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[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5585 Enrolled Bill (ENR)]

        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;''.

        (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'';
            (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.''.
    (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 Contracts.--
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'';
                    (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 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) 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 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 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 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 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.

                ``(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.''.
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.
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