATORY AUTHORITY.—

(1) IN GENERAL.—The Comptroller of the Currency in the case 

of an uninsured national bank or uninsured Federal branch or 

agency and the Board of Governors of the Federal Reserve System in the case of a corporation chartered under section 25A of 

the Federal Reserve Act, or an uninsured State member bank 

that operates, or operates as, a multilateral clearing organization pursuant to section 409 of this Act, in consultation with the 

Federal Deposit Insurance Corporation, may each promulgate 

regulations solely to implement this section. 

(2) SPECIFIC REQUIREMENT.—In promulgating regulations, 

limited solely to implementing paragraphs (8), (9), (10), and 

(11) of section 11(e) of the Federal Deposit Insurance Act, the 

Comptroller of the Currency and the Board of Governors of the 

Federal Reserve System each shall ensure that the regulations 

generally are consistent with the regulations and policies of the 

Federal Deposit Insurance Corporation adopted pursuant to the 

Federal Deposit Insurance Act. 

(d) DEFINITIONS.—For purposes of this section, the terms ‘‘Federal 

branch’’, ‘‘Federal agency’’, and ‘‘foreign bank’’ have the same meanings as in section 1(b) of the International Banking Act of 1978.

SEC. ø407.¿ 407A. NATIONAL EMERGENCIES. 

The provisions of this subtitle may not be construed to limit the 

authority of the President under the Trading With the Enemy Act 

(50 U.S.C. App. 1 et seq.) or the International Emergency Economic 

Powers Act (50 U.S.C. 1701 et seq.). 

* * * * * * *

TITLE 11, UNITED STATES CODE

* * * * * * *

CHAPTER 1—GENERAL PROVISIONS 

* * * * * * *

§ 101. Definitions 

In this title— (1) * * *

* * * * * * *

52

ø(22) the term ‘‘financial institution’’—

ø(A) means— ø(i) a Federal reserve bank or an entity (domestic or 

foreign) that is a commercial or savings bank, industrial savings bank, savings and loan association, trust 

company, or receiver or conservator for such entity 

and, when any such Federal reserve bank, receiver, 

conservator, or entity is acting as agent or custodian 

for a customer in connection with a securities contract, 

as defined in section 741 of this title, the customer; or 

ø(ii) in connection with a securities contract, as defined in section 741 of this title, an investment company registered under the Investment Company Act of 

1940; and 

ø(B) includes any person described in subparagraph (A) 

which operates, or operates as, a multilateral clearing organization pursuant to section 409 of the Federal Deposit 

Insurance Corporation Improvement Act of 1991;¿

(22) ‘‘financial institution’’ means— (A) a Federal reserve bank, or an entity (domestic or foreign) that is a commercial or savings bank, industrial savings bank, savings and loan association, trust company, 

federally-insured credit union, or receiver or conservator for 

such entity and, when any such Federal reserve bank, receiver, conservator or entity is acting as agent or custodian 

for a customer in connection with a securities contract (as 

defined in section 741) such customer; or 

(B) in connection with a securities contract (as defined in 

section 741) an investment company registered under the 

Investment Company Act of 1940; 

(22A) ‘‘financial participant’’ means— (A) an entity that, at the time it enters into a securities 

contract, commodity contract, swap agreement, repurchase 

agreement, or forward contract, or at the time of the filing 

of the petition, has one or more agreements or transactions 

described in paragraph (1), (2), (3), (4), (5), or (6) of section 

561(a) with the debtor or any other entity (other than an 

affiliate) of a total gross dollar value of not less than 

$1,000,000,000 in notional or actual principal amount outstanding on any day during the previous 15-month period, 

or has gross mark-to-market positions of not less than 

$100,000,000 (aggregated across counterparties) in one or 

more such agreements or transactions with the debtor or 

any other entity (other than an affiliate) on any day during 

the previous 15-month period; or 

(B) a clearing organization (as defined in section 402 of 

the Federal Deposit Insurance Corporation Improvement 

Act of 1991);

* * * * * * *

(25) ‘‘forward contract’’ ømeans a contract¿ means— (A) a contract (other than a commodity contract) for the 

purchase, sale, or transfer of a commodity, as defined in 

section 761(8) of this title, or any similar good, article, 

service, right, or interest which is presently or in the future becomes the subject of dealing in the forward contract 

53

trade, or product or byproduct thereof, with a maturity 

date more than two days after the date the contract is entered into, including, but not limited to, a repurchase 

transaction, reverse repurchase transaction, consignment, 

lease, swap, hedge transaction, deposit, loan, option, allocated transaction, unallocated transactionø, or any combination thereof or option thereon;¿, or any other similar 

agreement;

(B) any combination of agreements or transactions referred to in subparagraphs (A) and (C); 

(C) any option to enter into an agreement or transaction 

referred to in subparagraph (A) or (B); 

(D) a master agreement that provides for an agreement 

or transaction referred to in subparagraph (A), (B), or (C), 

together with all supplements to any such master agreement, without regard to whether such master agreement 

provides for an agreement or transaction that is not a forward contract under this paragraph, except that such master agreement shall be considered to be a forward contract 

under this paragraph only with respect to each agreement 

or transaction under such master agreement that is referred to in subparagraph (A), (B), or (C); or 

(E) any security agreement or arrangement, or other credit enhancement related to any agreement or transaction referred to in subparagraph (A), (B), (C), or (D), including 

any guarantee or reimbursement obligation by or to a forward contract merchant or financial participant in connection with any agreement or transaction referred to in any 

such subparagraph, but not to exceed the damages in connection with any such agreement or transaction, measured 

in accordance with section 562 of this title;

