[House Report 108-277]
[From the U.S. Government Publishing Office]
108th Congress Rept. 108-277
HOUSE OF REPRESENTATIVES
1st Session Part 1
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FINANCIAL CONTRACTS BANKRUPTCY REFORM ACT OF 2003
_______
September 18, 2003.--Ordered to be printed
_______
Mr. Oxley, from the Committee on Financial Services, submitted the
following
R E P O R T
[To accompany H.R. 2120]
[Including cost estimate of the Congressional Budget Office]
The Committee on Financial Services, to whom was referred the
bill (H.R. 2120) to revise the banking and bankruptcy
insolvency laws with respect to the termination and netting of
financial contracts, and for other purposes, having considered
the same, reports favorably thereon without amendment and
recommends that the bill do pass.
CONTENTS
Page
Purpose and Summary.............................................. 2
Background and Need for Legislation.............................. 2
Hearings......................................................... 3
Committee Consideration.......................................... 3
Committee Votes.................................................. 3
Committee Oversight Findings..................................... 4
Performance Goals and Objectives................................. 4
New Budget Authority, Entitlement Authority, and Tax Expenditures 4
Committee Cost Estimate.......................................... 4
Congressional Budget Office Cost Estimate........................ 4
Federal Mandates Statement....................................... 5
Advisory Committee Statement..................................... 6
Constitutional Authority Statement............................... 6
Applicability to Legislative Branch.............................. 6
Section-by-Section Analysis...................................... 6
Changes in Existing Law Made by the Bill, as Reported............ 22
Purpose and Summary
H.R. 2120, the Financial Contracts Bankruptcy Reform Act of
2003, will revise the banking and bankruptcy insolvency laws
with respect to the netting of financial contracts.
Specifically, the bill amends the U.S. Bankruptcy Code, the
Federal Deposit Insurance Act (FDIA), as amended by the
Financial Institutions Reform, Recovery, and Enforcement Act of
1989 (FIRREA), the payment system risk reduction and netting
provisions of the Federal Deposit Insurance Corporation
Improvement Act of 1991 (FDICIA), and the Securities Investor
Protection Act of 1970 (SIPA). These amendments address the
treatment of certain financial transactions following the
insolvency of a party to those transactions. The amendments are
designed to clarify and improve the consistency between the
applicable statutes and to minimize the risk of a disruption
within or between financial markets upon the insolvency of a
market participant.
Background and Need for Legislation
Financial institutions often utilize several different but
related financial transactions to obtain and provide liquidity
to the marketplace, while mitigating risk. For example, a
financial institution may enter into a transaction which may
entail exposure, but enter into an offsetting transaction which
hedges that exposure. In these important market activities,
which can involve huge sums and concentrated exposures, the
inability of one party to exercise its contractual ``self-
help'' rights in the event of the insolvency of the other party
could cause ripple effects, given the interconnected nature of
the financial markets, undermining the financial condition of
the non-bankrupt party (and its counterparties) and the markets
more generally.
Recognizing the important role of these transactions in
capital formation and market liquidity and the potential for a
chain reaction of insolvencies should non-bankrupt parties'
contractual self-help rights be impaired, Congress has included
provisions in the Bankruptcy Code and the bank insolvency laws
that expressly protect the exercise of these rights in the
event of bankruptcy or insolvency. However, it has been more
than ten years since the last legislative update to the safe-
harbor provisions. The financial markets have evolved during
that time in ways that leave various transactions and parties
subject to legal uncertainty. As a greater variety of market
participants engage in a broader range of transactions,
statutory inconsistencies have surfaced that make it difficult
to conclude that Congress's goal of minimizing systemic risk
has been fully achieved through the existing market safe
harbors. H.R. 2120 contains important technical corrections
that are needed to minimize systemic risk in light of market
developments.
H.R. 2120 furthers the goals of prior amendments to the
Bankruptcy Code and the FDIA regarding the treatment of those
financial contracts and of the payment system risk reduction
provisions in FDICIA. H.R. 2120 has four principal purposes:
(1) To strengthen the provisions of the Bankruptcy Code and
the FDIA that protect the enforceability of acceleration,
termination, liquidation, close-out netting, collateral
foreclosure and related provisions of certain financial
agreements and transactions;
(2) To harmonize the treatment of these financial
agreements and transactions under the Bankruptcy Code and the
FDIA;
(3) To amend the FDIA and FDICIA to clarify that certain
rights of the FDIC acting as conservator or receiver for a
failed insured depository institution (and in some situations,
rights of SIPC and receivers of certain uninsured institutions)
cannot be defeated by operation of the terms of FDICIA; and,
(4) To make other substantive and technical amendments to
clarify the enforceability of financial agreements and
transactions in bankruptcy or insolvency.
All these changes are designed to further minimize systemic
risk to the banking system and the financial markets.
H.R. 2120, the Financial Contracts Bankruptcy Reform Act of
2003, is based on the work of the President's Working Group on
Financial Markets\1\ following a review of current statutory
provisions governing the treatment of qualified financial
contracts and similar financial contracts upon the insolvency
of a counterparty. The provisions of this bill--which have
historically been included in comprehensive bankruptcy reform
legislation--have passed the House and Senate on numerous
occasions without opposition. Both the Federal Reserve Board
and the Administration support these provisions. Additionally,
the provisions contained in H.R. 2120 have passed the House and
Senate on numerous occasions with broad bipartisan support.
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\1\ The Working Group consists of the Secretary of the Treasury,
and the chairmen of the Federal Reseve Board of Governors, the
Securities Exchange Commission, and the Commodities Futures Trading
Commission, with the participation of the heads of the Federal Deposit
Insurance Corporation, the Office of the Comptroller of the Currency,
the Office of Thrift Supervision, and the New York Federal Reserve
Bank.
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H.R. 2120 would substantially improve the statutory regime
that governs financial transactions when a party fails to meet
its payment obligations. The legislation would harmonize the
Bankruptcy Code and bank insolvency laws governing swaps,
repurchase agreements, securities contacts, forward contracts,
and commodity contracts.
Hearings
No hearings were held on this legislation in the 108th
Congress.
Committee Consideration
The Committee on Financial Services met in open session on
May 21, 2003 and ordered H.R. 2120 reported to the House with a
favorable recommendation by a voice vote, without amendment.
Committee Votes
Clause 3(b) of rule XIII of the Rules of the House of
Representatives requires the Committee to list the record votes
on the motion to report legislation and amendments thereto. No
record votes were taken in conjunction with the consideration
of this legislation. A motion by Mr. Oxley to report the bill
to the House with a favorable recommendation was agreed to by a
voice vote.
Committee Oversight Findings
Pursuant to clause 3(c)(1) of rule XIII of the Rules of the
House of Representatives, the Committee made findings that are
reflected in this report.
Performance Goals and Objectives
Pursuant to clause 3(c)(4) of rule XIII of the Rules of the
House of Representatives, the Committee establishes the
following performance related goals and objectives for this
legislation:
This legislation will clarify and improve the consistency
between the applicable statutes and to minimize the risk of a
disruption within or between financial markets upon the
insolvency of a market participant.
New Budget Authority, Entitlement Authority, and Tax Expenditures
In compliance with clause 3(c)(2) of rule XIII of the Rules
of the House of Representatives, the Committee adopts as its
own the estimate of budget authority, entitlement authority, or
tax expenditures or revenues contained in the cost estimate
prepared by the Director of the Congressional Budget Office
pursuant to section 402 of the Congressional Budget Act of
1974.
Committee Cost Estimate
The Committee adopts as its own the cost estimate prepared
by the Director of the Congressional Budget Office pursuant to
section 402 of the Congressional Budget Act of 1974.
Congressional Budget Office Estimate
Pursuant to clause 3(c)(3) of rule XIII of the Rules of the
House of Representatives, the following is the cost estimate
provided by the Congressional Budget Office pursuant to section
402 of the Congressional Budget Act of 1974:
U.S. Congress,
Congressional Budget Office,
Washington, DC, June 5, 2003.
Hon. Michael G. Oxley,
Chairman, Committee on Financial Services,
House of Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for H.R. 2120, the
Financial Contracts Bankruptcy Reform Act of 2003.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contact is Susanne S.
Mehlman.
Sincerely,
Douglas Holtz-Eakin,
Director.
Enclosure.
