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[Congressional Bills 103th Congress]
[From the U.S. Government Publishing Office]
[S. 2291 Introduced in Senate (IS)]

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.

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

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Derivatives Supervision Act of 
1994''.

SEC. 2. DEFINITIONS.

    For purposes of this Act, the following definitions shall apply:
            (1) Appropriate federal banking agency.--The term 
        ``appropriate Federal banking agency'' has the same meaning as 
        in section 3 of the Federal Deposit Insurance Act.
            (2) Capitalization.--The terms ``adequately-capitalized'' 
        and ``well-capitalized'' have the same meanings as in section 
        38 of the Federal Deposit Insurance Act.
            (3) Dealer.--The term ``dealer'' means any person engaged 
        in the business of purchasing, selling, or engaging in 
        transactions involving derivative financial instruments for its 
        own account, through a broker or otherwise, for the purpose of 
        serving customers who are end-users or other dealers.
            (4) Derivative financial instrument.--The term ``derivative 
        financial instrument'' means--
                    (A) a qualified financial contract (as defined in 
                section 11(e)(8) of the Federal Deposit Insurance Act); 
                and
                    (B) any other instrument which an appropriate 
                Federal financial institutions regulatory agency 
                determines, by regulation or order, to be a derivative 
                financial instrument for purposes of this Act.
            (5) Federal financial institutions regulatory agency.--The 
        term ``Federal financial institutions regulatory agency'' 
        means--
                    (A) the Office of the Comptroller of the Currency;
                    (B) the Board of Governors of the Federal Reserve 
                System;
                    (C) the Federal Deposit Insurance Corporation;
                    (D) the Office of Thrift Supervision;
                    (E) the National Credit Union Administration Board;
                    (F) the Securities and Exchange Commission;
                    (G) the Commodity Futures Trading Commission;
                    (H) the Office of Federal Housing Enterprise 
                Oversight; and
                    (I) the Federal Housing Finance Board.
            (6) Hedging transaction.--The term ``hedging transaction'' 
        means any transaction involving a derivative financial 
        instrument if--
                    (A) such transaction is entered into in the normal 
                course of business primarily--
                            (i) to reduce risk of price change or 
                        currency fluctuations with respect to other 
                        transactions entered into by the institution, 
                        previously or simultaneously, to which the 
                        derivative financial instrument transaction 
                        relates, either individually or in the 
                        aggregate; or
                            (ii) to reduce risk of interest rate 
                        changes with respect to transactions entered 
                        into by the institution, previously or 
                        simultaneously, to which the derivative 
                        financial instrument transaction relates, 
                        either individually or in the aggregate; and
                    (B) before the close of the day on which such 
                transaction was entered into (or such earlier time as 
                the appropriate Federal financial regulatory agency may 
                prescribe by regulation), the regulated entity clearly 
                identifies such transaction as a hedging transaction.
            (7) Insured depository institution.--The term ``insured 
        depository institution'' has the same meaning as in section 3 
        of the Federal Deposit Insurance Act and includes an insured 
        credit union, as defined in section 101 of the Federal Credit 
        Union Act.
            (8) Major dealer.--The term ``major dealer'' means any 
        dealer whose ability to meet obligations as they become due is 
        potentially significant to the stability of financial markets, 
        as determined by the Federal financial institutions regulators, 
        based upon size, market share, and the extent of linkages with 
        other market participants.
            (9) Regulated entity.--The term ``regulated entity'' 
        means--
                    (A) an insured depository institution;
                    (B) a Federal Home Loan Bank, as defined in section 
                2 of the Federal Home Loan Bank Act;
                    (C) the Federal National Mortgage Association and 
                any affiliate thereof; and
                    (D) the Federal Home Loan Mortgage Corporation and 
                any affiliate thereof.

SEC. 3. LIMITATIONS ON DERIVATIVE ACTIVITIES.