ø(26) ‘‘forward contract merchant’’ means a person whose 

business consists in whole or in part of entering into forward 

contracts as or with merchants in a commodity, as defined in 

section 761(8) of this title, or any similar good, article, service, 

right, or interest which is presently or in the future becomes 

the subject of dealing in the forward contract trade;¿

(26) ‘‘forward contract merchant’’ means a Federal reserve 

bank, or an entity the business of which consists in whole or in 

part of entering into forward contracts as or with merchants in 

a commodity (as defined in section 761) or any similar good, article, service, right, or interest which is presently or in the future becomes the subject of dealing in the forward contract 

trade;

* * * * * * *

(38A) ‘‘master netting agreement’’—

(A) means an agreement providing for the exercise of 

rights, including rights of netting, setoff, liquidation, termination, acceleration, or close out, under or in connection 

with one or more contracts that are described in any one 

or more of paragraphs (1) through (5) of section 561(a), or 

any security agreement or arrangement or other credit enhancement related to one or more of the foregoing, including any guarantee or reimbursement obligation related to 1 

or more of the foregoing; and 

54

(B) if the agreement contains provisions relating to agreements or transactions that are not contracts described in 

paragraphs (1) through (5) of section 561(a), shall be 

deemed to be a master netting agreement only with respect 

to those agreements or transactions that are described in 

any one or more of 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, is a party to 

an outstanding master netting agreement with the debtor;

* * * * * * *

(46) ‘‘repo participant’’ means an entity that, øon any day 

during the period beginning 90 days before the date of¿ at any 

time before the filing of the petition, has an outstanding repurchase agreement with the debtor; 

ø(47) ‘‘repurchase agreement’’ (which definition also applies 

to a reverse repurchase agreement) means an agreement, including related terms, which provides for the transfer of certificates of deposit, eligible bankers’ acceptances, or securities that 

are direct obligations of, or that are fully guaranteed as to 

principal and interest by, the United States or any agency of 

the United States against the transfer of funds by the transferee of such certificates of deposit, eligible bankers’ acceptances, or securities with a simultaneous agreement by such 

transferee to transfer to the transferor thereof certificates of 

deposit, eligible bankers’ acceptances, or securities as described 

above, at a date certain not later than one year after such 

transfers or on demand, against the transfer of funds;¿

(47) ‘‘repurchase agreement’’ (which definition also applies to 

a reverse repurchase agreement)— (A) means— (i) an agreement, including related terms, which provides for the transfer of one or more certificates of deposit, mortgage related securities (as defined in section 

3 of the Securities Exchange Act of 1934), mortgage 

loans, interests in mortgage related securities or mortgage loans, eligible bankers’ acceptances, qualified foreign government securities (defined as a security that is 

a direct obligation of, or that is fully guaranteed by, 

the central government of a member of the Organization for Economic Cooperation and Development), or 

securities that are direct obligations of, or that are 

fully guaranteed by, the United States or any agency of 

the United States against the transfer of funds by the 

transferee of such certificates of deposit, eligible bankers’ acceptances, securities, mortgage loans, or interests, with a simultaneous agreement by such transferee 

to transfer to the transferor thereof certificates of deposit, eligible bankers’ acceptance, securities, mortgage 

loans, or interests of the kind described in this clause, 

at a date certain not later than 1 year after such transfer or on demand, against the transfer of funds; 

(ii) any combination of agreements or transactions 

referred to in clauses (i) and (iii); 

55

(iii) an option to enter into an agreement or transaction referred to in clause (i) or (ii); 

(iv) a master agreement that provides for an agreement or transaction referred to in clause (i), (ii), or 

(iii), together with all supplements to any such master 

agreement, without regard to whether such master 

agreement provides for an agreement or transaction 

that is not a repurchase agreement under this paragraph, except that such master agreement shall be considered to be a repurchase agreement under this paragraph only with respect to each agreement or transaction under the master agreement that is referred to 

in clause (i), (ii), or (iii); or 

(v) any security agreement or arrangement or other 

credit enhancement related to any agreement or transaction referred to in clause (i), (ii), (iii), or (iv), including any guarantee or reimbursement obligation by or to 

a repo participant or financial participant in connection with any agreement or transaction referred to in 

any such clause, but not to exceed the damages in connection with any such agreement or transaction, measured in accordance with section 562 of this title; and 

(B) does not include a repurchase obligation under a participation in a commercial mortgage loan;

(48) ‘‘securities clearing agency’’ means person that is registered as a clearing agency under section 17A of the Securities 

Exchange Act of 1934, or exempt from such registration under 

such section pursuant to an order of the Securities and Exchange Commission, or whose business is confined to the performance of functions of a clearing agency with respect to exempted securities, as defined in section 3(a)(12) of such Act for 

the purposes of such section 17A; 

* * * * * * *

ø(53B) ‘‘swap agreement’’ means— ø(A) an agreement (including terms and conditions incorporated by reference therein) which is a rate swap agreement, basis swap, forward rate agreement, commodity 

swap, interest rate option, forward foreign exchange agreement, spot foreign exchange agreement, rate cap agreement, rate floor agreement, rate collar agreement, currency swap agreement, cross-currency rate swap agreement, currency option, any other similar agreement (including any option to enter into any of the foregoing); 

ø(B) any combination of the foregoing; or 

ø(C) a master agreement for any of the foregoing together with all supplements;¿

(53B) ‘‘swap agreement’’—

(A) means— (i) any agreement, including the terms and conditions incorporated by reference in such agreement, 

which is—

(I) an interest rate swap, option, future, or forward agreement, including a rate floor, rate cap, 

rate collar, cross-currency rate swap, and basis 

swap; 

56

(II) a spot, same day-tomorrow, tomorrow-next, 

forward, or other foreign exchange or precious metals agreement; 

(III) a currency swap, option, future, or forward 

agreement; 

(IV) an equity index or equity swap, option, future, or forward agreement; 

(V) a debt index or debt swap, option, future, or 

forward agreement; 