H.R. 2120--Financial Contracts Bankruptcy Reform Act of 2003
H.R. 2120 would address the treatment of certain financial
transactions when a party to such transactions can no longer
meet its financial obligations. CBO estimates that implementing
H.R. 2120 would have no significant impact on the federal
budget. By potentially increasing the costs of the Federal
Deposit Insurance Corporation (FDIC) and the Federal Reserve,
the bill could affect direct spending and revenues, but CBO
estimates that any such impact would be negligible.
Financial institutions often use various types of complex
financial transactions, such as swaps and derivative contracts,
to obtain and provide liquidity to the marketplace. Such
transactions entail risk, while others can be used to hedge
against such risk. Because of the interconnected nature of the
financial markets, a default by one party could adversely
affect another party and cause disruptions within financial
markets.
Under U.S. law, several statutes govern the insolvencies of
participants in financial markets, but as financial
transactions have become more complex and sophisticated, many
statutory inconsistencies between these laws have emerged.
Enacting H.R. 2120 would make technical changes to the U.S.
Bankruptcy Code, the Federal Deposit Insurance Act, the Federal
Deposit Insurance Corporation Improvement Act of 1991, and the
Securities Investor Protection Act of 1970 to improve
consistency between these statutes. Such amendments include
clarifying and expanding the definitions of various types of
financial transactions, such as ``repurchase agreement'' and
``swap agreement.'' Other changes would address issues such as
how to calculate damages when certain financial obligations are
not met.
Certain provisions of H.R. 2120, specifically in section 2
and 7, would explicitly preempt state laws that may relate to
these types of financial transactions. Such preemptions are
intergovernmental mandates as defined in the Unfunded Mandates
Reform Act (UMRA), but CBO estimates any costs to states would
be insignificant and would not exceed the threshold established
in UMRA ($59 million in 2003 adjusted annually for inflation).
The bill contains no new private-sector mandates as defined in
UMRA.
According to the FDIC this bill would essentially ratify
current practices involving the settlement of complex financial
transactions during insolvencies or bankruptcy proceedings.
Thus, CBO estimates that enacting H.R. 2120 would not result in
any significant cost to the federal government. In addition,
CBO estimates that any cost associated with the FDIC's
requirement to develop regulations for recordkeeping by insured
depository institutions, as well as the Federal Reserve, under
section 9 of this legislation would be negligible.
The CBO staff contact for this estimate is Susanne S.
Mehlman. This estimate was approved by Peter H. Fontaine,
Deputy Assistant Director for Budget Analysis.
Federal Mandates Statement
The Committee adopts as its own the estimate of Federal
mandates prepared by the Director of the Congressional Budget
Office pursuant to section 423 of the Unfunded Mandates Reform
Act.
Advisory Committee Statement
No advisory committees within the meaning of section 5(b)
of the Federal Advisory Committee Act were created by this
legislation.
Constitutional Authority Statement
Pursuant to clause 3(d)(1) of rule XIII of the Rules of the
House of Representatives, the Committee finds that the
Constitutional Authority of Congress to enact this legislation
is provided by Article 1, section 8, clause 1 (relating to the
defense and general welfare of the United States), and clause 3
(relating to the power to regulate foreign and interstate
commerce).
Applicability to Legislative Branch
The Committee finds that the legislation does not relate to
the terms and conditions of employment or access to public
services or accommodations within the meaning of section
102(b)(3) of the Congressional Accountability Act.
Section-by-Section Analysis of the Legislation
Section 1. Short Title; Table of Contents
This section provides the short title of the bill, the
``Financial Contracts Bankruptcy Reform Act of 2002,'' and a
table of contents.
Section 2. Treatment of Certain Agreements by Conservatiors or
Receivers of Insured Depository Institutions
Subsections (a) through (f) of section 2 of the bill amend
the Federal Deposit Insurance Act's (FDIA) definitions of
``qualified financial contract,'' ``securities contract,''
``commodity contract,'' ``forward contract,'' ``repurchase
agreement'' and ``swap agreement'' to make them consistent with
the definitions in the Bankruptcy Code and to reflect the
enactment of the Commodity Futures Modernization Act of 2000
(CFMA). It is intended that the legislative history and case
law surrounding those terms, to the date of this amendment, be
incorporated into the legislative history of the FDIA.
Subsection (b) amends the definition of ``securities
contract'' expressly to encompass margin loans, to clarify the
coverage of securities options and to clarify the coverage of
repurchase and reverse repurchase transactions. The inclusion
of ``margin loans'' in the definition is intended to encompass
only those loans commonly known in the securities industry as
``margin loans,'' such as arrangements where a securities
broker or dealer extends credit to a customer in connection
with the purchase, sale, or trading of securities, and does not
include lonas that are not commonly referred to as ``margin
loans.'' The reference in subsection (b) to a ``guarantee by or
to any securities clearing agency'' is intended to cover other
arrangements, such as novation, that have an effect similar to
a guarantee. The reference to a ``loan'' of a security in the
definition is intended to apply to loans of securities, whether
or not for a ``permitted purpose'' under margin regulations.
The reference to ``repurchase and reverse repurchase
transactions'' is intended to eliminate any inquiry under the
qualified financial contract provisions of the FDIA as to
whether a repurchase or reverse repurchase transaction is a
purchase and sale transaction or a secured financing.
Repurchase and reverse repurchase transactions meeting certain
criteria are already covered under the definition of
``repurchase agreement'' in the FDIA (and a regulation of the
Federal Deposit Insurance Corporation (FDIC)). Repurchase and
reverse repurchase transactions on all securities (including,
for example, equity securities, asset-backed securities,
corporate bonds and commercial paper) are included under the
definition of ``securities contract.'' Subsection (b) also
specifies that purchase, sale and repurchase obligations under
a participation in a commercial mortgage loan do not constitute
``securities contracts.'' While a contract for the purchase,
sale or repurchase of a participation may constitute a
``securities contract,'' the purchase, sale or repurchase
obligation embedded in a participation agreement does not make
that agreement a ``securities contract.''
A number of terms used in the qualified financial contract
provisions, but not defined therein, are intended to have the
meanings set forth in the analogous provisions of the
Bankruptcy Code or Federal Deposit Insurance Corporation
Improvement Act, such as, for example, ``securities clearing
agency''. The term ``person,'' however, is intended to have the
meaning set forth in section 1 of title 1 of the United States
Code.
Section 2(c) amends the definition of ``commodity
contract'' in section 11(e)(8)(D)(iii) of the Federal Deposit
Insurance Act. Section 2(d) amends section 11(e)(8)(D)(iv) of
the Federal Deposit Insurance Act with respect to its
definition of a ``forward contract.''
Subsection (e) amends the definition of ``repurchase
agreement'' to codify the substance of the FDIC's 1995
regulation defining repurchase agreement to include those on
qualified foreign government securities. The term ``qualified
foreign government securities'' is defined to include those
that are direct obligations of, or fully guaranteed by, central
governments of members of the Organization for Economic
Cooperation and Development (OECD), as determined by rule, of
the appropriate Federal banking agency. Subsection (e) reflects
developments in the repurchase agreement markets, which
increasingly use foreign government securities as the
underlying asset. The securities are limited to those issued by
or guaranteed by full members of the OECD, as well as countries
that have concluded special lending arrangements with the
International Monetary Fund associated with the Fund's General
Arrangements to Borrow. (See 12 C.F.R. 360.5.)
Subsection (e) also amends the definition of ``repurchase
agreement'' to include those on mortgage-related securities,
mortgage loans and interests therein, and to include principal
and interest-only U.S. government and agency securities as
securities that can be the subject of a ``repurchase
agreement.'' The reference in the definition to United States
government- and agency-issued or fully guaranteed securities is
intended to include obligations issued or guaranteed by Fannie
Mae and the Federal Home Loan Mortgage Corporation (Freddie
Mac) as well as all obligations eligible for purchase by
Federal Reserve banks under the similar language of section
14(b) of the Federal Reserve Act. This amendment is not
intended to affect the status of repos involving securities or
commodities as securities contracts, commodity contracts, or
forward contracts, and their consequent eligibility for similar
treatment under the qualified financial contract provisions. In
particular, an agreement for the sale and repurchase of a
security would continue to be a securities contract as defined
in the FDIA, even if not a ``repurchase agreement'' as defined
in the FDIA. Similarly, an agreement for the sale and
repurchase of a commodity, even though not a ``repurchase
agreement'' as defined in the FDIA, would continue to be a
forward contract for purposes of the FDIA.