    (a) General Prohibition.--Except as provided in subsection (b), a 
regulated entity may not purchase, sell, or engage in any transaction 
involving a derivative financial instrument for the account of that 
entity.
    (b) Exceptions.--
            (1) Hedging transactions.--A regulated entity may purchase, 
        sell, or engage in any transaction involving a derivative 
        financial instrument for the account of that entity for the 
        purpose of engaging in a hedging transaction if such activity 
        involves a category of derivative financial instruments 
        approved by rule, regulation, or order of the appropriate 
        Federal financial regulatory agency for such purpose.
            (2) Dealing.--
                    (A) Well-capitalized entities.--A well-capitalized 
                insured depository institution may purchase, sell, or 
                engage in a transaction involving a derivative 
                financial instrument as a dealer if such activity 
                involves a category of derivative financial instruments 
                approved for such purpose by rule, regulation, or order 
                of the appropriate Federal banking agency.
                    (B) Adequately capitalized institutions.--An 
                insured depository institution or a Federal Home Loan 
                Bank that is adequately capitalized may purchase, sell, 
                or engage in a transaction involving a derivative 
                financial instrument as a dealer if--
                            (i) the appropriate Federal financial 
                        institutions regulatory agency determines that 
                        such activity by the institution is in the 
                        public interest; and
                            (ii) the category of such derivative 
                        financial instrument has been approved for such 
                        purpose by any rule, regulation, or order 
                        issued under subparagraph (A).
    (c) Prohibition Against Speculation.--Nothing in this section shall 
be construed to authorize a regulated entity, or any subsidiary of such 
entity, to purchase, sell, or engage in a transaction involving a 
derivative financial instrument for its own account for any speculative 
purpose.

SEC. 4. REGULATORY COORDINATION.

    (a) Supervision by Federal Financial Institutions Regulatory 
Agencies.--
            (1) In general.--The Federal financial institutions 
        regulatory agencies shall jointly establish principles and 
        standards related to capital, accounting, disclosure, 
        suitability, internal controls structures, and other 
        appropriate regulatory actions for the supervision of regulated 
        entities and major dealers engaged in activities involving 
        derivative financial instruments.
            (2) Development of minimum capital standards.--In 
        establishing principles, standards, or other regulatory actions 
        under paragraph (1), the Federal financial institutions 
        regulatory agencies shall jointly develop minimum capital 
        requirements (including the leverage ratio, if appropriate) to 
        guard against risks that may be posed by regulated entities and 
        major dealers engaged in activities involving derivative 
        financial instruments, including--
                    (A) credit risk;
                    (B) market risk;
                    (C) operational risk; and
                    (D) legal risk.
            (3) Training.--The Federal financial institutions 
        regulatory agencies shall jointly sponsor training programs 
        concerning derivative financial instruments for examiners and 
        assistant examiners employed by the Federal financial 
        institutions regulatory agencies. Such training programs shall 
        be open to enrollment by employees of State financial 
        institutions supervisory agencies.
            (4) Confidential emergency management reporting.--
                    (A) In general.--
                            (i) Information on a nightly basis.--Not 
                        later than 1 year after the date of enactment 
                        of this Act, the Federal financial institutions 
                        regulatory agencies shall jointly develop a 
                        means to obtain, on a nightly basis, all 
                        necessary information from a regulated entity 
                        or a major dealer.
                            (ii) Emergency need.--If any Federal 
                        financial institutions regulatory agency 
                        determines that such agency needs the 
                        information described in clause (i) as a result 
                        of adverse market conditions or other emergency 
                        situations (as defined by that agency), a 
                        regulated entity or a major dealer shall 
                        provide such information to its appropriate 
                        Federal financial institutions regulatory 
                        agency, as may be required by that agency.
                    (B) Confidentiality of information provided.--A 
                Federal financial institutions regulatory agency that 
                receives information pursuant to this paragraph with 
                respect to any regulated entity or major dealer may not 
                provide such information to any person or entity other 
                than another Federal financial institutions regulatory 
                agency with jurisdiction over that entity, dealer, or 
                affiliate, without the prior written approval of the 
                appropriate Federal financial institutions regulatory 
                agency.

SEC. 5. DISCLOSURE REQUIREMENTS.

