H. R. 5585

One Hundred Ninth Congress

of the

United States of America 

AT THE SECOND SESSION 

Begun and held at the City of Washington on Tuesday, 

the third day of January, two thousand and six 

An Act 

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

Be it enacted by the Senate and House of Representatives of 

the United States of America in Congress assembled, 

SECTION 1. SHORT TITLE. 

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

Act of 2006’’. 

SEC. 2. TREATMENT OF CERTAIN AGREEMENTS BY CONSERVATORS 

OR RECEIVERS OF DEPOSITORY INSTITUTIONS. 

(a) DEFINITION OF SECURITIES CONTRACT.—

(1) FDIC-INSURED DEPOSITORY INSTITUTIONS.—Section 

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

1821(e)(8)(D)(ii)) is amended—

(A) in subclause (I)—

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

‘‘mortgage loan,’’; and 

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

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

(v))’’; 

(B) in subclause (IV)—

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

guarantee’’; and 

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

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

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

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

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

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

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

respectively; and 

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

subparagraphs: 

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

clearance or settlement of securities transactions; 

‘‘(VII) means any loan transaction coupled 

with a securities collar transaction, any prepaid 

securities forward transaction, or any total return 

swap transaction coupled with a securities sale 

transaction;’’. 
H. R. 5585—2

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

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

amended—

(A) in subclause (I)—

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

‘‘mortgage loan,’’; and 

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

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

(v))’’; 

(B) in subclause (IV)—

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

guarantee’’; and 

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

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

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

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

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

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

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

respectively; and 

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

subparagraphs: 

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

clearance or settlement of securities transactions; 

‘‘(VII) means any loan transaction coupled 

with a securities collar transaction, any prepaid 

securities forward transaction, or any total return 

swap transaction coupled with a securities sale 

transaction;’’. 

(b) DEFINITION OF FORWARD CONTRACT.— (1) FDIC-INSURED DEPOSITORY INSTITUTIONS.—Section 

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

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

repurchase transaction’’ and inserting ‘‘or reverse repurchase 

transaction (whether or not such repurchase or reverse 

repurchase transaction is a ‘repurchase agreement’, as defined 

in clause (v))’’. 

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

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

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

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

(c) DEFINITION OF SWAP AGREEMENT.—

(1) FDIC-INSURED DEPOSITORY INSTITUTIONS.—Section 

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

1821(e)(8)(D)(vi)) is amended—

(A) in subclause (I)—

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

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

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

option, future, or forward agreement; an emissions 

swap, option, future, or forward agreement; or an inflation swap, option, future, or forward agreement’’; 
H. R. 5585—3

(B) in subclause (II)—

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

‘‘dealings in the swap’’; and 

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

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

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

Investment Company Act of 1940, the Investment Advisers 

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

the Commodity Exchange Act, the Gramm-Leach-Bliley 

Act, and the Legal Certainty for Bank Products Act of 

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

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

the Securities Exchange Act of 1934) and the Commodity 

Exchange Act’’. 

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

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

amended—

(A) in subclause (I)—

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

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

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

option, future, or forward agreement; an emissions 

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

(B) in subclause (II)—

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

‘‘dealings in the swap’’; and 

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

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

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

Investment Company Act of 1940, the Investment Advisers 

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

the Commodity Exchange Act, the Gramm-Leach-Bliley 

Act, and the Legal Certainty for Bank Products Act of 

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

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

the Securities Exchange Act of 1934) and the Commodity 

Exchange Act’’. 

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

(a) FDIC-INSURED DEPOSITORY INSTITUTIONS DEFINITION OF

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

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

following: 

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

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

Code.’’. 
H. R. 5585—4

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

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

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

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

governmental entity in addition to any entity included 

in the definition of such term in section 1 of title 

1, United States Code.’’. 

SEC. 4. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT 

ACT OF 1991. 

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

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

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

appears; and 

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

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

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

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

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

appears; and 

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

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

SEC. 5. CONFORMING AMENDMENTS. 

