II

103D CONGRESS

2D SESSION S. 2291

To separate certain activities involving derivative financial instruments from

the insured deposits of insured depository institutions, to provide for

regulatory coordination in the establishment of principles related to such

activities, to provide enhanced regulatory oversight, and for other purposes.

IN THE SENATE OF THE UNITED STATES

JULY 18 (legislative day, JULY 11), 1994

Mr. RIEGLE introduced the following bill; which was read twice and referred

to the Committee on Banking, Housing, and Urban Affairs

A BILL

To separate certain activities involving derivative financial

instruments from the insured deposits of insured depository institutions, to provide for regulatory coordination

in the establishment of principles related to such activities, to provide enhanced regulatory oversight, and for

other purposes.

1 Be it enacted by the Senate and House of Representa2 tives of the United States of America in Congress assembled,

3 SECTION 1. SHORT TITLE.

4 This Act may be cited as the ‘‘Derivatives Super5 vision Act of 1994’’.
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1 SEC. 2. DEFINITIONS.

2 For purposes of this Act, the following definitions

3 shall apply:

4 (1) APPROPRIATE FEDERAL BANKING AGEN5 CY.—The term ‘‘appropriate Federal banking agen6 cy’’ has the same meaning as in section 3 of the

7 Federal Deposit Insurance Act.

8 (2) CAPITALIZATION.—The terms ‘‘adequately9 capitalized’’ and ‘‘well-capitalized’’ have the same

10 meanings as in section 38 of the Federal Deposit In11 surance Act.

12 (3) DEALER.—The term ‘‘dealer’’ means any

13 person engaged in the business of purchasing, sell14 ing, or engaging in transactions involving derivative

15 financial instruments for its own account, through a

16 broker or otherwise, for the purpose of serving cus17 tomers who are end-users or other dealers.

18 (4) DERIVATIVE FINANCIAL INSTRUMENT.—

19 The term ‘‘derivative financial instrument’’ means—

20 (A) a qualified financial contract (as de21 fined in section 11(e)(8) of the Federal Deposit

22 Insurance Act); and

23 (B) any other instrument which an appro24 priate Federal financial institutions regulatory

25 agency determines, by regulation or order, to be
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1 a derivative financial instrument for purposes of

2 this Act.

3 (5) FEDERAL FINANCIAL INSTITUTIONS REGU4 LATORY AGENCY.—The term ‘‘Federal financial in5 stitutions regulatory agency’’ means—

6 (A) the Office of the Comptroller of the

7 Currency;

8 (B) the Board of Governors of the Federal

9 Reserve System;

10 (C) the Federal Deposit Insurance Cor11 poration;

12 (D) the Office of Thrift Supervision;

13 (E) the National Credit Union Administra14 tion Board;

15 (F) the Securities and Exchange Commis16 sion;

17 (G) the Commodity Futures Trading Com18 mission;

19 (H) the Office of Federal Housing Enter20 prise Oversight; and

21 (I) the Federal Housing Finance Board.

22 (6) HEDGING TRANSACTION.—The term ‘‘hedg23 ing transaction’’ means any transaction involving a

24 derivative financial instrument if—
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1 (A) such transaction is entered into in the

2 normal course of business primarily—

3 (i) to reduce risk of price change or

4 currency fluctuations with respect to other

5 transactions entered into by the institu6 tion, previously or simultaneously, to which

7 the derivative financial instrument trans8 action relates, either individually or in the

9 aggregate; or

10 (ii) to reduce risk of interest rate

11 changes with respect to transactions en12 tered into by the institution, previously or

13 simultaneously, to which the derivative fi14 nancial instrument transaction relates, ei15 ther individually or in the aggregate; and

16 (B) before the close of the day on which

17 such transaction was entered into (or such ear18 lier time as the appropriate Federal financial

19 regulatory agency may prescribe by regulation),

20 the regulated entity clearly identifies such

21 transaction as a hedging transaction.

22 (7) INSURED DEPOSITORY INSTITUTION.—The

23 term ‘‘insured depository institution’’ has the same

24 meaning as in section 3 of the Federal Deposit In25 surance Act and includes an insured credit union, as
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1 defined in section 101 of the Federal Credit Union

2 Act.

3 (8) MAJOR DEALER.—The term ‘‘major dealer’’

4 means any dealer whose ability to meet obligations

5 as they become due is potentially significant to the

6 stability of financial markets, as determined by the

7 Federal financial institutions regulators, based upon

8 size, market share, and the extent of linkages with

9 other market participants.