    (a) Information Required To Be Included in Reports.--Any report of 
condition or comparable document made by any regulated entity or major 
dealer in accordance with any applicable provision of law or with 
respect to any period beginning after December 31, 1994, shall include 
the following information:
            (1) Quantitative information with respect to all derivative 
        financial instruments.--
                    (A) Gross notional and fair value.--The gross 
                notional value and the gross positive and negative fair 
                values of holdings, positions, or other interests of 
                the regulated entity or major dealer in any category of 
                derivative financial instrument.
                    (B) Revenue, gains, and losses.--All revenue 
                (identified by source of revenue), gains, and losses of 
                the institution attributable to holdings, positions, or 
                other interests of the regulated entity or major dealer 
                in any category of derivative financial instrument.
                    (C) Exposure under bilateral netting contract.--The 
                net current credit exposure of the regulated entity or 
                major dealer under legally enforceable bilateral 
                arrangements with respect to holdings, positions, or 
                other interests of the entity or dealer in any category 
                of derivative financial instrument.
                    (D) Exposure to individual counterparties.--The 
                exposure to individual counterparties to any 
                transaction involving holdings, positions, or other 
                interests of the regulated entity or major dealer in 
                any category of derivative financial instrument. The 
                Federal financial institutions regulatory agencies 
                shall determine, by regulation or order, the nature and 
                size of the individual counterparties for which such 
                information shall be required.
            (2) Terms to maturity.--Information on the remaining term 
        to maturity of holdings, positions, or other interests of the 
        regulated entity or major dealer in any category of derivative 
        financial instrument.
    (b) Reporting Requirement.--Information reported pursuant to 
subsection (a) with respect to derivative financial instruments traded 
or purchased on an exchange, and the holdings, positions, or other 
interests in derivative financial instruments which are the subjects of 
such trades, shall be provided separately from information relating to 
derivative financial instruments not traded or purchased on an 
exchange, and the holdings, positions, or other interests in derivative 
financial instruments which are the subjects of such transactions.

SEC. 6. MANAGEMENT CONTROLS.

    (a) Requirements Relating to Directors and Senior Executive 
Officers.--
            (1) Management plan required with respect to all derivative 
        financial instruments.--A regulated entity or a major dealer 
        may not engage in activities involving derivative financial 
        instruments without, as part of its internal controls 
        structure, a management plan that--
                    (A) sets forth--
                            (i) the purpose of the holdings, positions, 
                        or other interests of the regulated entity or 
                        major dealer in any category of derivative 
                        financial instrument;
                            (ii) how such holdings, positions, or other 
                        interests in any category of derivative 
                        financial instrument is consistent with the 
                        overall risk management plan of the regulated 
                        entity or major dealer; and
                            (iii) how the regulated entity or major 
                        dealer acquires holdings, positions, and other 
                        interests in any category of derivative 
                        financial instruments; and
                    (B) describes the accounting methods used to value 
                holdings, positions, or other interests of the 
                regulated entity or major dealer in any category of 
                derivative financial instrument; and
                    (C) requires that derivative financial instrument 
                activities are conducted with direct oversight by the 
                appropriate senior executive officers (as defined 
                pursuant to section 32(f) of the Federal Deposit 
                Insurance Act) of the regulated entity or major dealer.
            (2) Familiarity with risks required.--A regulated entity or 
        major dealer may not engage in any transaction involving a 
        derivative financial instrument unless the board of directors 
        of such entity or dealer periodically reviews compliance with 
        the management plan by the appropriate senior executive 
        officers.

SEC. 7. ENFORCEMENT.

    (a) In General.--Each Federal financial institutions regulatory 
agency may use the enforcement authority available to that agency under 
other provisions of law to enforce the provisions of sections 3 through 
6 of this Act, and any regulations promulgated in accordance with this 
Act, as the agency determines to be appropriate.
    (b) Securities and Exchange Commission Enforcement Authority.--The 
Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended by 
inserting after section 21C the following new section:

                   ``derivative financial instruments

    ``Sec. 21D. (a) Supervision by the Commission.--Any major dealer 
whose activities involving derivative financial instruments are not 
subject to regulation by a Federal financial institutions regulatory 
agency under the Derivatives Supervision Act of 1994, shall be subject 
to appropriate regulation and enforcement by the Commission in 
accordance with the authority provided to the Commission under this 
title, and consistent with any principles, standards, or other 
regulatory actions established in accordance with the Derivatives 
Supervision Act of 1994.
    ``(b) Definitions.--For purposes of this section, the terms 
`derivative financial instrument', `Federal financial institutions 
regulatory agency', and `major dealer' have the same meanings as in 
section 2 of the Derivatives Supervision Act of 1994.''.