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

is amended—

(1) in section 101—

(A) in paragraph (22)(A)—

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

entity’’; and 

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

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

(B) in paragraph (22A)—

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

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

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

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

and 

(ii) by inserting ‘‘(aggregated across 

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

(C) in paragraph (25)(A)—

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

‘‘commodity contract’’; and 

(ii) by striking ‘‘repurchase transaction, reverse 

repurchase transaction,’’ and inserting ‘‘repurchase or 

reverse repurchase transaction (whether or not such 

repurchase or reverse repurchase transaction is a 

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

(D) in paragraph (53B)(A)—

(i) in clause (i)—

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

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

commodity’’; 
H. R. 5585—5

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

end; 

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

derivative, or weather option’’ and inserting 

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

(IV) by adding at the end the following: 

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

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

(ii) in clause (ii)—

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

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

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

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

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

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

Public Utility Holding Company Act of 1935, the Trust 

Indenture Act of 1939, the Investment Company Act of 

1940, the Investment Advisers Act of 1940, the Securities 

Investor Protection Act of 1970, the Commodity Exchange 

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

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

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

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

and the Commodity Exchange Act’’; 

(2) in section 362(b)—

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

the following: 

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

by a commodity broker, forward contract merchant, stockbroker, 

financial institution, financial participant, or securities clearing 

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

556) under any security agreement or arrangement or other 

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

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

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

other transfer obligation arising under or in connection with 

1 or more such contracts, including any master agreement 

for such contracts; 

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

by a repo participant or financial participant of any contractual 

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

or arrangement or other credit enhancement forming a part 

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

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

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

including any master agreement for such agreements;’’; 

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

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

by a swap participant or financial participant of any contractual 

right (as defined in section 560) under any security agreement 
H. R. 5585—6

or arrangement or other credit enhancement forming a part 

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

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

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

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

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

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

by a master netting agreement participant of any contractual 

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

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

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

payment amount, or other transfer obligation arising under 

or in connection with 1 or more such master netting agreements 

to the extent that such participant is eligible to exercise such 

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

contract covered by the master netting agreement in issue; 

and’’; and 

(3) in section 741(7)(A)—

(A) in clause (i)—

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

‘‘mortgage loan,’’; and 

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

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

101)’’; 

(B) in clause (iii)—

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

guarantee’’; and 

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

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

(xi))’’; 

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

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

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

(vii) through (xi), respectively; and 

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

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

or settlement of securities transactions; 

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

(b) LIMITATION OF AVOIDANCE POWERS UNDER MASTER NETTING

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

amended—

(1) in subsection (e)—

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

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

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

participant, or securities clearing agency, in connection 
H. R. 5585—7

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

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

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

(2) in subsection (f)—

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

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

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

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

participant’’; 

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

before ‘‘a swap participant’’; and 

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

after ‘‘made by or to’’. 

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

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

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

defined in the Commodity Exchange Act), a multilateral 

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

bylaw of’’; and 

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

set forth in a bylaw of a clearing organization or contract 

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

market designated under the Commodity Exchange Act, a 

derivatives transaction execution facility registered under the 

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

the Commodity Exchange Act),’’. 

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

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

‘‘SEC. 912. SAVINGS CLAUSE. 

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

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

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

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

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

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

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

SEC. 6. WALKAWAY CLAUSES. 

(a) FDIC-INSURED DEPOSITORY INSTITUTIONS.—Section 

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

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

following new clauses: 

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

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

time the receiver is appointed until the earlier of—

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

such contract has been transferred pursuant to 

subparagraph (A); or 

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

day following the date of the appointment of the 

receiver. 
H. R. 5585—8

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

of this subparagraph, the term ‘walkaway clause’ 

means any provision in a qualified financial contract 

that suspends, conditions, or extinguishes a payment 

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

not create a payment obligation of a party that would 

otherwise exist, solely because of such party’s status 

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

party to the contract or the appointment of or the 

exercise of rights or powers by a conservator or receiver 

of such depository institution, and not as a result of 

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

obligations that exist under the contract, any other 

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

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

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

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

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

time the liquidating agent is appointed until the earlier 

of—

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

such contract has been transferred pursuant to 

subparagraph (A); or 

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

day following the date of the appointment of the 

liquidating agent. 

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

of this subparagraph, the term ‘walkaway clause’ 

means any provision in a qualified financial contract 

that suspends, conditions, or extinguishes a payment 

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

not create a payment obligation of a party that would 

otherwise exist, solely because of such party’s status 

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

of or the exercise of rights or powers by a conservator 

or liquidating agent of such credit union, and not as 

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

setoff, or net obligations that exist under the contract, 

any other contract between those parties, or applicable 

law.’’. 
H. R. 5585—9

SEC. 7. SCOPE OF APPLICATION. 

The amendments made by this Act shall not apply to any 

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

the enactment of this Act.

Speaker of the House of Representatives.

Vice President of the United States and

President of the Senate.