Subsection (e), like subsection (b) for ``securities
contracts,'' specifies that repurchase obligations under a
participation in a commercial mortgage loan do not make the
participation agreement a ``repurchase agreement.'' Such
repurchase obligations embedded in participations in commercial
loans (such as recourse obligations) do not constitute a
``repurchase agreement.'' A repurchase agreement involving the
transfer of participations in commercial mortgage loans with a
simultaneous agreement to repurchase the participation on
demand or at a date certain 1 year or less after such transfer,
however, would constitute a ``repurchase agreement'' as well as
a ``securities contract''.
Section 2(f) of the bill amends the definition of ``swap
agreement'' to include an ``interest rate swap, option, future,
or forward agreement, including a rate floor, rate cap, rate
collar, cross-currency rate swap, and basis swap; a spot, same
day-tomorrow, tomorrow-next, forward, or other foreign exchange
or precious metals agreement; a currency swap, option, future,
or forward agreement; an equity index or equity swap, option,
future, or forward agreement; a debt index or debt swap,
option, future, or forward agreement; a total return, credit
spread or credit swap, option, future, or forward agreement; a
commodity index or commodity swap, option, future, or forward
agreement; or a weather swap, weather derivative, or weather
option.'' As amended, the definition of ``swap agreement'' will
update the statutory definition and achieve contractual netting
across economically similar transactions that are the subject
of recurring dealings in the swap agreements.
The definition of ``swap agreement'' was originally
intended to provide sufficient flexibility to avoid the need to
amend the definition as the nature and uses of swap
transactions matured. To that end, the phrase ``or any other
similar agreement'' was included in the definition. (The phrase
``or any similar agreement'' has been added to the definitions
of ``forward contract,'' ``commodity contract,'' ``repurchase
agreement'' and ``securities contract'' for the same reason.)
To clarify this, subsection (f) expands the definition of
``swap agreement'' to include ``any agreement or transaction
that is similar to any other agreement or transaction referred
to in [section 11(e)(8)(D)(vi) of the FDIA] and is of a type
that has been, is presently, or in the future becomes, the
subject of recurrent dealings in the swap markets * * * and
that is a forward, swap, future, or option on one or more
rates, currencies, commodities, equity securities or other
equity instruments, debt securities or other debt instruments,
quantitative measures associated with an occurrence, extent of
an occurrence, or contingency associated with a financial,
commercial, or economic consequence, or economic or financial
indices or measures of economic or financial risk or value.''
The definition of ``swap agreement,'' however, should not
be interpreted to permit parties to document non-swaps as swap
transactions. Traditional commercial arrangements, such as
supply agreements, or other non-financial market transactions,
such as commercial, residential or consumer loans, cannot be
treated as ``swaps'' under either the FDIA or the Bankruptcy
Code simply because the parties purport to document or label
the transactions as ``swap agreements.'' In addition, these
definitions apply only for purposes of the FDIA and the
Bankruptcy Code. These definitions, and the characterization of
a certain transaction as a ``swap agreement,'' are not intended
to affect the characterization, definition, or treatment of any
instruments under any other statute, regulation, or rule
including, but not limited to, the statutes, regulations or
rules enumerated in subsection (f). Similarly, section 17 and a
new paragraph of section 11(e) of the FDIA provide that the
definitions of ``securities contract,'' ``repurchase
agreement,'' ``forward contract,'' and ``commodity contract,''
and the characterization of certain transactions as such a
contract or agreement, are not intended to affect the
characterization, definition, or treatment of any instruments
under any other statute, regulation, or rule including, but not
limited to, the statutes, regulations or rules enumerated in
subsection (f).
The definition also includes any security agreement or
arrangement, or other credit enhancement, related to a swap
agreement, including any guarantee or reimbursement obligation
related to a swap agreement. This ensures that any such
agreement, arrangement or enhancement is itself deemed to be a
swap agreement, and therefore eligible for treatment as such
for purposes of termination, liquidation, acceleration, offset
and netting under the FDIA and the Bankruptcy Code. Similar
changes are made in the definitions of ``forward contract,''
``commodity contract,'' ``repurchase agreement'' and
``securities contract.''
The use of the term ``forward'' in the definition of ``swap
agreement'' is not intended to refer only to transactions that
fall within the definition of ``forward contract.'' Instead, a
``forward'' transaction could be a ``swap agreement'' even if
not a ``forward contract.''
Section 2(g) amends the FDIA by adding a definition for
``transfer,'' which is a key term used in the FDIA, to ensure
that it is broadly construed to encompass dispositions of
property or interests in property. The definition tracks that
in section 101 of the Bankruptcy Code.
Section 2(h) makes clarifying technical changes to conform
the receivership and conservatorship provisions of the FDIA. It
also clarifies that the FDIA expressly protects rights under
security agreements, arrangements or other credit enhancements
related to one or more qualified financial contracts (QFCs). An
example of a security arrangement is a right of setoff, and
examples of other credit enhancements are letters of credit,
guarantees, reimbursement obligations and other similar
agreements.
Section 2(i) of the bill clarifies that no provision of
Federal or state law relating to the avoidance of preferential
or fraudulent transfers (including the anti-preference
provision of the National Bank Act) can be invoked to avoid a
transfer made in connection with any QFC of an insured
depository institution in conservatorship or receivership,
absent actual fraudulent intent on the part of the transferee.
Section 3. Authority of the FDIC and NCUAB with Respect to Failed and
Failing Institutions
Section 3 of the bill provides that no provision of law,
including FDICIA, shall be construed to limit the power of the
FDIC to transfer or to repudiate any QFC in accordance with its
powers under the FDIA. As discussed below, there has been some
uncertainty regarding whether or not FDICIA limits the
authority of the FDIC to transfer or to repudiate QFCs of an
insolvent financial institution. Section 3, as well as other
provisions in the Act, clarify that FDICIA does not limit the
transfer powers of the FDIC with respect to QFCs.
Section 3 denies enforcement to ``walkaway'' clauses in
QFCs. A walkaway clause is defined as a provision that, after
calculation of a value of a party's position or an amount due
to or from one of the parties upon termination, liquidation or
acceleration of the QFC, either does not create a payment
obligation of a party or extinguishes a payment obligation of a
party in whole or in part solely because of such party's status
as a non-defaulting party.
Section 4. Amendments Relating to Transfers of Qualified Financial
Contracts
Section 4 of the bill amends the FDIA to expand the
transfer authority of the FDIC to permit transfers of QFCs to
``financial institutions'' as defined in FDICIA or in
regulations. This provision will allow the FDIC to transfer
QFCs to a non-depository financial institution, provided the
institution is not subject to bankruptcy or insolvency
proceedings.
The new FDIA provision specifies that when the FDIC
transfers QFCs that are cleared on or subject to the rules of a
particular clearing organization, the transfer will not require
the clearing organization to accept the transferee as a member
of the organization. This provision gives the FDIC flexibility
in resolving QFCs cleared on or subject to the rules of a
clearing organization, while preserving the ability of such
organizations to enforce appropriate risk reducing membership
requirements. The amendment does not require the clearing
organization to accept for clearing any QFCs from the
transferee, except on the terms and conditions applicable to
other parties permitted to clear through that clearing
organization. ``Clearing organization'' is defined to mean a
``clearing organization'' within the meaning of FDICIA (as
amended both by the CFMA and by section 7 of the bill).
The new FDIA provision also permits transfers to an
eligible financial institution that is a non-U.S. person, or
the branch or agency of a non-U.S. person or a U.S. financial
institution that is not an FDIC-insured institution if,
following the transfer, the contractual rights of the parties
would be enforceable substantially to the same extent as under
the FDIA. It is expected that the FDIC would not transfer QFCs
to such a financial institution if there were an impending
change of law that would impair the enforceability of the
parties' contractual rights.
Section 4(b) amends the notification requirements following
a transfer of the QFCs of a failed depository institution to
require the FDIC to notify any party to a transferred QFC of
such transfer by 5 p.m. (Eastern Time) on the business day
following the date of the appointment of the FDIC acting as
receiver or following the date of such transfer by the FDIC
acting as a conservator. This amendment is consistent with the
policy statement on QFCs issued by the FDIC on December 12,
1989.