SEC. 8. INTERNATIONAL COORDINATION.

    The Secretary of the Treasury and the Chairman of the Board of 
Governors of the Federal Reserve System, in consultation with the 
Federal financial institutions regulatory agencies, shall encourage 
governments, central banks, and regulatory authorities of other 
industrialized countries to work toward maintaining and, where 
appropriate, adopting comparable supervisory standards, regulations, 
and capital standards in particular, for regulated entities and major 
dealers engaged in activities involving derivative financial 
instruments.

SEC. 9. BANK HOLDING COMPANIES.

    Section 3 of the Bank Holding Company Act of 1956 (12 U.S.C. 1842) 
is amended by adding at the end the following new subsection:
    ``(h) Derivative Activities.--
            ``(1) In general.--A subsidiary of a bank holding company 
        may purchase, sell, or engage in any transaction involving a 
        derivative financial instrument for the account of that 
        subsidiary if it is not an insured depository institution or a 
        subsidiary of an insured depository institution.
            ``(2) Consolidated capital.--The capital of a subsidiary 
        engaged in activities described in paragraph (1) shall not be 
        included in the consolidated capital of its parent bank holding 
        company for the purpose of determining the compliance of such 
        bank holding company with any applicable capital requirement.
            ``(3) Establishment of subsidiaries.--The Board shall 
        establish, by regulation, appropriate terms and conditions for 
        the establishment of a subsidiary referred to in paragraph (1), 
        consistent with any principles, standards or other regulatory 
        actions established under section 4 of the Derivatives 
        Supervision Act of 1994.
            ``(4) Definitions.--For purposes of this subsection--
                    ``(A) the term `derivative financial instrument' 
                means--
                            ``(i) an instrument the value of which is 
                        derived from the value of other assets, 
                        interest or currency exchange rates, or 
                        indexes, including qualified financial 
                        contracts (as defined in section 11(e)(8) of 
                        the Federal Deposit Insurance Act); and
                            ``(ii) any other instrument which an 
                        appropriate Federal financial institutions 
                        regulatory agency determines, by regulation or 
                        order, to be a derivative financial instrument 
                        for purposes of this section; and
                    ``(B) the term `Federal financial institutions 
                regulatory agency' has the same meaning as in section 2 
                of the Derivatives Supervision Act of 1994.''.

SEC. 10. SYSTEMIC RISK.

    (a) In General.--Not later than 18 months after the date of 
enactment of this Act, the Federal financial institutions regulatory 
agencies shall, in order to reduce the risk associated with potential 
systemic financial market failure, promulgate appropriate regulations 
to require regulated entities and major dealers to--
            (1) increase use of clearinghouses and multilateral netting 
        agreements;
            (2) reduce intraday debit positions;
            (3) shorten intervals between financial transactions in 
        cash markets and their final settlement;
            (4) shorten intervals between delivery of and payment for 
        financial products; and
            (5) otherwise reduce payments and settlement risk.
    (b) Considerations.--In implementing this section, the Federal 
financial institutions regulatory agencies shall consider, as 
appropriate--
            (1) the costs imposed on or benefits granted to regulated 
        entities and major dealers by regulatory actions taken under 
        this section;
            (2) the public benefits of reducing systemic risk; and
            (3) the effects of any proposed action on the international 
        competitive position of United States financial institutions.
    (c) Effective Date of Regulations.--The regulations promulgated 
under subsection (a) shall become effective 3 years after the date of 
enactment of this Act, and shall be fully implemented 5 years after the 
date of enactment of this Act.

SEC. 11. REGULATORY CLARIFICATION AMENDMENTS.