(VI) a total return, credit spread or credit swap, 

option, future, or forward agreement; 

(VII) a commodity index or a commodity swap, 

option, future, or forward agreement; or 

(VIII) a weather swap, weather derivative, or 

weather option; 

(ii) any agreement or transaction that is similar to 

any other agreement or transaction referred to in this 

paragraph and that— (I) is of a type that has been, is presently, or in 

the future becomes, the subject of recurrent dealings in the swap markets (including terms and 

conditions incorporated by reference therein); and 

(II) is a forward, swap, future, or option on one 

or more rates, currencies, commodities, equity securities, or other equity instruments, debt securities 

or other debt instruments, quantitative measures 

associated with an occurrence, extent of an occurrence, or contingency associated with a financial, 

commercial, or economic consequence, or economic 

or financial indices or measures of economic or financial risk or value; 

(iii) any combination of agreements or transactions 

referred to in this subparagraph; 

(iv) any option to enter into an agreement or transaction referred to in this subparagraph; 

(v) a master agreement that provides for an agreement or transaction referred to in clause (i), (ii), (iii), 

or (iv), together with all supplements to any such master agreement, and without regard to whether the master agreement contains an agreement or transaction 

that is not a swap agreement under this paragraph, except that the master agreement shall be considered to 

be a swap agreement under this paragraph only with 

respect to each agreement or transaction under the 

master agreement that is referred to in clause (i), (ii), 

(iii), or (iv); or 

(vi) any security agreement or arrangement or other 

credit enhancement related to any agreements or transactions referred to in clause (i) through (v), including 

any guarantee or reimbursement obligation by or to a 

swap participant or financial participant in connection 

with any agreement or transaction referred to in any 

such clause, but not to exceed the damages in connection with any such agreement or transaction, measured 

in accordance with section 562 of this title; and 

57

(B) is applicable for purposes of this title only, and shall 

not be construed or applied so as to challenge or affect the 

characterization, definition, or treatment of any swap 

agreement under any other statute, regulation, or rule, including the Securities Act of 1933, the Securities Exchange 

Act of 1934, the Public Utility Holding Company Act of 

1935, the Trust Indenture Act of 1939, the Investment Company Act of 1940, the Investment Advisers Act of 1940, the 

Securities Investor Protection Act of 1970, the Commodity 

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

Certainty for Bank Products Act of 2000;

* * * * * * *

CHAPTER 3—CASE ADMINISTRATION 

* * * * * * *

SUBCHAPTER IV—ADMINISTRATIVE POWERS 

* * * * * * *

§ 362. Automatic stay 

(a) * * *

(b) The filing of a petition under section 301, 302, or 303 of this 

title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay—

(1) * * *

* * * * * * *

(6) under subsection (a) of this section, of the setoff by a commodity broker, forward contract merchant, stockbroker, øfinancial institutions,¿ financial institution, financial participant, or 

securities clearing agency of any mutual debt and claim under 

or in connection with commodity contracts, as defined in section 761 of this title, forward contracts, or securities contracts, 

as defined in section 741 of this title, that constitutes the setoff 

of a claim against the debtor for a margin payment, as defined 

in section 101, 741, or 761 of this title, or settlement payment, 

as defined in section 101 or 741 of this title, arising out of commodity contracts, forward contracts, or securities contracts 

against cash, securities, or other property held by, pledged to, 

under the control of, or due from such commodity broker, forward contract merchant, stockbroker, øfinancial institutions,¿

financial institution, financial participant, or securities clearing agency to margin, guarantee, secure, or settle commodity 

contracts, forward contracts, or securities contracts; 

(7) under subsection (a) of this section, of the setoff by a repo 

participant or financial participant, of any mutual debt and 

claim under or in connection with repurchase agreements that 

constitutes the setoff of a claim against the debtor for a margin 

payment, as defined in section 741 or 761 of this title, or settlement payment, as defined in section 741 of this title, arising 

out of repurchase agreements against cash, securities, or other 

property held by, pledged to, under the control of, or due from 

58

such repo participant or financial participant to margin, guarantee, secure or settle repurchase agreements; 

* * * * * * *

ø(17) under subsection (a) of this section, of the setoff by a 

swap participant, of any mutual debt and claim under or in 

connection with any swap agreement that constitutes the setoff 

of a claim against the debtor for any payment due from the 

debtor under or in connection with any swap agreement 

against any payment due to the debtor from the swap participant under or in connection with any swap agreement or 

against cash, securities, or other property of the debtor held by 

or due from such swap participant to guarantee, secure or settle any swap agreement; or¿

(17) under subsection (a), of the setoff by a swap participant 

or financial participant of a mutual debt and claim under or 

in connection with one or more swap agreements that constitutes the setoff of a claim against the debtor for any payment 

or other transfer of property due from the debtor under or in 

connection with any swap agreement against any payment due 

to the debtor from the swap participant or financial participant 

under or in connection with any swap agreement or against 

cash, securities, or other property held by, pledged to, under the 

control of, or due from such swap participant or financial participant to margin, guarantee, secure, or settle any swap agreement;

(18) under subsection (a) of the creation or perfection of a 

statutory lien for an ad valorem property tax imposed by the 

District of Columbia, or a political subdivision of a State, if 

such tax comes due after the filing of the petitionø.¿; or

(19) under subsection (a), of the setoff by a master netting 

agreement participant of a mutual debt and claim under or in 

connection with one or more master netting agreements or any 

contract or agreement subject to such agreements that constitutes the setoff of a claim against the debtor for any payment 

or other transfer of property due from the debtor under or in 

connection with such agreements or any contract or agreement 

subject to such agreements against any payment due to the 

debtor from such master netting agreement participant under or 

in connection with such agreements or any contract or agreement subject to such agreements or against cash, securities, or 

other property held by, pledged to, under the control of, or due 

from such master netting agreement participant to margin, 

guarantee, secure, or settle such agreements or any contract or 

agreement subject to such agreements, to the extent that such 

participant is eligible to exercise such offset rights under paragraph (6), (7), or (17) for each individual contract covered by 

the master netting agreement in issue.