10 (9) REGULATED ENTITY.—The term ‘‘regulated

11 entity’’ means—

12 (A) an insured depository institution;

13 (B) a Federal Home Loan Bank, as de14 fined in section 2 of the Federal Home Loan

15 Bank Act;

16 (C) the Federal National Mortgage Asso17 ciation and any affiliate thereof; and

18 (D) the Federal Home Loan Mortgage

19 Corporation and any affiliate thereof.

20 SEC. 3. LIMITATIONS ON DERIVATIVE ACTIVITIES.

21 (a) GENERAL PROHIBITION.—Except as provided in

22 subsection (b), a regulated entity may not purchase, sell,

23 or engage in any transaction involving a derivative finan24 cial instrument for the account of that entity.

25 (b) EXCEPTIONS.—
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1 (1) HEDGING TRANSACTIONS.—A regulated en2 tity may purchase, sell, or engage in any transaction

3 involving a derivative financial instrument for the

4 account of that entity for the purpose of engaging

5 in a hedging transaction if such activity involves a

6 category of derivative financial instruments approved

7 by rule, regulation, or order of the appropriate Fed8 eral financial regulatory agency for such purpose.

9 (2) DEALING.—

10 (A) WELL-CAPITALIZED ENTITIES.—A

11 well-capitalized insured depository institution

12 may purchase, sell, or engage in a transaction

13 involving a derivative financial instrument as a

14 dealer if such activity involves a category of de15 rivative financial instruments approved for such

16 purpose by rule, regulation, or order of the ap17 propriate Federal banking agency.

18 (B) ADEQUATELY CAPITALIZED INSTITU19 TIONS.—An insured depository institution or a

20 Federal Home Loan Bank that is adequately

21 capitalized may purchase, sell, or engage in a

22 transaction involving a derivative financial in23 strument as a dealer if—

24 (i) the appropriate Federal financial

25 institutions regulatory agency determines
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1 that such activity by the institution is in

2 the public interest; and

3 (ii) the category of such derivative fi4 nancial instrument has been approved for

5 such purpose by any rule, regulation, or

6 order issued under subparagraph (A).

7 (c) PROHIBITION AGAINST SPECULATION.—Nothing

8 in this section shall be construed to authorize a regulated

9 entity, or any subsidiary of such entity, to purchase, sell,

10 or engage in a transaction involving a derivative financial

11 instrument for its own account for any speculative pur12 pose.

13 SEC. 4. REGULATORY COORDINATION.

14 (a) SUPERVISION BY FEDERAL FINANCIAL INSTITU15 TIONS REGULATORY AGENCIES.—

16 (1) IN GENERAL.—The Federal financial insti17 tutions regulatory agencies shall jointly establish

18 principles and standards related to capital, account19 ing, disclosure, suitability, internal controls struc20 tures, and other appropriate regulatory actions for

21 the supervision of regulated entities and major deal22 ers engaged in activities involving derivative finan23 cial instruments.

24 (2) DEVELOPMENT OF MINIMUM CAPITAL

25 STANDARDS.—In establishing principles, standards,
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1 or other regulatory actions under paragraph (1), the

2 Federal financial institutions regulatory agencies

3 shall jointly develop minimum capital requirements

4 (including the leverage ratio, if appropriate) to

5 guard against risks that may be posed by regulated

6 entities and major dealers engaged in activities in7 volving derivative financial instruments, including—

8 (A) credit risk;

9 (B) market risk;

10 (C) operational risk; and

11 (D) legal risk.

12 (3) TRAINING.—The Federal financial institu13 tions regulatory agencies shall jointly sponsor train14 ing programs concerning derivative financial instru15 ments for examiners and assistant examiners em16 ployed by the Federal financial institutions regu17 latory agencies. Such training programs shall be

18 open to enrollment by employees of State financial

19 institutions supervisory agencies.

20 (4) CONFIDENTIAL EMERGENCY MANAGEMENT

21 REPORTING.—

22 (A) IN GENERAL.—

23 (i) INFORMATION ON A NIGHTLY

24 BASIS.—Not later than 1 year after the

25 date of enactment of this Act, the Federal
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1 financial institutions regulatory agencies

2 shall jointly develop a means to obtain, on

3 a nightly basis, all necessary information

4 from a regulated entity or a major dealer.