    (a) Federal Deposit Insurance Act Amendments.--
            (1) Definitions of certain terms.--Section 11(e)(8)(D) of 
        the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)(D)) is 
        amended--
                    (A) in clause (iv), by striking ``section 101(24)'' 
                and inserting ``section 101(25)'';
                    (B) in clause (v)(I), by striking ``section 
                101(41)'' and inserting ``section 101(47)'';
                    (C) in clause (vi)(I)--
                            (i) by inserting ``equity or equity index 
                        swap, equity or equity index option, bond 
                        option,'' after ``commodity swap,''; and
                            (ii) by striking ``purchased'' each place 
                        it appears; and
                    (D) by striking clause (vii) and inserting the 
                following:
                            ``(vii) Treatment of master agreement as 1 
                        agreement.--Any master agreement for any 
                        qualified financial contract, as defined in 
                        clauses (i) through (vi) (or any master 
                        agreement there for), together with all 
                        supplements thereto, shall be treated as a 
                        single agreement and a single qualified 
                        financial contract.''.
            (2) Default against corporation as conservator.--Section 
        11(e)(8)(E) of the Federal Deposit Insurance Act (12 U.S.C. 
        1821(e)(8)(E)) is amended--
                    (A) by striking ``paragraph (12) of this 
                subsection,''; and
                    (B) by striking ``subsection (d)(9)'' and inserting 
                ``paragraph (10) of this subsection, subsections (d)(9) 
                and (n)(4)(I)''.
            (3) Notification of transfer; rights enforceable against 
        receiver or conservator.--Section 11(e)(10) of the Federal 
        Deposit Insurance Act (12 U.S.C. 1821(e)(10)) is amended--
                    (A) in the heading, by inserting ``; rights 
                enforceable against conservator or receiver'' before 
                the period;
                    (B) by redesignating subparagraph (B) as 
                subparagraph (C); and
                    (C) by striking subparagraph (A) and inserting the 
                following:
                    ``(A) In general.--The receiver for an insured 
                depository institution in default shall notify any 
                person who is a party to a qualified financial 
                contract, not later than 5:00 p.m. (Eastern Time) on 
                the business day following the appointment of the 
                receiver, of any transfer made by the receiver of the 
                assets and liabilities of such institution that 
                includes such qualified financial contract.
                    ``(B) Certain rights not enforceable.--
                            ``(i) Rights against a receiver.--A person 
                        who is a party to a qualified financial 
                        contract with an insured depository institution 
                        may not exercise any right such person may have 
                        to net or close out 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 the appointment of a receiver for the 
                        depository institution (or insolvency or 
                        financial condition of the institution for 
                        which the receiver is appointed)--
                                    ``(I) before 5:00 p.m. (Eastern 
                                Time) on the business day following 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) Timing of notification.--For 
                        purposes of clause (i)(II), the Corporation, as 
                        receiver of an insured depository institution, 
                        shall be deemed to have provided notice if such 
                        notice was sent to the last address shown in 
                        the records of the insured depository 
                        institution by the means, if any, provided for 
                        in the subject qualified financial contract, or 
                        by other means reasonably calculated to reach 
                        that person not later than the time specified 
                        in clause (i)(I).
                            ``(iii) Rights against conservator.--A 
                        person who is a party to a qualified financial 
                        contract with an insured depository institution 
                        may not exercise any right such person has to 
                        net or close out such contract under paragraph 
                        (8)(E) of this subsection, or section 403 or 
                        404 of the Federal Deposit Insurance 
                        Corporation Improvement Act of 1991, solely by 
                        reason of the appointment of a conservator for 
                        the insured depository institution.''.
            (4) Agreements against interest of corporation.--Section 
        13(e) of the Federal Deposit Insurance Act (12 U.S.C. 1823(e)) 
        is amended--
                    (A) by inserting the following before ``No 
                agreement'':