The provisions of paragraphs (12) and (13) of this subsection shall 

apply with respect to any such petition filed on or before December 

31, 1989. 

* * * * * * *

(i) The exercise of rights not subject to the stay arising under subsection (a) pursuant to paragraph (6), (7), (17), or (19) of subsection 

59

(b) shall not be stayed by any order of a court or administrative 

agency in any proceeding under this title.

CHAPTER 5—CREDITORS, THE DEBTOR, AND THE 

ESTATE

SUBCHAPTER I—CREDITORS AND CLAIMS 

Sec. 

501. Filing of proofs of claims or interests. 

* * * * * * *

SUBCHAPTER III—THE ESTATE 

541. Property of the estate. 

* * * * * * *

ø555. Contractual right to liquidate a securities contract. 

ø556. Contractual right to liquidate a commodity contract or forward contract.¿

555. Contractual right to liquidate, terminate, or accelerate a securities contract. 

556. Contractual right to liquidate, terminate, or accelerate a commodities contract 

or forward contract.

* * * * * * *

ø559. Contractual right to liquidate a repurchase agreement. 

ø560. Contractual right to terminate a swap agreement.¿

559. Contractual right to liquidate, terminate, or accelerate a repurchase agreement. 

560. Contractual right to liquidate, terminate, or accelerate a swap agreement. 

561. Contractual right to terminate, liquidate, accelerate, or offset under a master 

netting agreement and across contracts; proceedings under section 304. 

562. Timing of damage measure in connection with swap agreements, securities 

contracts, forward contracts, commodity contracts, repurchase agreements, or master netting agreements.

* * * * * * *

SUBCHAPTER I—CREDITORS AND CLAIMS 

* * * * * * *

§ 502. Allowance of claims or interests 

(a) * * *

* * * * * * *

(g)(1) A claim arising from the rejection, under section 365 of this 

title or under a plan under chapter 9, 11, 12, or 13 of this title, 

of an executory contract or unexpired lease of the debtor that has 

not been assumed shall be determined, and shall be allowed under 

subsection (a), (b), or (c) of this section or disallowed under subsection (d) or (e) of this section, the same as if such claim had arisen before the date of the filing of the petition.

(2) A claim for damages calculated in accordance with section 562 

of this title shall be allowed under subsection (a), (b), or (c), or disallowed under subsection (d) or (e), as if such claim had arisen before the date of the filing of the petition.

* * * * * * *

SUBCHAPTER III—THE ESTATE 

* * * * * * *

60

§ 546. Limitations on avoiding powers 

(a) * * *

* * * * * * *

(e) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 

548(b) of this title, the trustee may not avoid a transfer that is a 

margin payment, as defined in section 101, 741, or 761 of this title, 

or settlement payment, as defined in section 101 or 741 of this 

title, made by or to a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or 

securities clearing agency, that is made before the commencement 

of the case, except under section 548(a)(1)(A) of this title. 

(f) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 

548(b) of this title, the trustee may not avoid a transfer that is a 

margin payment, as defined in section 741 or 761 of this title, or 

settlement payment, as defined in section 741 of this title, made by 

or to a repo participant or financial participant, in connection with 

a repurchase agreement and that is made before the commencement of the case, except under section 548(a)(1)(A) of this title. 

(g) Notwithstanding sections 544, 545, 547, 548(a)(1)(B) and 

548(b) of this title, the trustee may not avoid a transfer øunder a 

swap agreement¿, made by or to a swap participant or financial 

participant, øin connection with a swap agreement¿ under or in 

connection with any swap agreement and that is made before the 

commencement of the case, except under section 548(a)(1)(A) of this 

title. 

* * * * * * *

(j) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 

548(b) the trustee may not avoid a transfer made by or to a master 

netting agreement participant under or in connection with any master netting agreement or any individual contract covered thereby 

that is made before the commencement of the case, except under section 548(a)(1)(A) and except to the extent that the trustee could otherwise avoid such a transfer made under an individual contract 

covered by such master netting agreement.

* * * * * * *

§ 548. Fraudulent transfers and obligations 

(a) * * *

* * * * * * *

(d)(1)***

(2) In this section—

(A) * * *

(B) a commodity broker, forward contract merchant, stockbroker, financial institution, financial participant, or securities 

clearing agency that receives a margin payment, as defined in 

section 101, 741, or 761 of this title, or settlement payment, as 

defined in section 101 or 741 of this title, takes for value to the 

extent of such payment; 

(C) a repo participant or financial participant that receives 

a margin payment, as defined in section 741 or 761 of this 

title, or settlement payment, as defined in section 741 of this 

61

title, in connection with a repurchase agreement, takes for 

value to the extent of such payment; øand¿

(D) a swap participant or financial participant that receives 

a transfer in connection with a swap agreement takes for value 

to the extent of such transferø.¿; and

(E) a master netting agreement participant that receives a 

transfer in connection with a master netting agreement or any 

individual contract covered thereby takes for value to the extent 

of such transfer, except that, with respect to a transfer under 

any individual contract covered thereby, to the extent that such 

master netting agreement participant otherwise did not take (or 

is otherwise not deemed to have taken) such transfer for value.