5 (ii) EMERGENCY NEED.—If any Fed6 eral financial institutions regulatory agen7 cy determines that such agency needs the

8 information described in clause (i) as a re9 sult of adverse market conditions or other

10 emergency situations (as defined by that

11 agency), a regulated entity or a major

12 dealer shall provide such information to its

13 appropriate Federal financial institutions

14 regulatory agency, as may be required by

15 that agency.

16 (B) CONFIDENTIALITY OF INFORMATION

17 PROVIDED.—A Federal financial institutions

18 regulatory agency that receives information

19 pursuant to this paragraph with respect to any

20 regulated entity or major dealer may not pro21 vide such information to any person or entity

22 other than another Federal financial institu23 tions regulatory agency with jurisdiction over

24 that entity, dealer, or affiliate, without the prior
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1 written approval of the appropriate Federal fi2 nancial institutions regulatory agency.

3 SEC. 5. DISCLOSURE REQUIREMENTS.

4 (a) INFORMATION REQUIRED TO BE INCLUDED IN

5 REPORTS.—Any report of condition or comparable docu6 ment made by any regulated entity or major dealer in ac7 cordance with any applicable provision of law or with re8 spect to any period beginning after December 31, 1994,

9 shall include the following information:

10 (1) QUANTITATIVE INFORMATION WITH RE11 SPECT TO ALL DERIVATIVE FINANCIAL INSTRU12 MENTS.—

13 (A) GROSS NOTIONAL AND FAIR VALUE.—

14 The gross notional value and the gross positive

15 and negative fair values of holdings, positions,

16 or other interests of the regulated entity or

17 major dealer in any category of derivative fi18 nancial instrument.

19 (B) REVENUE, GAINS, AND LOSSES.—All

20 revenue (identified by source of revenue), gains,

21 and losses of the institution attributable to

22 holdings, positions, or other interests of the reg23 ulated entity or major dealer in any category of

24 derivative financial instrument.
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1 (C) EXPOSURE UNDER BILATERAL NET2 TING CONTRACT.—The net current credit expo3 sure of the regulated entity or major dealer

4 under legally enforceable bilateral arrangements

5 with respect to holdings, positions, or other in6 terests of the entity or dealer in any category

7 of derivative financial instrument.

8 (D) EXPOSURE TO INDIVIDUAL

9 COUNTERPARTIES.—The exposure to individual

10 counterparties to any transaction involving

11 holdings, positions, or other interests of the reg12 ulated entity or major dealer in any category of

13 derivative financial instrument. The Federal fi14 nancial institutions regulatory agencies shall de15 termine, by regulation or order, the nature and

16 size of the individual counterparties for which

17 such information shall be required.

18 (2) TERMS TO MATURITY.—Information on the

19 remaining term to maturity of holdings, positions, or

20 other interests of the regulated entity or major deal21 er in any category of derivative financial instrument.

22 (b) REPORTING REQUIREMENT.—Information re23 ported pursuant to subsection (a) with respect to deriva24 tive financial instruments traded or purchased on an ex25 change, and the holdings, positions, or other interests in
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1 derivative financial instruments which are the subjects of

2 such trades, shall be provided separately from information

3 relating to derivative financial instruments not traded or

4 purchased on an exchange, and the holdings, positions, or

5 other interests in derivative financial instruments which

6 are the subjects of such transactions.

7 SEC. 6. MANAGEMENT CONTROLS.

8 (a) REQUIREMENTS RELATING TO DIRECTORS AND

9 SENIOR EXECUTIVE OFFICERS.—

10 (1) MANAGEMENT PLAN REQUIRED WITH RE11 SPECT TO ALL DERIVATIVE FINANCIAL INSTRU12 MENTS.—A regulated entity or a major dealer may

13 not engage in activities involving derivative financial

14 instruments without, as part of its internal controls

15 structure, a management plan that—

16 (A) sets forth—

17 (i) the purpose of the holdings, posi18 tions, or other interests of the regulated

19 entity or major dealer in any category of

20 derivative financial instrument;

21 (ii) how such holdings, positions, or

22 other interests in any category of deriva23 tive financial instrument is consistent with

24 the overall risk management plan of the

25 regulated entity or major dealer; and
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1 (iii) how the regulated entity or major

2 dealer acquires holdings, positions, and

3 other interests in any category of deriva4 tive financial instruments; and

5 (B) describes the accounting methods used

6 to value holdings, positions, or other interests

7 of the regulated entity or major dealer in any

8 category of derivative financial instrument; and

9 (C) requires that derivative financial in10 strument activities are conducted with direct

11 oversight by the appropriate senior executive of12 ficers (as defined pursuant to section 32(f) of

13 the Federal Deposit Insurance Act) of the regu14 lated entity or major dealer.