            ``(1) In general.--'';
                    (B) by redesignating paragraphs (1) through (4) as 
                subparagraphs (A) through (D), respectively; and
                    (C) by adding at the end the following new 
                paragraph:
            ``(2) Exemptions from contemporaneous execution 
        requirement.--An agreement to provide for the lawful 
        collateralization of--
                    ``(A) deposits of, or other credit extension by, a 
                Federal, State, or local governmental entity, including 
                an agreement to provide collateral in lieu of a surety 
                bond;
                    ``(B) bankruptcy estate funds pursuant to section 
                345(b)(2) of title 11, United States Code;
                    ``(C) extensions of credit, including any 
                overdraft, from a Federal Reserve Bank or Federal Home 
                Loan Bank; or
                    ``(D) a qualified financial contract, as defined in 
                section 11(e)(8)(D);
        shall not be deemed to be invalid pursuant to subparagraph (B) 
        of paragraph (1) solely because such agreement was not executed 
        contemporaneously with the acquisition of the collateral or 
        because of pledges, delivery, and substitution of the 
        collateral made in accordance with such agreement.''.
    (b) Federal Deposit Insurance Corporation Improvement Act 
Amendments.--Sections 403(a) and 404(a) of the Federal Deposit 
Insurance Corporation Improvement Act of 1991 (12 U.S.C. 4403(a), 
4404(a)) are each amended by striking ``other provision of law'' each 
place such term appears, and inserting ``provision of law, other than 
paragraphs (8)(E) and (10)(B) of section 11(e) of the Federal Deposit 
Insurance Act''.
    (c) Bankruptcy Code Amendments.--
            (1) Definitions.--Section 101 of title 11, United States 
        Code, is amended--
                    (A) in paragraph (55)(A) (the first place paragraph 
                (55) appears)--
                            (i) by inserting ``equity or equity index 
                        swap, equity or equity index option, bond 
                        option,'' after ``basis swap,'';
                            (ii) by inserting ``interest rate future,'' 
                        after ``commodity swap,'';
                            (iii) by striking ``forward foreign 
                        exchange'' and inserting ``foreign exchange''; 
                        and
                            (iv) by inserting ``currency future,'' 
                        after ``cross-currency rate swap agreement,'';
                    (B) by redesignating paragraphs (54) through (57), 
                the second place those paragraphs appear, as paragraphs 
                (58) through (61), respectively;
                    (C) in paragraph (60), as redesignated, by striking 
                ``and'';
                    (D) in paragraph (61), as redesignated, by striking 
                the period at the end and inserting a semicolon; and
                    (E) by adding at the end the following new 
                paragraphs:
            ``(62) `master netting agreement' means an agreement 
        providing for the exercise of rights, including rights of 
        setoff, liquidation, termination, acceleration, or closeout, in 
        connection with one or more contracts with the debtor that are 
        described in paragraphs (1) through (5) of section 561(a); and
            ``(63) `master netting agreement participant' means an 
        entity that, at any time before the filing of the petition, has 
        an outstanding master netting agreement covering any of the 
        contracts described in section 561 with the debtor.''.
            (2) Automatic stay.--Section 362(b) of title 11, United 
        States Code, is amended--
                    (A) in paragraph (13), by striking ``or'' at the 
                end;
                    (B) by redesignating paragraphs (15) and (16) as 
                paragraphs (16) and (17), respectively;
                    (C) by redesignating paragraph (14), the second 
                place such paragraph appears, as paragraph (15); and
                    (D) by amending paragraph (14) to read as follows:
            ``(14) under subsection (a), of the setoff by a swap 
        participant or master netting agreement participant of any 
        mutual debt and claim under or in connection with any swap 
        agreement or master netting agreement that constitutes the 
        setoff of a claim against the debtor for any payment due from 
        the debtor under or in connection with any such agreement 
        against--
                    ``(A) any payment due to the debtor from such 
                participant under or in connection with any such 
                agreement; or
                    ``(B) cash, securities, or other property of the 
                debtor held by or due from such participant to 
                guarantee, secure, or settle any such agreement;''.
            (3) Limitations on avoiding powers.--Section 546(g) of 
        title 11, United States Code, is amended--
                    (A) by inserting ``or a master netting agreement 
                covering any of the contracts described in section 
                561'' after ``under a swap agreement'';