* * * * * * *

§ 553. Setoff 

(a) Except as otherwise provided in this section and in sections 

362 and 363 of this title, this title does not affect any right of a 

creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title 

against a claim of such creditor against the debtor that arose before the commencement of the case, except to the extent that—

(1) * * *

(2) such claim was transferred, by an entity other than the 

debtor, to such creditor—

(A) * * *

(B)(i)***

(ii) while the debtor was insolvent (except for a setoff of 

a kind described in section 362(b)(6), 362(b)(7), 362(b)(17), 

362(b)(19), 555, 556, 559, 560, or 561); or 

(3) the debt owed to the debtor by such creditor was incurred 

by such creditor—

(A) * * *

* * * * * * *

(C) for the purpose of obtaining a right of setoff against 

the debtor (except for a setoff of a kind described in section 

362(b)(6), 362(b)(7), 362(b)(17), 362(b)(19), 555, 556, 559, 

560, or 561 of this title). (b)(1) Except with respect to a setoff of a kind described in section 362(b)(6), 362(b)(7), ø362(b)(14),¿ 362(b)(17), 362(b)(19), 555, 

556, 559, 560, 561, 365(h), 546(h), or 365(i)(2) of this title, if a creditor offsets a mutual debt owing to the debtor against a claim 

against the debtor on or within 90 days before the date of the filing 

of the petition, then the trustee may recover from such creditor the 

amount so offset to the extent that any insufficiency on the date 

of such setoff is less than the insufficiency on the later of—

(A) * * *

* * * * * * *

ø§ 555. Contractual right to liquidate a securities contract¿

§ 555. Contractual right to liquidate, terminate, or accelerate 

a securities contract

The exercise of a contractual right of a stockbroker, financial institution, financial participant, or securities clearing agency to 

62

cause the øliquidation¿ liquidation, termination, or acceleration of 

a securities contract, as defined in section 741 of this title, because 

of a condition of the kind specified in section 365(e)(1) of this title 

shall not be stayed, avoided, or otherwise limited by operation of 

any provision of this title or by order of a court or administrative 

agency in any proceeding under this title unless such order is authorized under the provisions of the Securities Investor Protection 

Act of 1970 or any statute administered by the Securities and Exchange Commission. øAs used in this section, the term ‘‘contractual 

right’’ includes a right set forth in a rule or bylaw of a national securities exchange, a national securities association, or a securities 

clearing agency.¿ As used in this section, the term ‘‘contractual 

right’’ includes a right set forth in a rule or bylaw of a derivatives 

clearing organization (as defined in the Commodity Exchange Act), 

a multilateral clearing organization (as defined in the Federal Deposit Insurance Corporation Improvement Act of 1991), a national 

securities exchange, a national securities association, a securities 

clearing agency, a contract market designated under the Commodity 

Exchange Act, a derivatives transaction execution facility registered 

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

in the Commodity Exchange Act), or in a resolution of the governing 

board thereof, and a right, whether or not in writing, arising under 

common law, under law merchant, or by reason of normal business 

practice

ø§ 556. Contractual right to liquidate a commodities contract 

or forward contract¿

§ 556. Contractual right to liquidate, terminate, or accelerate 

a commodities contract or forward contract

The contractual right of a commodity broker or forward contract 

merchant to cause the øliquidation¿ liquidation, termination, or acceleration of a commodity contract, as defined in section 761 of this 

title, or forward contract because of a condition of the kind specified in section 365(e)(1) of this title, and the right to a variation 

or maintenance margin payment received from a trustee with respect to open commodity contracts or forward contracts, shall not 

be stayed, avoided, or otherwise limited by operation of any provision of this title or by the order of a court in any proceeding under 

this title. øAs used in this section, the term ‘‘contractual right’’ includes a right set forth in a rule or bylaw of a clearing organization 

or contract market or in a resolution of the governing board thereof 

and a right,¿ As used in this section, the term ‘‘contractual right’’

includes a right set forth in a rule or bylaw of a derivatives clearing 

organization (as defined in the Commodity Exchange Act), a multilateral clearing organization (as defined in the Federal Deposit Insurance Corporation Improvement Act of 1991), a national securities 

exchange, a national securities association, a securities clearing 

agency, a contract market designated under the Commodity Exchange Act, a derivatives transaction execution facility registered 

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

in the Commodity Exchange Act) or in a resolution of the governing 

board thereof and a right, whether or not evidenced in writing, 

63

arising under common law, under law merchant or by reason of 

normal business practice. 

* * * * * * *

ø§ 559. Contractual right to liquidate a repurchase agreement¿

§ 559. Contractual right to liquidate, terminate, or accelerate 

a repurchase agreement

The exercise of a contractual right of a repo participant or financial participant to cause the øliquidation¿ liquidation, termination, 

or acceleration of a repurchase agreement because of a condition of 

the kind specified in section 365(e)(1) of this title shall not be 

stayed, avoided, or otherwise limited by operation of any provision 

of this title or by order of a court or administrative agency in any 

proceeding under this title, unless, where the debtor is a stockbroker or securities clearing agency, such order is authorized under 

the provisions of the Securities Investor Protection Act of 1970 or 

any statute administered by the Securities and Exchange Commission. In the event that a repo participant or financial participant

liquidates one or more repurchase agreements with a debtor and 

under the terms of one or more such agreements has agreed to deliver assets subject to repurchase agreements to the debtor, any excess of the market prices received on liquidation of such assets (or 

if any such assets are not disposed of on the date of liquidation of 

such repurchase agreements, at the prices available at the time of 

liquidation of such repurchase agreements from a generally recognized source or the most recent closing bid quotation from such a 

source) over the sum of the stated repurchase prices and all expenses in connection with the liquidation of such repurchase agreements shall be deemed property of the estate, subject to the available rights of setoff. øAs used in this section, the term ‘‘contractual 

right’’ includes a right set forth in a rule or bylaw, applicable to 

each party to the repurchase agreement, of a national securities exchange, a national securities association, or a securities clearing 

agency, and a right,¿ As used in this section, the term ‘contractual 

right’ includes a right set forth in a rule or bylaw of a derivatives 

clearing organization (as defined in the Commodity Exchange Act), 

a multilateral clearing organization (as defined in the Federal Deposit Insurance Corporation Improvement Act of 1991), a national 

securities exchange, a national securities association, a securities 

clearing agency, a contract market designated under the Commodity 

Exchange Act, a derivatives transaction execution facility registered 

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

in the Commodity Exchange Act) or in a resolution of the governing 

board thereof and a right, whether or not evidenced in writing, 

arising under common law, under law merchant or by reason of 

normal business practice. 