15 (2) FAMILIARITY WITH RISKS REQUIRED.—A

16 regulated entity or major dealer may not engage in

17 any transaction involving a derivative financial in18 strument unless the board of directors of such entity

19 or dealer periodically reviews compliance with the

20 management plan by the appropriate senior execu21 tive officers.

22 SEC. 7. ENFORCEMENT.

23 (a) IN GENERAL.—Each Federal financial institu24 tions regulatory agency may use the enforcement author25 ity available to that agency under other provisions of law
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1 to enforce the provisions of sections 3 through 6 of this

2 Act, and any regulations promulgated in accordance with

3 this Act, as the agency determines to be appropriate.

4 (b) SECURITIES AND EXCHANGE COMMISSION EN5 FORCEMENT AUTHORITY.—The Securities Exchange Act

6 of 1934 (15 U.S.C. 78a et seq.) is amended by inserting

7 after section 21C the following new section:

8 ‘‘DERIVATIVE FINANCIAL INSTRUMENTS

9 ‘‘SEC. 21D. (a) SUPERVISION BY THE COMMIS10 SION.—Any major dealer whose activities involving deriva11 tive financial instruments are not subject to regulation by

12 a Federal financial institutions regulatory agency under

13 the Derivatives Supervision Act of 1994, shall be subject

14 to appropriate regulation and enforcement by the Commis15 sion in accordance with the authority provided to the Com16 mission under this title, and consistent with any prin17 ciples, standards, or other regulatory actions established

18 in accordance with the Derivatives Supervision Act of

19 1994.

20 ‘‘(b) DEFINITIONS.—For purposes of this section, the

21 terms ‘derivative financial instrument’, ‘Federal financial

22 institutions regulatory agency’, and ‘major dealer’ have

23 the same meanings as in section 2 of the Derivatives Su24 pervision Act of 1994.’’.
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1 SEC. 8. INTERNATIONAL COORDINATION.

2 The Secretary of the Treasury and the Chairman of

3 the Board of Governors of the Federal Reserve System,

4 in consultation with the Federal financial institutions reg5 ulatory agencies, shall encourage governments, central

6 banks, and regulatory authorities of other industrialized

7 countries to work toward maintaining and, where appro8 priate, adopting comparable supervisory standards, regu9 lations, and capital standards in particular, for regulated

10 entities and major dealers engaged in activities involving

11 derivative financial instruments.

12 SEC. 9. BANK HOLDING COMPANIES.

13 Section 3 of the Bank Holding Company Act of 1956

14 (12 U.S.C. 1842) is amended by adding at the end the

15 following new subsection:

16 ‘‘(h) DERIVATIVE ACTIVITIES.—

17 ‘‘(1) IN GENERAL.—A subsidiary of a bank

18 holding company may purchase, sell, or engage in

19 any transaction involving a derivative financial in20 strument for the account of that subsidiary if it is

21 not an insured depository institution or a subsidiary

22 of an insured depository institution.

23 ‘‘(2) CONSOLIDATED CAPITAL.—The capital of

24 a subsidiary engaged in activities described in para25 graph (1) shall not be included in the consolidated

26 capital of its parent bank holding company for the
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1 purpose of determining the compliance of such bank

2 holding company with any applicable capital require3 ment.

4 ‘‘(3) ESTABLISHMENT OF SUBSIDIARIES.—The

5 Board shall establish, by regulation, appropriate

6 terms and conditions for the establishment of a sub7 sidiary referred to in paragraph (1), consistent with

8 any principles, standards or other regulatory actions

9 established under section 4 of the Derivatives Super10 vision Act of 1994.