Section 4(c) amends the FDIA to clarify the relationship
between the FDIA and FDICIA. There has been some uncertainty
whether FDICIA permits counterparties to terminate or liquidate
a QFC before the expiration of the time period provided by the
FDIA during which the FDIC may repudiate or transfer a QFC in a
conservatorship or receivership. Subsection (c) provides that a
party may not terminate a QFC based solely on the appointment
of the FDIC as receiver until 5 p.m. (Eastern Time) on the
business day following the appointment of the receiver or after
the person has received notice of a transfer under FDIA section
11(d)(9), or based solely on the appointment of the FDIC as
conservator, notwithstanding the provisions of FDICIA. This
provides the FDIC with an opportunity to undertake an orderly
resolution of the insured depository institution.
Section 4(c) also prohibits the enforcement of rights of
termination or liquidation that arise solely because of the
insolvency of the institution or are based on the ``financial
condition'' of the depository institution in receivership or
conservatorship. For example, termination based on a cross-
default provision in a QFC that is triggered upon a default
under another contract could be rendered ineffective if such
other default was caused by an acceleration of amounts due
under that other contract, and such acceleration was based
solely on the appointment of a conservator or receiver for that
depository institution. Similarly, a provision in a QFC
permitting termination of the QFC based solely on a downgraded
credit rating of a party will not be enforceable in an FDIC
receivership or conservatorship because the provision is based
solely on the financial condition of the depository institution
in default. However, any payment, delivery or other
performance-based default, or breach of a representation or
covenant putting in question the enforceability of the
agreement, will not be deemed to be based solely on financial
condition for purposes of this provision. The amendment is not
intended to prevent counterparties from taking all actions
permitted and recovering all damages authorized upon
repudiation of any QFC by a conservator or receiver, or from
taking actions based upon a receivership or other financial
condition-triggered default in the absence of a transfer (as
contemplated in Section 11(e)(10) of the FDIA). The amendment
allows the FDIC to meet its obligation to provide notice to
parties to transferred QFCs by taking steps reasonably
calculated to provide notice to such parties by the required
time. This is consistent with the existing policy statement on
QFCs issued by the FDIC on December 12, 1989.
Finally, the amendment permits the FDIC to transfer QFCs of
a failed depository institution to a bridge bank or a
depository institution organized by the FDIC for which a
conservator is appointed either (i) immediately upon the
organization of such institution or (ii) at the time of a
purchase and assumption transaction between the FDIC and the
institution. This provision clarifies that such institutions
are not to be considered financial institutions that are
ineligible to receive such transfers under FDIA section
11(e)(9). This is consistent with the existing policy statement
on QFCs issued by the FDIC on December 12, 1989.
Section 5. Amendments Relating to Disaffirmance or Repudiation of
Qualified Financial Contracts
Section 5 of the bill limits the disaffirmance and
repudiation authority of the FDIC with respect to QFCs so that
such authority is consistent with the FDIC's transfer authority
under FDIA section 11(e)(9). This ensures that no
disaffirmance, repudiation or transfer authority of the FDIC
may be exercised to ``cherry-pick'' or otherwise treat
independently all the QFCs between a depository institution in
default and a person or any affiliate of such person. The FDIC
has announced that its policy is not to repudiate or disaffirm
QFCs selectively. This unified treatment is fundamental to the
reduction of systemic risk.
Section 6. Clarifying Amendment Relating to Master Agreements
Section 6 of the bill specifies that a master agreement for
one or more securities contracts, commodity contracts, forward
contracts, repurchase agreements or swap agreements will be
treated as a single QFC under the FDIA (but only with respect
to underlying agreements that are themselves QFCs). This
provision ensures that cross-product netting pursuant to a
master agreement, or pursuant to an umbrella agreement for
separate master agreements between the same parties, each of
which is used to document one or more qualified financial
contracts, will be enforceable under the FDIA. Cross-product
netting permits a wide variety of financial transactions
between two parties to be netted, thereby maximizing the
present and potential future risk-reducing benefits of the
netting arrangement between the parties. Express recognition of
the enforceability of such cross-product master agreements
furthers the policy of increasing legal certainty and reducing
systemic risks in the case of an insolvency of a large
financial participant.
Section 7. Federal Deposit Insurance Corporation Improvement Act of
1991
Section 7(a)(1) of the Act amends the definition of
``clearing organization'' to include clearinghouses that are
subject to exemptions pursuant to orders of the Securities and
Exchange Commission or the Commodity Futures Trading Commission
and to include multilateral clearing organizations (the
definition of which was added to FDICIA by the CFMA).
FDICIA provides that a netting arrangement will be enforced
pursuant to its terms, notwithstanding the failure of a party
to the agreement. The current netting provisions of FDICIA,
however, limit this protection to ``financial institutions,''
which include depository institutions. Section 7(a)(2) amends
the FDICIA definition of covered institutions to include (i)
uninsured national and State member banks, irrespective of
their eligibility for deposit insurance and (ii) foreign banks
(including the foreign bank and its branches or agencies as a
combined group, or only the foreign bank parent of a branch or
agency). The latter change will extend the protections of
FDICIA to ensure that U.S. financial organizations
participating in netting agreements with foreign banks are
covered by the bill, thereby enhancing the safety and soundness
of these arrangements. It is intended that a non-defaulting
foreign bank and its branches and agencies be considered to be
a single financial institution for purposes of the bilateral
netting provisions of FDICIA (except to the extent that the
non-defaulting foreign bank and its branches and agencies on
the one hand, and the defaulting financial institution, on the
other, have entered into agreements that clearly evidence an
intention that the non-defaulting foreign bank and its branches
and agencies be treated as separate financial institutions for
purposes of the bilateral netting provisions of FDICIA).
Subsection (a)(3) amends the FDICIA to provide that, for
purposes of FDICIA, two or more clearing organizations that
enter into a netting contract are considered ``members'' of
each other. This assures the enforceability of netting
arrangements involving two or more clearing organizations and a
member common to all such organizations, thus reducing systemic
risk in the event of the failure of such a member. Under the
current FDICIA provisions, the enforceability of such
arrangements depends on a case-by-case determination that
clearing organizations could be regarded as members of each
other for purposes of FDICIA.
Section 7(a)(4) amends the FDICIA definition of netting
contract and the general rules applicable to netting contracts.
The current FDICIA provisions require that the netting
agreement must be governed by the law of the United States or a
State to receive the protections of FDICIA. Many of these
agreements, however, particularly netting arrangements covering
positions taken in foreign exchange dealings, are governed by
the laws of a foreign country. This subsection broadens the
definition of ``netting contract'' to include those agreements
governed by foreign law, and preserves the FDICIA requirement
that a netting contract not be invalid under, or precluded by,
Federal law.
Subsections (b) and (c) establish two exceptions to
FDICIA's protection of the enforceability of the provisions of
netting contracts between financial institutions and among
clearing organization members. First, the termination
provisions of netting contracts will not be enforceable based
solely on (i) the appointment of a conservator for an insolvent
depository institution under the FDIA or (ii) the appointment
of a receiver for such institution under the FDIA, if such
receiver transfers or repudiates QFCs in accordance with the
FDIA and gives notice of a transfer by 5 p.m. on the business
day following the appointment of a receiver. This change is
made to confirm the FDIC's flexibility to transfer or repudiate
the QFCs of an insolvent depository institution in accordance
with the terms of the FDIA. This modification also provides
important legal certainty regarding the treatment of QFCs under
the FDIA, because the current relationship between the FDIA and
FDICIA is unclear.
The second exception provides that FDICIA does not override
a stay order under SIPA with respect to foreclosure on
securities (but not cash) collateral of a debtor (section 12 of
the bill makes a conforming change to SIPA). There is also an
exception relating to insolvent commodity brokers. Subsections
(b) and (c) also clarify that a security agreement or other
credit enhancement related to a netting contract is enforceable
to the same extent as the underlying netting contract.
Section 7(d) of the bill adds a new section 407 to FDICIA.
This new section provides that, notwithstanding any other law,
QFCs with uninsured national banks, an uninsured Federal branch
or agency or Edge Act corporation, or an uninsured State member
bank that operates, or operates as, a multilateral clearing
organization will be treated in the same manner as if the
contract were with an insured national bank or insured Federal
branch for which a receiver or conservator was appointed. This
provision will ensure that parties to QFCs with these
institutions will have the same rights and obligations as
parties entering into the same agreements with insured
depository institutions. The new section also specifically
limits the powers of a receiver or conservator for such an
institution to those contained in 12 U.S.C. 1821(e)(8), (9),
(10), and (11), which address QFCs.