                    (B) by inserting ``or a master netting agreement 
                participant'' after ``swap participant''; and
                    (C) by inserting ``or any master netting 
                agreement'' after ``with a swap agreement''.
            (4) Fraudulent transfers and obligations.--Section 
        548(d)(2) of title 11, United States Code, is amended--
                    (A) in subparagraph (C), by striking ``and'';
                    (B) in subparagraph (D), by striking the period and 
                inserting ``; and''; and
                    (C) by adding at the end the following new 
                subparagraph:
                    ``(E) a master netting agreement participant that 
                receives a transfer in connection with a master netting 
                agreement covering any of the contracts described in 
                section 561 takes for value to the extent of such 
                transfer.''.
            (5) Contractual right to liquidate a securities contract.--
        Section 555 of title 11, United States Code, is amended--
                    (A) in the section heading, by inserting ``, 
                terminate, or accelerate'' after ``liquidate''; and
                    (B) in the first sentence, by inserting ``, 
                termination, or acceleration'' after ``liquidation''.
            (6) Contractual right to liquidate a commodities contract 
        or forward contract.--Section 556 of title 11, United States 
        Code, is amended--
                    (A) in the section heading, by inserting ``, 
                terminate, or accelerate'' after ``liquidate''; and
                    (B) in the first sentence, by inserting ``, 
                termination, or acceleration'' after ``liquidation''.
            (7) Contractual right to liquidate a repurchase 
        agreement.--Section 559 of title 11, United States Code, is 
        amended--
                    (A) in the section heading, by inserting ``, 
                terminate, or accelerate'' after ``liquidate''; and
                    (B) in the first sentence, by inserting ``, 
                termination, or acceleration'' after ``liquidation''.
            (8) Contractual right to liquidate a swap agreement.--
        Section 560 of title 11, United States Code, is amended--
                    (A) in the section heading, by striking 
                ``terminate'' and inserting ``liquidate, terminate, or 
                accelerate''; and
                    (B) in the first sentence, by striking 
                ``termination'' and inserting ``liquidation, 
                termination, or acceleration''.
            (9) Contractual right to terminate, liquidate, accelerate, 
        or offset a master netting agreement.--Chapter 5 of title 11, 
        United States Code, is amended by adding at the end the 
        following new section:
``Sec. 561. Contractual right to terminate, liquidate, accelerate, or 
              offset under a master netting agreement
    ``(a) In General.--Subject to subsection (b), the exercise of any 
contractual right, because of a condition of the kind specified in 
section 365(e)(1), to cause termination, liquidation, acceleration, 
offset, or netting of values or payment amounts arising under or in 
connection with one or more--
            ``(1) securities contracts, as defined in section 741(7);
            ``(2) commodities contracts, as defined in section 761(4);
            ``(3) forward contracts;
            ``(4) repurchase agreements; or
            ``(5) swap agreements;
under a master netting agreement covering such contracts shall not be 
stayed, avoided, or otherwise limited by operation of any provision of 
this title or by any order of a court or administrative agency in any 
proceeding under this title.
    ``(b) Exception.--A party may exercise a contractual right 
described in subsection (a) only if that party could exercise such a 
right under section 555, 556, 559, or 560 for each individual contract 
covered by the master netting agreement in issue.
    ``(c) Definition.--As used in this section, the term `contractual 
right' includes a right, whether or not evidenced in writing, arising 
under common law, under law merchant, or by reason of normal business 
practice, a right set forth in a rule or bylaw of a national securities 
exchange, a national securities association or a securities clearing 
agency, and a right set forth in a bylaw of a clearing organization or 
contract market or in a resolution of the governing board thereof.''.
            (9) Debts of a municipality.--Section 901(a) of title 11, 
        United States Code, is amended--
                    (A) by inserting ``555, 556,'' after ``553,''; and
                    (B) by inserting ``559, 560, 561'' after ``557,''.

SEC. 12. REGULATIONS.

    Each of the Federal financial institutions regulatory agencies 
shall issue consistent regulations governing activities involving 
derivative financial instruments for the purpose of implementing this 
Act.

SEC. 13. EFFECTIVE DATES.

    (a) In General.--Except as provided in subsection (b), this Act 
shall become effective 1 year after the date of enactment of this Act.
    (b) Exception.--The amendments made by section 11 shall become 
effective on the date of enactment of this Act.
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S 2291 IS----2
S 2291 IS----3
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