11 ‘‘(4) DEFINITIONS.—For purposes of this sub12 section—

13 ‘‘(A) the term ‘derivative financial instru14 ment’ means—

15 ‘‘(i) an instrument the value of which

16 is derived from the value of other assets,

17 interest or currency exchange rates, or in18 dexes, including qualified financial con19 tracts (as defined in section 11(e)(8) of the

20 Federal Deposit Insurance Act); and

21 ‘‘(ii) any other instrument which an

22 appropriate Federal financial institutions

23 regulatory agency determines, by regula24 tion or order, to be a derivative financial
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1 instrument for purposes of this section;

2 and

3 ‘‘(B) the term ‘Federal financial institu4 tions regulatory agency’ has the same meaning

5 as in section 2 of the Derivatives Supervision

6 Act of 1994.’’.

7 SEC. 10. SYSTEMIC RISK.

8 (a) IN GENERAL.—Not later than 18 months after

9 the date of enactment of this Act, the Federal financial

10 institutions regulatory agencies shall, in order to reduce

11 the risk associated with potential systemic financial mar12 ket failure, promulgate appropriate regulations to require

13 regulated entities and major dealers to—

14 (1) increase use of clearinghouses and multilat15 eral netting agreements;

16 (2) reduce intraday debit positions;

17 (3) shorten intervals between financial trans18 actions in cash markets and their final settlement;

19 (4) shorten intervals between delivery of and

20 payment for financial products; and

21 (5) otherwise reduce payments and settlement

22 risk.

23 (b) CONSIDERATIONS.—In implementing this section,

24 the Federal financial institutions regulatory agencies shall

25 consider, as appropriate—
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1 (1) the costs imposed on or benefits granted to

2 regulated entities and major dealers by regulatory

3 actions taken under this section;

4 (2) the public benefits of reducing systemic

5 risk; and

6 (3) the effects of any proposed action on the

7 international competitive position of United States

8 financial institutions.

9 (c) EFFECTIVE DATE OF REGULATIONS.—The regu10 lations promulgated under subsection (a) shall become ef11 fective 3 years after the date of enactment of this Act,

12 and shall be fully implemented 5 years after the date of

13 enactment of this Act.

14 SEC. 11. REGULATORY CLARIFICATION AMENDMENTS.

15 (a) FEDERAL DEPOSIT INSURANCE ACT AMEND16 MENTS.—

17 (1) DEFINITIONS OF CERTAIN TERMS.—Section

18 11(e)(8)(D) of the Federal Deposit Insurance Act

19 (12 U.S.C. 1821(e)(8)(D)) is amended—

20 (A) in clause (iv), by striking ‘‘section

21 101(24)’’ and inserting ‘‘section 101(25)’’;

22 (B) in clause (v)(I), by striking ‘‘section

23 101(41)’’ and inserting ‘‘section 101(47)’’;

24 (C) in clause (vi)(I)—
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1 (i) by inserting ‘‘equity or equity

2 index swap, equity or equity index option,

3 bond option,’’ after ‘‘commodity swap,’’;

4 and

5 (ii) by striking ‘‘purchased’’ each

6 place it appears; and

7 (D) by striking clause (vii) and inserting

8 the following:

9 ‘‘(vii) TREATMENT OF MASTER

10 AGREEMENT AS 1 AGREEMENT.—Any mas11 ter agreement for any qualified financial

12 contract, as defined in clauses (i) through

13 (vi) (or any master agreement there for),

14 together with all supplements thereto, shall

15 be treated as a single agreement and a sin16 gle qualified financial contract.’’.

17 (2) DEFAULT AGAINST CORPORATION AS CON18 SERVATOR.—Section 11(e)(8)(E) of the Federal De19 posit Insurance Act (12 U.S.C. 1821(e)(8)(E)) is

20 amended—

21 (A) by striking ‘‘paragraph (12) of this

22 subsection,’’; and

23 (B) by striking ‘‘subsection (d)(9)’’ and in24 serting ‘‘paragraph (10) of this subsection, sub25 sections (d)(9) and (n)(4)(I)’’.
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1 (3) NOTIFICATION OF TRANSFER; RIGHTS EN2 FORCEABLE AGAINST RECEIVER OR CONSERVA3 TOR.—Section 11(e)(10) of the Federal Deposit In4 surance Act (12 U.S.C. 1821(e)(10)) is amended—

5 (A) in the heading, by inserting ‘‘; RIGHTS

6 ENFORCEABLE AGAINST CONSERVATOR OR RE7 CEIVER’’ before the period;

8 (B) by redesignating subparagraph (B) as

9 subparagraph (C); and

10 (C) by striking subparagraph (A) and in11 serting the following:

12 ‘‘(A) IN GENERAL.—The receiver for an

13 insured depository institution in default shall

14 notify any person who is a party to a qualified

15 financial contract, not later than 5:00 p.m.