While the amendment would apply the same rules as apply to
insured institutions, the provision would not change the rules
that apply to insured institutions. Nothing in this section
would amend the International Banking Act, the Federal Deposit
Insurance Act, the National Bank Act, or other statutory
provisions with respect to receiverships of insured national
banks or Federal branches.
Section 8. Bankruptcy Law Amendments
Section 8 of the bill makes a series of amendments to the
Bankruptcy Code. Subsection (a)(1) amends the Bankruptcy Code
definitions of ``repurchase agreement'' and ``swap agreement''
to conform with the amendments to the FDIA contained in
sections 2(e) and 2(f).
In connection with the definition of ``repurchase
agreement,'' the term ``qualified foreign government
securities'' is defined to include securities that are direct
obligations of, or fully guaranteed by, central governments of
members of the Organization for Economic Cooperation and
Development (OECD). This language reflects developments in the
repurchase agreement markets, which increasingly use foreign
government securities as the underlying asset. The securities
are limited to those issued by or guaranteed by full members of
the OECD, as well as countries that have concluded special
lending arrangements with the International Monetary Fund
associated with the Fund's General Arrangements to Borrow.
Subsection (a)(1) also amends the definition of
``repurchase agreement'' to include those on mortgage-related
securities, mortgage loans and interests therein, and to
include principal and interest-only U.S. Government and agency
securities as securities that can be the subject of a
``repurchase agreement.'' The reference in the definition to
United States government- and agency-issued or fully guaranteed
securities is intended to include obligations issued or
guaranteed by Fannie Mae and the Federal Home Loan Mortgage
Corporation (Freddie Mac) as well as all obligations eligible
for purchase by Federal Reserve banks under the similar
language of section 14(b) of the Federal Reserve Act.
This amendment is not intended to affect the status of
repos involving securities or commodities as securities
contracts, commodity contracts, or forward contracts, and their
consequent eligibility for similar treatment under other
provisions of the Bankruptcy Code. In particular, an agreement
for the sale and repurchase of a security would continue to be
a securities contract as defined in the Bankruptcy Code and
thus also would be subject to the Bankruptcy Code provisions
pertaining to securities contracts, even if not a ``repurchase
agreement'' as defined in the Bankruptcy Code. Similarly, an
agreement for the sale and repurchase of a commodity, even
though not a ``repurchase agreement'' as defined in the
Bankruptcy Code, would continue to be a forward contract for
purposes of the Bankruptcy Code and would be subject to the
Bankruptcy Code provisions pertaining to forward contracts.
Subsection (a)(1) specifies that repurchase obligations
under a participation in a commercial mortgage loan do not make
the participation agreement a ``repurchase agreement.'' These
repurchase obligations embedded in participations in commercial
loans (such as recourse obligations) do not constitute a
``repurchase agreement.'' However, a repurchase agreement
involving the transfer of participations in commercial mortgage
loans with a simultaneous agreement to repurchase the
participation on demand or at a date certain 1 year or less
after such transfer would constitute a ``repurchase agreement''
(as well as a ``securities contract'').
The definition of ``swap agreement'' is amended to include
an ``interest rate swap, option, future, or forward agreement,
including a rate floor, rate cap, rate collar, cross-currency
rate swap, and basis swap; a spot, same day-tomorrow, tomorrow-
next, forward, or other foreign exchange or precious metals
agreement; a currency swap, option, future, or forward
agreement; an equity index or equity swap, option, future, or
forward agreement; a debt index or debt swap, option, future,
or forward agreement; a total return, credit spread or credit
swap, option, future, or forward agreement; a commodity index
or commodity swap, option, future, or forward agreement; or a
weather swap, weather derivative, or weather option.'' As
amended, the definition of ``swap agreement'' will update the
statutory definition and achieve contractual netting across
economically similar transactions.
The definition of ``swap agreement'' was originally
intended to provide sufficient flexibility to avoid the need to
amend the definition as the nature and uses of swap
transactions matured. To that end, the phrase ``or any other
similar agreement'' was included in the definition. (The phrase
``or any similar agreement'' has been added to the definitions
of ``forward contract,'' ``commodity contract,'' ``repurchase
agreement,'' and ``securities contract'' for the same reason.)
To clarify this, subsection (a)(1) expands the definition of
``swap agreement'' to include ``any agreement or transaction
that is similar to any other agreement or transaction referred
to in [section 101(53B) of the Bankruptcy Code] and that is of
a type that has been, is presently, or in the future becomes,
the subject of recurrent dealings in the swap markets'' and
[that] is a forward, swap, future, or option on one or more
rates, currencies, commodities, equity securities or other
equity instruments, debt securities or other debt instruments,
quantitative measures associated with an occurrence, extent of
an occurrence, or contingency associated with a financial,
commercial, or economic consequence, or economic or financial
indices or measures of economic or financial risk or value.''
The definition of ``swap agreement'' in this subsection
should not be interpreted to permit parties to document non-
swaps as swap transactions. Traditional commercial
arrangements, such as supply agreements, or other non-financial
market transactions, such as commercial, residential or
consumer loans, cannot be treated as ``swaps'' under either the
FDIA or the Bankruptcy Code because the parties purport to
document or label the transactions as ``swap agreements.''
These definitions, and the characterization of a certain
transaction as a ``swap agreement,'' are not intended to affect
the characterization, definition, or treatment of any
instruments under any other statute, regulation, or rule
including, but not limited to, the statutes, regulations or
rules enumerated in subsection (a)(1)(C). Similarly, the
definitions of ``securities contract'', ``repurchase
agreement'', and ``commodity contract'' and the
characterization of certain transactions as such a contract or
agreement, are not intended to affect the characterization,
definition, or treatment of any instrument under any other
statute regulation, or rule including, but not limited to, the
statutes, regulations, or rules enumerated in subsection (f).
The definition also includes any security agreement or
arrangement, or other credit enhancement, related to a swap
agreement, including any guarantee or reimbursement obligation
related to a swap agreement. This ensures that any such
agreement, arrangement or enhancement is itself deemed to be a
swap agreement, and therefore eligible for treatment as such
for purposes of termination, liquidation, acceleration, offset
and netting under the Bankruptcy Code and the FDIA. Similar
changes are made in the definitions of ``forward contract,''
``commodity contract,'' ``repurchase agreement,'' and
``securities contract.'' An example of a security arrangement
is a right of setoff; examples of other credit enhancements are
letters of credit and other similar agreements. A security
agreement or arrangement or guarantee or reimbursement
obligation related to a ``swap agreement,'' ``forward
contract,'' ``commodity contract,'' ``repurchase agreement'' or
``securities contract'' will be such an agreement or contract
only to the extent of the damages in connection with such
agreement measured in accordance with Section 562 of the
Bankruptcy Code (added by the bill). This limitation does not
affect, however, the other provisions of the Bankruptcy Code
(including section 362(b)) relating to security arrangements in
connection with agreements or contracts that otherwise qualify
as ``swap agreements,'' ``forward contracts,'' ``commodity
contracts,'' ``repurchase agreements'' or ``securities
contracts.''
The use of the term ``forward'' in the definition of ``swap
agreement'' is not intended to refer only to transactions that
fall within the definition of ``forward contract.'' Instead, a
``forward'' transaction could be a ``swap agreement'' even if
not a ``forward contract.''
Subsections (a)(2) and (a)(3) amend the Bankruptcy Code
definitions of ``securities contract'' and ``commodity
contract,'' respectively, to conform them to the definitions in
the FDIA.