ø§ 560. Contractual right to terminate a swap agreement¿

§ 560. Contractual right to liquidate, terminate, or accelerate 

a swap agreement

The exercise of any contractual right of any swap participant or 

financial participant to cause the øtermination of a swap agreeVerDate jul 14 2003 10:23 Sep 19, 2003 Jkt 019006 PO 00000 Frm 00063 Fmt 6659 Sfmt 6601 E:\HR\OC\HR277P1.XXX HR277P1
64

ment¿ liquidation, termination, or acceleration of one or more swap 

agreements because of a condition of the kind specified in section 

365(e)(1) of this title or to offset or net out any termination values 

or payment amounts arising under or øin connection with any 

swap agreement¿ in connection with the termination, liquidation, 

or acceleration of one or more swap agreements shall not be stayed, 

avoided, or otherwise limited by operation of any provision of this 

title or by order of a court or administrative agency in any proceeding under this title. øAs used in this section, the term ‘‘contractual right’’ includes a right,¿ As used in this section, the term ‘contractual right’ includes a right set forth in a rule or bylaw of a derivatives clearing organization (as defined in the Commodity Exchange Act), a multilateral clearing organization (as defined in the 

Federal Deposit Insurance Corporation Improvement Act of 1991), a 

national securities exchange, a national securities association, a securities clearing agency, a contract market designated under the 

Commodity Exchange Act, a derivatives transaction execution facility registered under the Commodity Exchange Act, or a board of 

trade (as defined in the Commodity Exchange Act) or in a resolution 

of the governing board thereof and a right, whether or not evidenced in writing, arising under common law, under law merchant, 

or by reason of normal business practice.

§ 561. Contractual right to terminate, liquidate, accelerate, 

or offset under a master netting agreement and 

across contracts; proceedings under section 304

(a) 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 the termination, liquidation, or acceleration of or to offset or 

net termination values, payment amounts, or other transfer obligations arising under or in connection with one or more (or the termination, liquidation, or acceleration of one or more)— (1) securities contracts, as defined in section 741(7); 

(2) commodity contracts, as defined in section 761(4); 

(3) forward contracts; 

(4) repurchase agreements; 

(5) swap agreements; or 

(6) master netting agreements, 

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)(1) A party may exercise a contractual right described in subsection (a) to terminate, liquidate, or accelerate only to the extent 

that such 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. 

(2) If a debtor is a commodity broker subject to subchapter IV of 

chapter 7—

(A) a party may not net or offset an obligation to the debtor 

arising under, or in connection with, a commodity contract 

traded on or subject to the rules of a contract market designated 

under the Commodity Exchange Act or a derivatives transaction 

execution facility registered under the Commodity Exchange Act 

against any claim arising under, or in connection with, other 

instruments, contracts, or agreements listed in subsection (a) exVerDate jul 14 2003 10:23 Sep 19, 2003 Jkt 019006 PO 00000 Frm 00064 Fmt 6659 Sfmt 6603 E:\HR\OC\HR277P1.XXX HR277P1
65

cept to the extent that the party has positive net equity in the 

commodity accounts at the debtor, as calculated under such 

subchapter; and 

(B) another commodity broker may not net or offset an obligation to the debtor arising under, or in connection with, a commodity contract entered into or held on behalf of a customer of 

the debtor and traded on or subject to the rules of a contract 

market designated under the Commodity Exchange Act or a derivatives transaction execution facility registered under the 

Commodity Exchange Act against any claim arising under, or 

in connection with, other instruments, contracts, or agreements 

listed in subsection (a). 

(3) No provision of subparagraph (A) or (B) of paragraph (2) shall 

prohibit the offset of claims and obligations that arise under— (A) a cross-margining agreement or similar arrangement that 

has been approved by the Commodity Futures Trading Commission or submitted to the Commodity Futures Trading Commission under paragraph (1) or (2) of section 5c(c) of the Commodity Exchange Act and has not been abrogated or rendered 

ineffective by the Commodity Futures Trading Commission; or 

(B) any other netting agreement between a clearing organization (as defined in section 761) and another entity that has been 

approved by the Commodity Futures Trading Commission. 

(c) As used in this section, the term ‘‘contractual right’’ includes 

a right set forth in a rule or bylaw of a derivatives clearing organization (as defined in the Commodity Exchange Act), a multilateral 

clearing organization (as defined in the Federal Deposit Insurance 

Corporation Improvement Act of 1991), a national securities exchange, a national securities association, a securities clearing agency, a contract market designated under the Commodity Exchange 

Act, a derivatives transaction execution facility registered under the 

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

Commodity Exchange Act) or in a resolution of the governing board 

thereof, and a right, whether or not evidenced in writing, arising 

under common law, under law merchant, or by reason of normal 

business practice. 

(d) Any provisions of this title relating to securities contracts, 

commodity contracts, forward contracts, repurchase agreements, 

swap agreements, or master netting agreements shall apply in a 

case under section 304, so that enforcement of contractual provisions 

of such contracts and agreements in accordance with their terms 

will not be stayed or otherwise limited by operation of any provision 

of this title or by order of a court in any case under this title, and 

to limit avoidance powers to the same extent as in a proceeding 

under chapter 7 or 11 of this title (such enforcement not to be limited based on the presence or absence of assets of the debtor in the 

United States). 