16 (Eastern Time) on the business day following

17 the appointment of the receiver, of any transfer

18 made by the receiver of the assets and liabilities

19 of such institution that includes such qualified

20 financial contract.

21 ‘‘(B) CERTAIN RIGHTS NOT ENFORCE22 ABLE.—

23 ‘‘(i) RIGHTS AGAINST A RECEIVER.—

24 A person who is a party to a qualified fi25 nancial contract with an insured depository
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1 institution may not exercise any right such

2 person may have to net or close out such

3 contract under paragraph (8)(A) of this

4 subsection, or section 403 or 404 of the

5 Federal Deposit Insurance Corporation

6 Improvement Act of 1991, solely by reason

7 of the appointment of a receiver for the de8 pository institution (or insolvency or finan9 cial condition of the institution for which

10 the receiver is appointed)—

11 ‘‘(I) before 5:00 p.m. (Eastern

12 Time) on the business day following

13 the appointment of the receiver; or

14 ‘‘(II) after the person has re15 ceived notice that the contract has

16 been transferred pursuant to para17 graph (9)(A).

18 ‘‘(ii) TIMING OF NOTIFICATION.—For

19 purposes of clause (i)(II), the Corporation,

20 as receiver of an insured depository institu21 tion, shall be deemed to have provided no22 tice if such notice was sent to the last ad23 dress shown in the records of the insured

24 depository institution by the means, if any,

25 provided for in the subject qualified finan-
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1 cial contract, or by other means reasonably

2 calculated to reach that person not later

3 than the time specified in clause (i)(I).

4 ‘‘(iii) RIGHTS AGAINST CONSERVA5 TOR.—A person who is a party to a quali6 fied financial contract with an insured de7 pository institution may not exercise any

8 right such person has to net or close out

9 such contract under paragraph (8)(E) of

10 this subsection, or section 403 or 404 of

11 the Federal Deposit Insurance Corporation

12 Improvement Act of 1991, solely by reason

13 of the appointment of a conservator for the

14 insured depository institution.’’.

15 (4) AGREEMENTS AGAINST INTEREST OF COR16 PORATION.—Section 13(e) of the Federal Deposit

17 Insurance Act (12 U.S.C. 1823(e)) is amended—

18 (A) by inserting the following before ‘‘No

19 agreement’’:

20 ‘‘(1) IN GENERAL.—’’;

21 (B) by redesignating paragraphs (1)

22 through (4) as subparagraphs (A) through (D),

23 respectively; and

24 (C) by adding at the end the following new

25 paragraph:
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1 ‘‘(2) EXEMPTIONS FROM CONTEMPORANEOUS

2 EXECUTION REQUIREMENT.—An agreement to pro3 vide for the lawful collateralization of—

4 ‘‘(A) deposits of, or other credit extension

5 by, a Federal, State, or local governmental en6 tity, including an agreement to provide collat7 eral in lieu of a surety bond;

8 ‘‘(B) bankruptcy estate funds pursuant to

9 section 345(b)(2) of title 11, United States

10 Code;

11 ‘‘(C) extensions of credit, including any

12 overdraft, from a Federal Reserve Bank or

13 Federal Home Loan Bank; or

14 ‘‘(D) a qualified financial contract, as de15 fined in section 11(e)(8)(D);

16 shall not be deemed to be invalid pursuant to sub17 paragraph (B) of paragraph (1) solely because such

18 agreement was not executed contemporaneously with

19 the acquisition of the collateral or because of

20 pledges, delivery, and substitution of the collateral

21 made in accordance with such agreement.’’.

22 (b) FEDERAL DEPOSIT INSURANCE CORPORATION

23 IMPROVEMENT ACT AMENDMENTS.—Sections 403(a) and

24 404(a) of the Federal Deposit Insurance Corporation Im25 provement Act of 1991 (12 U.S.C. 4403(a), 4404(a)) are
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1 each amended by striking ‘‘other provision of law’’ each

2 place such term appears, and inserting ‘‘provision of law,

3 other than paragraphs (8)(E) and (10)(B) of section 11(e)

4 of the Federal Deposit Insurance Act’’.