Subsection (a)(2), like the amendments to the FDIA, amends
the definition of ``securities contract'' expressly to
encompass margin loans, to clarify the coverage of securities
options and to clarify the coverage of repurchase and reverse
repurchase transactions. The inclusion of ``margin loans'' in
the definition is intended to encompass only those loans
commonly kinown in the securities industry as ``margin loans'',
such as arrangements where a securities broker or dealer
extends credit to a customer in connection with the purchase,
sale, or trading of securities, and does not include loans that
are not commonly referred to as ``margin loans.'' The reference
in subsection (b) to a ``guarantee'' by or to a ``securities
clearing agency'' is intended to cover other arrangements, such
as novation, that have an effect similar to a guarantee. The
reference to a ``loan'' of a security in the definition is
intended to apply to loans of securities, whether or not for a
``permitted purpose'' under margin regulations. The reference
to ``repurchase and reverse repurchase transactions'' is
intended to eliminate any inquiry under section 555 and related
provisions as to whether a repurchase or reverse repurchase
transaction is a purchase and sale transaction or a secured
financing. Repurchase and reverse repurchase transactions
meeting certain criteria are already covered under the
definition of ``repurchase agreement'' in the Bankruptcy Code.
Repurchase and reverse repurchase transactions on all
securities (including, for example, equity securities, asset-
backed securities, corporate bonds and commercial paper) are
included under the definition of ``securities contract''. A
repurchase or reverse repurchase transaction which is a
``securities contract'' but not a ``repurchase agreement''
would thus be subject to the ``counterparty limitations''
contained in section 555 of the Bankruptcy Code (i.e., only
stockbrokers, financial institutions, securities clearing
agencies and financial participants can avail themselves of
section 555 and related provisions).
Subsection (a)(2) also specifies that purchase, sale and
repurchase obligations under a participation in a commercial
mortgage loan do not constitute ``securities contracts.'' While
a contract for the purchase, sale or repurchase of a
participation may constitute a ``securities contract,'' the
purchase, sale or repurchase obligation embedded in a
participation agreement does not make that agreement a
``securities contract.'' Section 8(a) clarifies the reference
to guarantee or reimbursement obligation.
Section 8(b) amends the Bankruptcy Code definitions of
``financial institution'' and ``forward contract merchant.''
The definition for ``financial institution'' includes Federal
Reserve Banks and the receivers or conservators of insolvent
depository institutions. With respect to securities contracts,
the definition of ``financial institution'' expressly includes
investment companies registered under the Investment Company
Act of 1940.
Subsection (b) also adds a new definition of ``financial
participant'' to limit the potential impact of insolvencies
upon other major market participants. This definition will
allow such market participants to close-out and net agreements
with insolvent entities under sections 362(b)(6), 555, and 556
even if the creditor could not qualify as, for example, a
commodity broker. Sections 362(b)(6), 555 and 556 preserve the
limitations of the right to close-out and net such contracts,
in most cases, to entities who qualify under the Bankruptcy
Code's counterparty limitations. However, where the
counterparty has transactions with a total gross dollar value
of at least $1 billion in notional or actual principal amount
outstanding on any day during the previous 15-month period, or
has gross mark-to-market positions of at least $100 million
(aggregated across counterparties) in one or more agreements or
transactions on any day during the previous 15-month period,
sections 362(b)(6), 555 and 556 and corresponding amendments
would permit it to exercise netting and related rights
irrespective of its inability otherwise to satisfy those
counterparty limitations. This change will help prevent
systemic impact upon the markets from a single failure, and is
derived from threshold tests contained in Regulation EE
promulgated by the Federal Reserve Board in implementing the
netting provisions of the Federal Deposit Insurance Corporation
Improvement Act. It is intended that the 15-month period be
measured with reference to the 15 months preceding the filing
of a petition by or against the debtor.
``Financial participant'' is also defined to include
``clearing organizations'' within the meaning of FDICIA (as
amended by the CFMA and section 7 of the bill). This amendment,
together with the inclusion of ``financial participants'' as
eligible counterparties in connection with ``commodity
contracts,'' ``forward contracts'' and ``securities contracts''
and the amendments made in other sections of the bill to
include ``financial participants'' as counterparties eligible
for the protections in respect of ``swap agreements'' and
``repurchase agreements'', take into account the CFMA and will
allow clearing organizations to benefit from the protections of
all of the provisions of the Bankruptcy Code relating to these
contracts and agreements. This will further the goal of
promoting the clearing of derivatives and other transactions as
a way to reduce systemic risk. The definition of ``financial
participant'' (as with the other provisions of the Bankruptcy
Code relating to ``securities contracts,'' ``forward
contracts,'' ``commodity contracts,'' ``repurchase agreements''
and ``swap agreements'') is not mutually exclusive, i.e., an
entity that qualifies as a ``financial participant'' could also
be a ``swap participant,'' ``repo participant,'' ``forward
contract merchant,'' ``commodity broker,'' ``stockbroker,''
``securities clearing agency'' and/or ``financial
institution.''
Section 8(c) adds to the Bankruptcy Code new definitions
for the terms ``master netting agreement'' and ``master netting
agreement participant.'' The definition of ``master netting
agreement'' is designed to protect the termination and close-
out netting provisions of cross-product master agreements
between parties. Such an agreement may be used (i) to document
a wide variety of securities contracts, commodity contracts,
forward contracts, repurchase agreements and swap agreements or
(ii) as an umbrella agreement for separate master agreements
between the same parties, each of which is used to document a
discrete type of transaction. The definition includes security
agreements or arrangements or other credit enhancements related
to one or more such agreements and clarifies that a master
netting agreement will be treated as such even if it documents
transactions that are not within the enumerated categories of
qualifying transactions (but the provisions of the Bankruptcy
Code relating to master netting agreements and the other
categories of transactions will not apply to such other
transactions). A ``master netting agreement participant'' is
any entity that is a party to an outstanding master netting
agreement with a debtor before the filing of a bankruptcy
petition.
Subsection (d) amends section 362(b) of the Bankruptcy Code
to protect enforcement, free from the automatic stay, of setoff
or netting provisions in swap agreements and in master netting
agreements and security agreements or arrangements related to
one or more swap agreements or master netting agreements. This
provision parallels the other provisions of the Bankruptcy Code
that protect netting provisions of securities contracts,
commodity contracts, forward contracts, and repurchase
agreements. Because the relevant definitions include related
security agreements, the references to ``setoff'' in these
provisions, as well as in section 362(b)(6) and (7) of the
Bankruptcy Code, are intended to refer also to rights to
foreclose on, and to set off against obligations to return,
collateral securing swap agreements, master netting agreements,
repurchase agreements, securities contracts, commodity
contracts, or forward contracts. Collateral may be pledged to
cover the cost of replacing the defaulted transactions in the
relevant market, as well as other costs and expenses incurred
or estimated to be incurred for the purpose of hedging or
reducing the risks arising out of such termination. Enforcement
of these agreements and arrangements free from the automatic
stay is consistent with the policy goal of minimizing systemic
risk.
Subsection (d) also clarifies that the provisions
protecting setoff and foreclosure in relation to securities
contracts, commodity contracts, forward contracts, repurchase
agreements, swap agreements, and master netting agreements free
from the automatic stay apply to collateral pledged by the
debtor but that cannot technically be ``held by'' the creditor,
such as receivables and book-entry securities, and to
collateral that has been repledged by the creditor and
securities re-sold pursuant to repurchase agreements.
Subsections (e) and (f) amend sections 546 and 548(d) of
the Bankruptcy Code to provide that transfers made under or in
connection with a master netting agreement may not be avoided
by a trustee except where such transfer is made with actual
intent to hinder, delay or defraud and not taken in good faith.
This amendment provides the same protections for a transfer
made under, or in connection with, a master netting agreement
as currently is provided for margin payments, settlement
payments and other transfers received by commodity brokers,
forward contract merchants, stockbrokers, financial
institutions, securities clearing agencies, repo participants,
and swap participants under sections 546 and 548(d), except to
the extent the trustee could otherwise avoid such a transfer
made under an individual contract covered by such master
netting agreement.
Subsections (g), (h), (i), and (j) clarify that the
provisions of the Bankruptcy Code that protect (i) rights of
liquidation under securities contracts, commodity contracts,
forward contracts and repurchase agreements also protect rights
of termination or acceleration under such contracts, and (ii)
rights to terminate under swap agreements also protect rights
of liquidation and acceleration.
Section 8(k) adds a new section 561 to the Bankruptcy Code
to protect the contractual right of a master netting agreement
participant to enforce any rights of termination, liquidation,
acceleration, offset or netting under a master netting
agreement. These rights include rights arising (i) from the
rules of a derivatives clearing organization, multilateral
clearing organization, securities clearing agency, securities
exchange, securities association, contract market, derivatives
transaction execution facility or board of trade, (ii) under
common law, law merchant or (iii) by reason of normal business
practice. This reflects the enactment of the CFMA and the
current treatment of rights under swap agreements under section
560 of the Bankruptcy Code. Similar changes to reflect the
enactment of the CFMA have been made to the definition of
``contractual right'' for purposes of sections 555, 556, 559
and 560 of the Bankruptcy Code.