§ 562. Timing of damage measurement in connection with 

swap agreements, securities contracts, forward contracts, commodity contracts, repurchase agreements, and master netting agreements 

(a) If the trustee rejects a swap agreement, securities contract (as 

defined in section 741), forward contract, commodity contract (as 

defined in section 761), repurchase agreement, or master netting 

66

agreement pursuant to section 365(a), or if a forward contract merchant, stockbroker, financial institution, securities clearing agency, 

repo participant, financial participant, master netting agreement 

participant, or swap participant liquidates, terminates, or accelerates such contract or agreement, damages shall be measured as of 

the earlier of— (1) the date of such rejection; or 

(2) the date or dates of such liquidation, termination, or acceleration. 

(b) If there are not any commercially reasonable determinants of 

value as of any date referred to in paragraph (1) or (2) of subsection 

(a), damages shall be measured as of the earliest subsequent date 

or dates on which there are commercially reasonable determinants 

of value. 

(c) For the purposes of subsection (b), if damages are not measured as of the date or dates of rejection, liquidation, termination, or 

acceleration, and the forward contract merchant, stockbroker, financial institution, securities clearing agency, repo participant, financial participant, master netting agreement participant, or swap participant or the trustee objects to the timing of the measurement of 

damages—(1) the trustee, in the case of an objection by a forward contract merchant, stockbroker, financial institution, securities 

clearing agency, repo participant, financial participant, master 

netting agreement participant, or swap participant; or 

(2) the forward contract merchant, stockbroker, financial institution, securities clearing agency, repo participant, financial 

participant, master netting agreement participant, or swap participant, in the case of an objection by the trustee, 

has the burden of proving that there were no commercially reasonable determinants of value as of such date or dates.

CHAPTER 7—LIQUIDATION

SUBCHAPTER I—OFFICERS AND ADMINISTRATION 

Sec. 

701. Interim trustee. 

* * * * * * *

SUBCHAPTER III—STOCKBROKER LIQUIDATION 

741. Definitions for this subchapter. 

* * * * * * *

753. Stockbroker liquidation and forward contract merchants, commodity brokers, 

stockbrokers, financial institutions, financial participants, securities 

clearing agencies, swap participants, repo participants, and master netting agreement participants.

SUBCHAPTER IV—COMMODITY BROKER LIQUIDATION 

761. Definitions for this subchapter. 

* * * * * * *

767. Commodity broker liquidation and forward contract merchants, commodity 

brokers, stockbrokers, financial institutions, financial participants, securities clearing agencies, swap participants, repo participants, and master netting agreement participants.

* * * * * * *

67

SUBCHAPTER III—STOCKBROKER LIQUIDATION 

§ 741. Definitions for this subchapter 

In this subchapter— (1) * * *

* * * * * * *

ø(7) ‘‘securities contract’’ means contract for the purchase, 

sale, or loan of a security, including an option for the purchase 

or sale of a security, certificate of deposit, or group or index of 

securities (including any interest therein or based on the value 

thereof), or any option entered into on a national securities exchange relating to foreign currencies, or the guarantee of any 

settlement of cash or securities by or to a securities clearing 

agency;¿

(7) ‘‘securities contract’’—

(A) means— (i) a contract for the purchase, sale, or loan of a security, a certificate of deposit, a mortgage loan or any interest in a mortgage loan, a group or index of securities, certificates of deposit, or mortgage loans or interests therein (including an interest therein or based on 

the value thereof), or option on any of the foregoing, including an option to purchase or sell any such security, 

certificate of deposit, mortgage loan, interest, group or 

index, or option, and including any repurchase or reverse repurchase transaction on any such security, certificate of deposit, mortgage loan, interest, group or 

index, or option; 

(ii) any option entered into on a national securities 

exchange relating to foreign currencies; 

(iii) the guarantee by or to any securities clearing 

agency of a settlement of cash, securities, certificates of 

deposit, mortgage loans or interests therein, group or 

index of securities, or mortgage loans or interests therein (including any interest therein or based on the value 

thereof), or option on any of the foregoing, including an 

option to purchase or sell any such security, certificate 

of deposit, mortgage loan, interest, group or index, or 

option; 

(iv) any margin loan; 

(v) any other agreement or transaction that is similar 

to an agreement or transaction referred to in this subparagraph; 

(vi) any combination of the agreements or transactions referred to in this subparagraph; 

(vii) any option to enter into any agreement or transaction referred to in this subparagraph; 

(viii) a master agreement that provides for an agreement or transaction referred to in clause (i), (ii), (iii), 

(iv), (v), (vi), or (vii), together with all supplements to 

any such master agreement, without regard to whether 

the master agreement provides for an agreement or 

transaction that is not a securities contract under this 

subparagraph, except that such master agreement shall 

be considered to be a securities contract under this subVerDate jul 14 2003 10:23 Sep 19, 2003 Jkt 019006 PO 00000 Frm 00067 Fmt 6659 Sfmt 6603 E:\HR\OC\HR277P1.XXX HR277P1
68

paragraph only with respect to each agreement or 

transaction under such master agreement that is referred to in clause (i), (ii), (iii), (iv), (v), (vi), or (vii); or 

(ix) any security agreement or arrangement or other 

credit enhancement related to any agreement or transaction referred to in this subparagraph, including any 

guarantee or reimbursement obligation by or to a stockbroker, securities clearing agency, financial institution, 

or financial participant in connection with any agreement or transaction referred to in this subparagraph, 

but not to exceed the damages in connection with any 

such agreement or transaction, measured in accordance 

with section 562 of this title; and 

(B) does not include any purchase, sale, or repurchase obligation under a participation in a commercial mortgage 

loan; 

* * * * * * *

§ 753. Stockbroker liquidation and forward contract merchants, commodity brokers, stockbrokers, financial 

institutions, financial participants, securities 

clearing agencies, swap participants, repo participants, and master netting agreement participants 

Notwithstanding any other provision of this title, the exercise of 

rights by a forward contract merchant, commodity broker, stockbroker, financial institution, securities clearing agency, swap participant, repo participant, financial participant, or master netting 

agreement participant under this title shall not affect the priority of 

any unsecured claim it may have after the exercise of such rights.