5 (c) BANKRUPTCY CODE AMENDMENTS.—

6 (1) DEFINITIONS.—Section 101 of title 11,

7 United States Code, is amended—

8 (A) in paragraph (55)(A) (the first place

9 paragraph (55) appears)—

10 (i) by inserting ‘‘equity or equity

11 index swap, equity or equity index option,

12 bond option,’’ after ‘‘basis swap,’’;

13 (ii) by inserting ‘‘interest rate fu14 ture,’’ after ‘‘commodity swap,’’;

15 (iii) by striking ‘‘forward foreign ex16 change’’ and inserting ‘‘foreign exchange’’;

17 and

18 (iv) by inserting ‘‘currency future,’’

19 after ‘‘cross-currency rate swap agree20 ment,’’;

21 (B) by redesignating paragraphs (54)

22 through (57), the second place those para23 graphs appear, as paragraphs (58) through

24 (61), respectively;
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1 (C) in paragraph (60), as redesignated, by

2 striking ‘‘and’’;

3 (D) in paragraph (61), as redesignated, by

4 striking the period at the end and inserting a

5 semicolon; and

6 (E) by adding at the end the following new

7 paragraphs:

8 ‘‘(62) ‘master netting agreement’ means an

9 agreement providing for the exercise of rights, in10 cluding rights of setoff, liquidation, termination, ac11 celeration, or closeout, in connection with one or

12 more contracts with the debtor that are described in

13 paragraphs (1) through (5) of section 561(a); and

14 ‘‘(63) ‘master netting agreement participant’

15 means an entity that, at any time before the filing

16 of the petition, has an outstanding master netting

17 agreement covering any of the contracts described in

18 section 561 with the debtor.’’.

19 (2) AUTOMATIC STAY.—Section 362(b) of title

20 11, United States Code, is amended—

21 (A) in paragraph (13), by striking ‘‘or’’ at

22 the end;

23 (B) by redesignating paragraphs (15) and

24 (16) as paragraphs (16) and (17), respectively;
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1 (C) by redesignating paragraph (14), the

2 second place such paragraph appears, as para3 graph (15); and

4 (D) by amending paragraph (14) to read

5 as follows:

6 ‘‘(14) under subsection (a), of the setoff by a

7 swap participant or master netting agreement par8 ticipant of any mutual debt and claim under or in

9 connection with any swap agreement or master net10 ting agreement that constitutes the setoff of a claim

11 against the debtor for any payment due from the

12 debtor under or in connection with any such agree13 ment against—

14 ‘‘(A) any payment due to the debtor from

15 such participant under or in connection with

16 any such agreement; or

17 ‘‘(B) cash, securities, or other property of

18 the debtor held by or due from such participant

19 to guarantee, secure, or settle any such agree20 ment;’’.

21 (3) LIMITATIONS ON AVOIDING POWERS.—Sec22 tion 546(g) of title 11, United States Code, is

23 amended—

24 (A) by inserting ‘‘or a master netting

25 agreement covering any of the contracts de-
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1 scribed in section 561’’ after ‘‘under a swap

2 agreement’’;

3 (B) by inserting ‘‘or a master netting

4 agreement participant’’ after ‘‘swap partici5 pant’’; and

6 (C) by inserting ‘‘or any master netting

7 agreement’’ after ‘‘with a swap agreement’’.

8 (4) FRAUDULENT TRANSFERS AND OBLIGA9 TIONS.—Section 548(d)(2) of title 11, United States

10 Code, is amended—

11 (A) in subparagraph (C), by striking

12 ‘‘and’’;

13 (B) in subparagraph (D), by striking the

14 period and inserting ‘‘; and’’; and

15 (C) by adding at the end the following new

16 subparagraph:

17 ‘‘(E) a master netting agreement partici18 pant that receives a transfer in connection with

19 a master netting agreement covering any of the

20 contracts described in section 561 takes for

21 value to the extent of such transfer.’’.

22 (5) CONTRACTUAL RIGHT TO LIQUIDATE A SE23 CURITIES CONTRACT.—Section 555 of title 11,

24 United States Code, is amended—
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1 (A) in the section heading, by inserting ‘‘,

2 terminate, or accelerate’’ after ‘‘liq3 uidate’’; and

4 (B) in the first sentence, by inserting ‘‘,

5 termination, or acceleration’’ after ‘‘liquida6 tion’’.

