II 

110TH CONGRESS 

2D SESSION S. 3739 

To address the regulation of derivatives and unregistered hedge funds, and 

for other purposes. 

IN THE SENATE OF THE UNITED STATES 

DECEMBER 11 (legislative day, DECEMBER 10), 2008 

Mr. DORGAN (for himself and Mr. FEINGOLD) introduced the following bill; 

which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs 

A BILL 

To address the regulation of derivatives and unregistered 

hedge funds, 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 and Hedge 

5 Fund Regulatory Improvement Act of 2008’’. 

6 SEC. 2. COORDINATED RULEMAKING. 

7 (a) INITIATION OF PROCEEDINGS.—Not later than 

8 90 days after the date of enactment of this Act, the appro9 priate Federal banking agencies, in coordination with the 

10 Commission, after consultation with the Secretary of the 


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1 Treasury and the Commodity Futures Trading Commis2 sion, shall initiate a coordinated rulemaking with respect 

3 to the entities under their respective jurisdictions that en4 gage in transactions involving unregistered hedge funds or 

5 over-the-counter derivatives— 

6 (1) to extend the requirements of regulations 

7 relating to the safety and soundness of the financial 

8 system applicable to mutual funds under the Invest9 ment Company Act of 1940 (15 U.S.C. 80a–1 et 

10 seq.) to unregistered hedge funds, including— 

11 (A) requiring the fund to disclose its poli12 cies on borrowing money and requiring a share13 holder vote to change such policy, as in section 

14 5 of that Act (15 U.S.C. 80a–5); 

15 (B) strict record keeping and reporting 

16 rules, as in section 30 of that Act (15 U.S.C. 

17 80a–29); and 

18 (C) capital structure requirements, as in 

19 section 18 of that Act (15 U.S.C. 80a–18); 

20 (2) to provide for the regulation of over-the21 counter derivatives, including credit default swaps, 

22 interest rate swaps, currency swaps, mortgage23 backed securities, asset-backed securities, 

24 collateralized debt obligations, and other derivatives 

25 that are not traded on a national securities exchange 


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1 or by a registered securities association, in the pub2 lic interest and for the protection of investors, the 

3 stability of the financial markets, and the well-being 

4 of the economy; and 

5 (3) to prohibit insured depository institutions 

6 from trading derivatives for their own accounts. 

7 (b) COORDINATION, CONSISTENCY, AND COM8 PARABILITY.—Each of the agencies and authorities re9 ferred to in subsection (a) shall consult and coordinate 

10 with the other such agencies and authorities for the pur11 pose of assuring, to the extent possible, that the regula12 tions by each such agency and authority are consistent 

13 and comparable with those prescribed by the other such 

14 agencies and authorities. 

15 SEC. 3. SCOPE AND DEADLINE. 

16 The appropriate Federal banking agencies and the 

17 Commission shall, not later than 12 months after the date 

18 of enactment of this Act, issue the rules required by this 

19 Act in final form that are designed— 

20 (1) to avoid systemic risks to the financial mar21 kets; 

22 (2) to ensure safe and sound operation of 

23 banks, including by requiring the maintenance of 

24 sufficient capital levels and limits on aggregate le25 verage and establishing appropriate restrictions on 


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1 the buying, selling, or entering into derivatives by an 

2 insured depository institution for its own account; 

3 and 

4 (3) to provide means to prevent fraudulent, de5 ceptive, or manipulative practices. 

6 SEC. 4. AUTHORITY TO GRANT EXCEPTIONS. 

7 The regulations prescribed under this Act may allow 

8 an insured depository institution to purchase, sell, or en9 gage in traditional hedging transactions or to purchase, 

10 sell, or engage in transactions involving de minimus inter11 ests in derivatives for the account of that institution, but 

12 only to the extent that such exceptions are consistent with 

13 the safety and soundness of such institution. 

14 SEC. 5. AGENCY AUTHORITY. 

15 The rules issued under this Act shall be enforced by 

16 the appropriate Federal banking agencies with respect to 

17 entities under their respective jurisdictions, and by the 

18 Commission with respect to any other entity that engages 

19 in transactions involving unregistered hedge funds or over20 the-counter derivatives. 

21 SEC. 6. DEFINITIONS. 

22 As used in this Act— 

23 (1) the terms ‘‘appropriate Federal banking 

24 agency’’, ‘‘Federal banking agencies’’, and ‘‘insured 

25 depository institution’’ have the same meanings as 


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1 in section 3 of the Federal Deposit Insurance Act 

2 (12 U.S.C. 1813); 

3 (2) the term ‘‘Commission’’ means the Securi4 ties and Exchange Commission; and 

5 (3) the term ‘‘derivative’’— 

6 (A) means any financial contract or other 

7 instrument that derives its value from the value 

8 or performance of any security or other finan9 cial instrument, or of any excluded commodity 

10 (as that term is defined in section 1a of the 

11 Commodity Exchange Act (7 U.S.C. 1a)); and 

12 (B) does not include— 

13 (i) any security that is traded on a 

14 national securities exchange or on an auto15 mated interdealer quotation system spon16 sored by a securities association registered 

17 under section 15A of the Securities Ex18 change Act of 1934 (15 U.S.C. 78o–3); or 

19 (ii) any forward contract which has a 

20 maturity at a time of issuance of not 

21 longer than 270 days; 

22 (4) the term ‘‘unregistered hedge fund’’— 

23 (A) means any pooled investment vehicle, 

24 or group or family of pooled investment vehi25 cles, that— 


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1 (i) has total assets under management 

2 of not less than $1,000,000,000 or such 

3 other amount as is determined to be ap4 propriate by the appropriate Federal bank5 ing agency and the Commission with re6 spect to the entities under their respective 

7 jurisdictions; and 

8 (ii) is excepted from the definition of 

9 an investment company by paragraph (1) 

10 or (7) of section 3(c) of the Investment 

11 Company Act of 1940, or is a foreign com12 pany that would be required to obtain an 

13 order from the Commission under section 

14 7(d) of that Act if it made a public offer15 ing of its securities by use of the mails and 

16 means or instrumentalities of interstate 

17 commerce; and 

18 (B) does not include a commodity pool op19 erator or futures commission merchant (as such 

20 terms are defined in section 1a of the Com21 modity Exchange Act (7 U.S.C. 1a)). 

Æ 


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