A bill to address the regulation of derivatives and unregistered hedge funds, and for other purposes.

SECTION 1. SHORT TITLE.

    This Act may be cited as the ``Derivatives and Hedge Fund 
Regulatory Improvement Act of 2008''.

SEC. 2. COORDINATED RULEMAKING.

    (a) Initiation of Proceedings.--Not later than 90 days after the 
date of enactment of this Act, the appropriate Federal banking 
agencies, in coordination with the Commission, after consultation with 
the Secretary of the Treasury and the Commodity Futures Trading 
Commission, shall initiate a coordinated rulemaking with respect to the 
entities under their respective jurisdictions that engage in 
transactions involving unregistered hedge funds or over-the-counter 
derivatives--
            (1) to extend the requirements of regulations relating to 
        the safety and soundness of the financial system applicable to 
        mutual funds under the Investment Company Act of 1940 (15 
        U.S.C. 80a-1 et seq.) to unregistered hedge funds, including--
                    (A) requiring the fund to disclose its policies on 
                borrowing money and requiring a shareholder vote to 
                change such policy, as in section 5 of that Act (15 
                U.S.C. 80a-5);
                    (B) strict record keeping and reporting rules, as 
                in section 30 of that Act (15 U.S.C. 80a-29); and
                    (C) capital structure requirements, as in section 
                18 of that Act (15 U.S.C. 80a-18);
            (2) to provide for the regulation of over-the-counter 
        derivatives, including credit default swaps, interest rate 
        swaps, currency swaps, mortgage-backed securities, asset-backed 
        securities, collateralized debt obligations, and other 
        derivatives that are not traded on a national securities 
        exchange or by a registered securities association, in the 
        public interest and for the protection of investors, the 
        stability of the financial markets, and the well-being of the 
        economy; and
            (3) to prohibit insured depository institutions from 
        trading derivatives for their own accounts.
    (b) Coordination, Consistency, and Comparability.--Each of the 
agencies and authorities referred to in subsection (a) shall consult 
and coordinate with the other such agencies and authorities for the 
purpose of assuring, to the extent possible, that the regulations by 
each such agency and authority are consistent and comparable with those 
prescribed by the other such agencies and authorities.

SEC. 3. SCOPE AND DEADLINE.

    The appropriate Federal banking agencies and the Commission shall, 
not later than 12 months after the date of enactment of this Act, issue 
the rules required by this Act in final form that are designed--
            (1) to avoid systemic risks to the financial markets;
            (2) to ensure safe and sound operation of banks, including 
        by requiring the maintenance of sufficient capital levels and 
        limits on aggregate leverage and establishing appropriate 
        restrictions on the buying, selling, or entering into 
        derivatives by an insured depository institution for its own 
        account; and
            (3) to provide means to prevent fraudulent, deceptive, or 
        manipulative practices.

SEC. 4. AUTHORITY TO GRANT EXCEPTIONS.

    The regulations prescribed under this Act may allow an insured 
depository institution to purchase, sell, or engage in traditional 
hedging transactions or to purchase, sell, or engage in transactions 
involving de minimus interests in derivatives for the account of that 
institution, but only to the extent that such exceptions are consistent 
with the safety and soundness of such institution.

SEC. 5. AGENCY AUTHORITY.

    The rules issued under this Act shall be enforced by the 
appropriate Federal banking agencies with respect to entities under 
their respective jurisdictions, and by the Commission with respect to 
any other entity that engages in transactions involving unregistered 
hedge funds or over-the-counter derivatives.

SEC. 6. DEFINITIONS.

    As used in this Act--
            (1) the terms ``appropriate Federal banking agency'', 
        ``Federal banking agencies'', and ``insured depository 
        institution'' have the same meanings as in section 3 of the 
        Federal Deposit Insurance Act (12 U.S.C. 1813);
            (2) the term ``Commission'' means the Securities and 
        Exchange Commission; and
            (3) the term ``derivative''--
                    (A) means any financial contract or other 
                instrument that derives its value from the value or 
                performance of any security or other financial 
                instrument, or of any excluded commodity (as that term 
                is defined in section 1a of the Commodity Exchange Act 
                (7 U.S.C. 1a)); and
                    (B) does not include--
                            (i) any security that is traded on a 
                        national securities exchange or on an automated 
                        interdealer quotation system sponsored by a 
                        securities association registered under section 
                        15A of the Securities Exchange Act of 1934 (15 
                        U.S.C. 78o-3); or
                            (ii) any forward contract which has a 
                        maturity at a time of issuance of not longer 
                        than 270 days;
            (4) the term ``unregistered hedge fund''--
                    (A) means any pooled investment vehicle, or group 
                or family of pooled investment vehicles, that--
                            (i) has total assets under management of 
                        not less than $1,000,000,000 or such other 
                        amount as is determined to be appropriate by 
                        the appropriate Federal banking agency and the 
                        Commission with respect to the entities under 
                        their respective jurisdictions; and
                            (ii) is excepted from the definition of an 
                        investment company by paragraph (1) or (7) of 
                        section 3(c) of the Investment Company Act of 
                        1940, or is a foreign company that would be 
                        required to obtain an order from the Commission 
                        under section 7(d) of that Act if it made a 
                        public offering of its securities by use of the 
                        mails and means or instrumentalities of 
                        interstate commerce; and
                    (B) does not include a commodity pool operator or 
                futures commission merchant (as such terms are defined 
                in section 1a of the Commodity Exchange Act (7 U.S.C. 
                1a)).

Summary: Derivatives and Hedge Fund Regulatory Improvement Act of 2008 - Directs the appropriate federal banking agencies, with respect to the entities under their respective jurisdictions that engage in transactions involving unregistered hedge funds or over-the-counter derivatives, to initiate a coordinated rulemaking to: (1) extend to unregistered hedge funds the requirements governing the safety and soundness of the financial system applicable to mutual funds; (2) provide for the regulation of over-the-counter derivatives that are not traded on a national securities exchange or by a registered securities association (including credit default swaps, interest rate swaps, currency swaps, mortgage-backed securities, asset-backed securities, and collateralized debt obligations); and (3) prohibit insured depository institutions from trading derivatives for their own accounts.

Requires the appropriate federal banking agencies and the Securities and Exchange Commission (SEC) to promulgate rules designed to: (1) avoid systemic risks to the financial markets; (2) ensure safe and sound operation of banks, including mandatory maintenance of sufficient capital levels and limits on aggregate leverage, and restrictions on buying, selling, or entering into derivatives by an insured depository institution for its own account; and (3) provide means to prevent fraudulent, deceptive, or manipulative practices.