SUBCHAPTER IV—COMMODITY BROKER LIQUIDATION 

§ 761. Definitions for this subchapter 

In this subchapter—

(1) * * *

* * * * * * *

(4) ‘‘commodity contract’’ means—

(A) * * *

* * * * * * *

(D) with respect to a clearing organization, contract for 

the purchase or sale of a commodity for future delivery on, 

or subject to the rules of, a contract market or board of 

trade that is cleared by such clearing organization, or commodity option traded on, or subject to the rules of, a contract market or board of trade that is cleared by such 

clearing organization; øor¿

* * * * * * *

(F) any other agreement or transaction that is similar to 

an agreement or transaction referred to in this paragraph; 

(G) any combination of the agreements or transactions referred to in this paragraph; 

(H) any option to enter into an agreement or transaction 

referred to in this paragraph; 

69

(I) a master agreement that provides for an agreement or 

transaction referred to in subparagraph (A), (B), (C), (D), 

(E), (F), (G), or (H), together with all supplements to such 

master agreement, without regard to whether the master 

agreement provides for an agreement or transaction that is 

not a commodity contract under this paragraph, except that 

the master agreement shall be considered to be a commodity contract under this paragraph only with respect to 

each agreement or transaction under the master agreement 

that is referred to in subparagraph (A), (B), (C), (D), (E), 

(F), (G), or (H); or 

(J) any security agreement or arrangement or other credit 

enhancement related to any agreement or transaction referred to in this paragraph, including any guarantee or reimbursement obligation by or to a commodity broker or financial participant in connection with any agreement or 

transaction referred to in this paragraph, but not to exceed 

the damages in connection with any such agreement or 

transaction, measured in accordance with section 562 of 

this title; 

* * * * * * *

§ 767. Commodity broker liquidation and forward contract 

merchants, commodity brokers, stockbrokers, financial institutions, financial participants, securities 

clearing agencies, swap participants, repo participants, and master netting agreement participants 

Notwithstanding any other provision of this title, the exercise of 

rights by a forward contract merchant, commodity broker, stockbroker, financial institution, financial participant, securities clearing agency, swap participant, repo participant, or master netting 

agreement participant under this title shall not affect the priority of 

any unsecured claim it may have after the exercise of such rights.

* * * * * * *

CHAPTER 9—ADJUSTMENT OF DEBTS OF A 

MUNICIPALITY 

* * * * * * *

SUBCHAPTER I—GENERAL PROVISIONS 

§ 901. Applicability of other sections of this title 

(a) Sections 301, 344, 347(b), 349, 350(b), 361, 362, 364(c), 364(d), 

364(e), 364(f), 365, 366, 501, 502, 503, 504, 506, 507(a)(1), 509, 510, 

524(a)(1), 524(a)(2), 544, 545, 546, 547, 548, 549(a), 549(c), 549(d), 

550, 551, 552, 553, 555, 556, 557, 559, 560, 561, 562 1102, 1103, 

1109, 1111(b), 1122, 1123(a)(1), 1123(a)(2), 1123(a)(3), 1123(a)(4), 

1123(a)(5), 1123(b), 1124, 1125, 1126(a), 1126(b), 1126(c), 1126(e), 

1126(f), 1126(g), 1127(d), 1128, 1129(a)(2), 1129(a)(3), 1129(a)(6), 

1129(a)(8), 1129(a)(10), 1129(b)(1), 1129(b)(2)(A), 1129(b)(2)(B), 

70

1142(b), 1143, 1144, and 1145 of this title apply in a case under 

this chapter. 

* * * * * * *

SECTION 5 OF THE SECURITIES INVESTOR PROTECTION 

ACT OF 1970

SEC. 5. PROTECTION OF CUSTOMERS. 

(a) * * *

(b) COURT ACTION.—

(1) * * *

(2) JURISDICTION AND POWERS OF COURT.—

(A) * * *

* * * * * * *

(C) EXCEPTION FROM STAY.—

(i) Notwithstanding section 362 of title 11, United 

States Code, neither the filing of an application under 

subsection (a)(3) nor any order or decree obtained by 

SIPC from the court shall operate as a stay of any contractual rights of a creditor to liquidate, terminate, or 

accelerate a securities contract, commodity contract, 

forward contract, repurchase agreement, swap agreement, or master netting agreement, as those terms are 

defined in sections 101, 741, and 761 of title 11, United 

States Code, to offset or net termination values, payment amounts, or other transfer obligations arising 

under or in connection with one or more of such contracts or agreements, or to foreclose on any cash collateral pledged by the debtor, whether or not with respect 

to one or more of such contracts or agreements. 

(ii) Notwithstanding clause (i), such application, 

order, or decree may operate as a stay of the foreclosure 

on, or disposition of, securities collateral pledged by the 

debtor, whether or not with respect to one or more of 

such contracts or agreements, securities sold by the 

debtor under a repurchase agreement, or securities lent 

under a securities lending agreement. 

(iii) As used in this subparagraph, the term ‘‘contractual right’’ includes a right set forth in a rule or bylaw 

of a national securities exchange, a national securities 

association, or a securities clearing agency, a right set 

forth in a bylaw of a clearing organization or contract 

market or in a resolution of the governing board thereof, and a right, whether or not in writing, arising 

under common law, under law merchant, or by reason 

of normal business practice.

* * * * * * *

Æ