Subsections (b)(2)(A) and (b)(2)(B) of new section 561
limit the exercise of contractual rights to net or to offset
obligations where the debtor is a commodity broker and one leg
of the obligations sought to be netted relates to commodity
contracts traded on or subject to the rules of a contract
market designated under the Commodity Exchange Act or a
derivatives transaction execution facility registered under the
Commodity Exchange Act. Under subsection (b)(2)(A) netting or
offsetting is not permitted in these circumstances if the party
seeking to net or to offset has no positive net equity in the
commodity accounts at the debtor. Subsection (b)(2)(B) applies
only if the debtor is a commodity broker, acting on behalf of
its own customer, and is in turn a customer of another
commodity broker. In that case, the latter commodity broker may
not net or offset obligations under such commodity contracts
with other claims against its customer, the debtor. Subsections
(b)(2)(A) and (b)(2)(B) limit the depletion of assets available
for distribution to customers of commodity brokers. Subsection
(b)(2)(C) provides an exception to subsections (b)(2)(A) and
(b)(2)(B) for cross-margining and other similar arrangements
approved by, or submitted to and not rendered ineffective by,
the Commodity Futures Trading Commission, as well as certain
other netting arrangements.
For the purposes of Bankruptcy Code sections 555, 556, 559,
560 and 561, it is intended that the normal business practice
in the event of a default of a party based on bankruptcy or
insolvency is to terminate, liquidate or accelerate securities
contracts, commodity contracts, forward contracts, repurchase
agreements, swap agreements and master netting agreements with
the bankrupt or insolvent party. The protection of netting and
offset rights in sections 560 and 561 is in addition to the
protections afforded in sections 362(b)(6), (b)(7), (b)(17) and
(b)(28) of the Bankruptcy Code.
Under this bill, the termination, liquidation or
acceleration rights of a master netting agreement participant
are subject to limitations contained in other provisions of the
Bankruptcy Code relating to securities contracts and repurchase
agreements. In particular, if a securities contract or
repurchase agreement is documented under a master netting
agreement, a party's termination, liquidation and acceleration
rights would be subject to the provisions of the Bankruptcy
Code relating to orders authorized under the provisions of SIPA
or any statute administered by the SEC. In addition, the
netting rights of a party to a master netting agreement would
be subject to any contractual terms between the parties
limiting or waiving netting or set off rights. Similarly, a
waiver by a bank or a counterparty of netting or set off rights
in connection with QFCs would be enforceable under the FDIA.
New section 561 of the Bankruptcy Code clarifies that the
provisions of the Bankruptcy Code related to securities
contracts, commodity contracts, forward contracts, repurchase
agreements, swap agreements and master netting agreements apply
in a proceeding ancillary to a foreign insolvency proceeding
under section 304 of the Bankruptcy Code.
Subsections (l) and (m) clarify that the exercise of
termination and netting rights will not otherwise affect the
priority of the creditor's claim after the exercise of netting,
foreclosure and related rights.
Subsection (n) amends section 553 of the Bankruptcy Code to
clarify that the acquisition by a creditor of setoff rights in
connection with swap agreements, repurchase agreements,
securities contracts, forward contracts, commodity contracts
and master netting agreements cannot be avoided as a
preference. This subsection also adds setoff of the kinds
described in sections 555, 556, 559, 560, and 561 of the
Bankruptcy Code to the types of setoff excepted from section
553(b).
Section 8(o), as well as other subsections of the bill,
adds references to ``financial participant'' in all the
provisions of the Bankruptcy Code relating to securities,
forward and commodity contracts and repurchase and swap
agreements.
Section 9. Recordkeeping Requirements
Section 9 amends section 11(e)(8) of the Federal Deposit
Insurance Act to explicitly authorize the FDIC, in consultation
with appropriate Federal banking agencies, to prescribe
regulations on recordkeeping by any insured depository
institution with respect to QFCs only if the insured financial
institution is in a troubled condition (as such term is defined
in the FDIA).
Section 10. Exemptions from Contemporaneous Execution Requirement
Section 10 amends FDIA section 13(e)(2) to provide that an
agreement for the collateralization of governmental deposits,
bankruptcy estate funds, Federal Reserve Bank or Federal Home
Loan Bank extensions of credit or one or more QFCs shall not be
deemed invalid solely because such agreement was not entered
into contemporaneously with the acquisition of the collateral
or because of pledges, delivery or substitution of the
collateral made in accordance with such agreement.
The amendment codifies portions of policy statements issued
by the FDIC regarding the application of section 13(e), which
codifies the ``D'Oench Duhme'' doctrine. With respect to QFCs,
this codification recognizes that QFCs often are subject to
collateral and other security arrangements that may require
posting and return of collateral on an ongoing basis based on
the mark-to-market values of the collateralized transactions.
The codification of only portions of the existing FDIC policy
statements on these and related issues should not give rise to
any negative implication regarding the continued validity of
these policy statements.
Section 11. Damage Measure
Section 11 adds a new section 562 to the Bankruptcy Code
providing that damages under any swap agreement, securities
contract, forward contract, commodity contract, repurchase
agreement or master netting agreement will be calculated as of
the earlier of (i) the date of rejection of such agreement by a
trustee or (ii) the date or dates of liquidation, termination
or acceleration of such contract or agreement.
Section 562 provides an exception to the rules in (i) and
(ii) if there are no commercially reasonable determinants of
value as of such date or dates, in which case damages are to be
measured as of the earliest subsequent date or dates on which
there are commercially reasonable determinants of value.
Although it is expected that in most circumstances damages
would be measured as of the date or dates of either rejection
or liquidation, termination or acceleration, in certain unusual
circumstances, such as dysfunctional markets or liquidation of
very large portfolios, there may be no commercially reasonable
determinants of value for liquidating any such agreements or
contracts or for liquidating all such agreements and contracts
in a large portfolio on a single day. It is expected that
measuring damages as of a date or dates before the date of
liquidation, termination, or acceleration, will occur only in
very unusual circumstances.
The party determining damages is given limited discretion
to determine the dates as of which damages are to be measured.
Its actions are circumscribed unless there are no
``commercially reasonable'' determinants of value for it to
measure damages on the date or dates of either rejection or
liquidation, termination or acceleration. The references to
``commercially reasonable'' are intended to reflect existing
state law standards relating to a creditor's actions in
determining damages. New section 562 provides that if damages
are not measured as of either the date of rejection or the date
or dates of liquidation, termination or acceleration and the
trustee challenges the timing of the measurement of damages by
the non-defaulting party determining the damages, the non-
defaulting party, rather than the trustee, has the burden of
proving the absence of any commercially reasonable determinants
of value.
New section 562 is not intended to have any impact on the
determination under the Bankruptcy Code of the timing of
damages for contracts and agreements other than those specified
in section 562. Also, section 562 does not apply to proceedings
under the FDIA, and it is not intended that Section 562 have
any impact on the interpretation of the provisions of the FDIA
relating to timing of damages in respect of QFCs or other
contracts.
Section 12. SIPC Stay
Section 12 amends SIPA to provide that an order or decree
issued pursuant to SIPA shall not operate as a stay of any
right of liquidation, termination, acceleration, offset or
netting under one or more securities contracts, commodity
contracts, forward contracts, repurchase agreements, swap
agreements or master netting agreements (as defined in the
Bankruptcy Code and including rights of foreclosure on
collateral), except that such order or decree may stay any
right to foreclose on or dispose of securities (but not cash)
collateral pledged by the debtor or sold by the debtor under a
repurchase agreement or lent by the debtor under a securities
lending agreement. A corresponding amendment to FDICIA is made
by section 7. A creditor that was stayed in exercising rights
against such securities would be entitled to post-insolvency
interest to the extent of the value of such securities.