7 (6) CONTRACTUAL RIGHT TO LIQUIDATE A

8 COMMODITIES CONTRACT OR FORWARD CON9 TRACT.—Section 556 of title 11, United States

10 Code, is amended—

11 (A) in the section heading, by inserting ‘‘,

12 terminate, or accelerate’’ after ‘‘liq13 uidate’’; and

14 (B) in the first sentence, by inserting ‘‘,

15 termination, or acceleration’’ after ‘‘liquida16 tion’’.

17 (7) CONTRACTUAL RIGHT TO LIQUIDATE A RE18 PURCHASE AGREEMENT.—Section 559 of title 11,

19 United States Code, is amended—

20 (A) in the section heading, by inserting ‘‘,

21 terminate, or accelerate’’ after ‘‘liq22 uidate’’; and

23 (B) in the first sentence, by inserting ‘‘,

24 termination, or acceleration’’ after ‘‘liquida25 tion’’.
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1 (8) CONTRACTUAL RIGHT TO LIQUIDATE A

2 SWAP AGREEMENT.—Section 560 of title 11, United

3 States Code, is amended—

4 (A) in the section heading, by striking

5 ‘‘TERMINATE’’ and inserting ‘‘LIQUIDATE, TER6 MINATE, OR ACCELERATE’’; and

7 (B) in the first sentence, by striking ‘‘ter8 mination’’ and inserting ‘‘liquidation, termi9 nation, or acceleration’’.

10 (9) CONTRACTUAL RIGHT TO TERMINATE, LIQ11 UIDATE, ACCELERATE, OR OFFSET A MASTER NET12 TING AGREEMENT.—Chapter 5 of title 11, United

13 States Code, is amended by adding at the end the

14 following new section:

15 ‘‘§ 561. Contractual right to terminate, liquidate, ac16 celerate, or offset under a master netting

17 agreement

18 ‘‘(a) IN GENERAL.—Subject to subsection (b), the ex19 ercise of any contractual right, because of a condition of

20 the kind specified in section 365(e)(1), to cause termi21 nation, liquidation, acceleration, offset, or netting of val22 ues or payment amounts arising under or in connection

23 with one or more—

24 ‘‘(1) securities contracts, as defined in section

25 741(7);
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1 ‘‘(2) commodities contracts, as defined in sec2 tion 761(4);

3 ‘‘(3) forward contracts;

4 ‘‘(4) repurchase agreements; or

5 ‘‘(5) swap agreements;

6 under a master netting agreement covering such contracts

7 shall not be stayed, avoided, or otherwise limited by oper8 ation of any provision of this title or by any order of a

9 court or administrative agency in any proceeding under

10 this title.

11 ‘‘(b) EXCEPTION.—A party may exercise a contrac12 tual right described in subsection (a) only if that party

13 could exercise such a right under section 555, 556, 559,

14 or 560 for each individual contract covered by the master

15 netting agreement in issue.

16 ‘‘(c) DEFINITION.—As used in this section, the term

17 ‘contractual right’ includes a right, whether or not evi18 denced in writing, arising under common law, under law

19 merchant, or by reason of normal business practice, a

20 right set forth in a rule or bylaw of a national securities

21 exchange, a national securities association or a securities

22 clearing agency, and a right set forth in a bylaw of a clear23 ing organization or contract market or in a resolution of

24 the governing board thereof.’’.
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1 (9) DEBTS OF A MUNICIPALITY.—Section

2 901(a) of title 11, United States Code, is amend3 ed—

4 (A) by inserting ‘‘555, 556,’’ after ‘‘553,’’;

5 and

6 (B) by inserting ‘‘559, 560, 561’’ after

7 ‘‘557,’’.

8 SEC. 12. REGULATIONS.

9 Each of the Federal financial institutions regulatory

10 agencies shall issue consistent regulations governing ac11 tivities involving derivative financial instruments for the

12 purpose of implementing this Act.

13 SEC. 13. EFFECTIVE DATES.

14 (a) IN GENERAL.—Except as provided in subsection

15 (b), this Act shall become effective 1 year after the date

16 of enactment of this Act.

17 (b) EXCEPTION.—The amendments made by section

18 11 shall become effective on the date of enactment of this

19 Act.

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