Changes in Existing Law Made by the Bill, as Reported
In compliance with clause 3(e) of rule XIII of the Rules of
the House of Representatives, changes in existing law made by
the bill, as reported, are shown as follows (existing law
proposed to be omitted is enclosed in black brackets, new
matter is printed in italic, existing law in which no change is
proposed is shown in roman):
FEDERAL DEPOSIT INSURANCE ACT
* * * * * * *
Sec. 11. (a) * * *
* * * * * * *
(e) Provisions Relating to Contracts Entered Into Before
Appointment of Conservator or Receiver.--
(1) * * *
* * * * * * *
(8) Certain qualified financial contracts.--
(A) Rights of parties to contracts.--Subject
to [paragraph (10)] paragraphs (9) and (10) of
this subsection and notwithstanding any other
provision of this Act (other than subsection
(d)(9) of this section and section 13(e)), any
other Federal law, or the law of any State, no
person shall be stayed or prohibited from
exercising--
(i) any right [to cause the
termination or liquidation] such person
has to cause the termination,
liquidation, or acceleration of any
qualified financial contract with an
insured depository institution which
arises upon the appointment of the
Corporation as receiver for such
institution at any time after such
appointment;
[(ii) any right under any security
arrangement relating to any contract or
agreement described in clause (i); or]
(ii) any right under any security
agreement or arrangement or other
credit enhancement related to one or
more qualified financial contracts
described in clause (i);
* * * * * * *
(C) Certain transfers not avoidable.--
(i) In general.--Notwithstanding
paragraph (11), section 5242 of the
Revised Statutes of the United States
or any other Federal or State law
relating to the avoidance of
preferential or fraudulent transfers,
the Corporation, whether acting as such
or as conservator or receiver of an
insured depository institution, may not
avoid any transfer of money or other
property in connection with any
qualified financial contract with an
insured depository institution.
* * * * * * *
(D) Certain contracts and agreements
defined.--For purposes of this [subsection--]
subsection, the following definitions shall
apply:
(i) Qualified financial contract.--
The term ``qualified financial
contract'' means any securities
contract, commodity contract, forward
contract, repurchase agreement, swap
agreement, and any similar agreement
that the Corporation determines by
regulation, resolution, or order to be
a qualified financial contract for
purposes of this paragraph.
[(ii) Securities contract.--The term
``securities contract''--
[(I) has the meaning given to
such term in section 741 of
title 11, United States Code,
except that the term
``security'' (as used in such
section) shall be deemed to
include any mortgage loan, any
mortgage-related security (as
defined in section 3(a)(41) of
the Securities Exchange Act of
1934), and any interest in any
mortgage loan or mortgage-
related security; and
[(II) does not include any
participation in a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
participation within the
meaning of such term.
[(iii) Commodity contract.--The term
``commodity contract'' has the meaning
given to such term in section 761 of
title 11, United States Code.
[(iv) Forward contract.--The term
``forward contract'' has the meaning
given to such term in section 101 of
title 11, United States Code.
[(v) Repurchase agreement.--The term
``repurchase agreement''--
[(I) has the meaning given to
such term in section 101 of
title 11, the United States
Code, except that the items (as
described in such section)
which may be subject to any
such agreement shall be deemed
to include mortgage-related
securities (as such term is
defined in section 3(a)(41) of
the Securities Exchange Act of
1934), any mortgage loan, and
any interest in any mortgage
loan; and
[(II) does not include any
participation in a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
participation within the
meaning of such term.
[(vi) Swap agreement.--The term
``swap agreement''--
[(I) means any agreement,
including the terms and
conditions incorporated by
reference in any such
agreement, which is a rate swap
agreement, basis swap,
commodity swap, forward rate
agreement, interest rate
future, interest rate option
purchased, forward foreign
exchange agreement, rate cap
agreement, rate floor
agreement, rate collar
agreement, currency swap
agreement, cross-currency rate
swap agreement, currency
future, or currency option
purchased or any other similar
agreement, and
[(II) includes any
combination of such agreements
and any option to enter into
any such agreement.
[(vii) Treatment of master agreement
as 1 swap agreement.--Any master
agreement for any agreements described
in clause (vi)(I) together with all
supplements to such master agreement
shall be treated as 1 swap agreement.
[(viii) Transfer.--The term
``transfer'' has the meaning given to
such term in section 101 of title 11,
United States Code.]
(ii) Securities contract.--The term
``securities contract''--
(I) means a contract for the
purchase, sale, or loan of a
security, a certificate of
deposit, a mortgage loan, or
any interest in a mortgage
loan, a group or index of
securities, certificates of
deposit, or mortgage loans or
interests therein (including
any interest therein or based
on the value thereof) or any
option on any of the foregoing,
including any option to
purchase or sell any such
security, certificate of
deposit, mortgage loan,
interest, group or index, or
option, and including any
repurchase or reverse
repurchase transaction on any
such security, certificate of
deposit, mortgage loan,
interest, group or index, or
option;
(II) does not include any
purchase, sale, or repurchase
obligation under a
participation in a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
agreement within the meaning of
such term;
(III) means any option
entered into on a national
securities exchange relating to
foreign currencies;
(IV) means the guarantee by
or to any securities clearing
agency of any settlement of
cash, securities, certificates
of deposit, mortgage loans or
interests therein, group or
index of securities,
certificates of deposit, or
mortgage loans or interests
therein (including any interest
therein or based on the value
thereof) or option on any of
the foregoing, including any
option to purchase or sell any
such security, certificate of
deposit, mortgage loan,
interest, group or index, or
option;
(V) means any margin loan;
(VI) means any other
agreement or transaction that
is similar to any agreement or
transaction referred to in this
clause;
(VII) means any combination
of the agreements or
transactions referred to in
this clause;
(VIII) means any option to
enter into any agreement or
transaction referred to in this
clause;
(IX) means a master agreement
that provides for an agreement
or transaction referred to in
subclause (I), (III), (IV),
(V), (VI), (VII), or (VIII),
together with all supplements
to any such master agreement,
without regard to whether the
master agreement provides for
an agreement or transaction
that is not a securities
contract under this clause,
except that the master
agreement shall be considered
to be a securities contract
under this clause only with
respect to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (III), (IV),
(V), (VI), (VII), or (VIII);
and
(X) means any security
agreement or arrangement or
other credit enhancement
related to any agreement or
transaction referred to in this
clause, including any guarantee
or reimbursement obligation in
connection with any agreement
or transaction referred to in
this clause.
(iii) Commodity contract.--The term
``commodity contract'' means--
(I) with respect to a futures
commission merchant, a contract
for the purchase or sale of a
commodity for future delivery
on, or subject to the rules of,
a contract market or board of
trade;
(II) with respect to a
foreign futures commission
merchant, a foreign future;
(III) with respect to a
leverage transaction merchant,
a leverage transaction;
(IV) with respect to a
clearing organization, a
contract for the purchase or
sale of a commodity for future
delivery on, or subject to the
rules of, a contract market or
board of trade that is cleared
by such clearing organization,
or commodity option traded on,
or subject to the rules of, a
contract market or board of
trade that is cleared by such
clearing organization;
(V) with respect to a
commodity options dealer, a
commodity option;
(VI) any other agreement or
transaction that is similar to
any agreement or transaction
referred to in this clause;
(VII) any combination of the
agreements or transactions
referred to in this clause;
(VIII) any option to enter
into any agreement or
transaction referred to in this
clause;
(IX) a master agreement that
provides for an agreement or
transaction referred to in
subclause (I), (II), (III),
(IV), (V), (VI), (VII), or
(VIII), together with all
supplements to any such master
agreement, without regard to
whether the master agreement
provides for an agreement or
transaction that is not a
commodity contract under this
clause, except that the master
agreement shall be considered
to be a commodity contract
under this clause only with
respect to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (II), (III),
(IV), (V), (VI), (VII), or
(VIII); or
(X) any security agreement or
arrangement or other credit
enhancement related to any
agreement or transaction
referred to in this clause,
including any guarantee or
reimbursement obligation in
connection with any agreement
or transaction referred to in
this clause.
(iv) Forward contract.--The term
``forward contract'' means--
(I) a contract (other than a
commodity contract) for the
purchase, sale, or transfer of
a commodity or any similar
good, article, service, right,
or interest which is presently
or in the future becomes the
subject of dealing in the
forward contract trade, or
product or byproduct thereof,
with a maturity date more than
2 days after the date the
contract is entered into,
including, a repurchase
transaction, reverse repurchase
transaction, consignment,
lease, swap, hedge transaction,
deposit, loan, option,
allocated transaction,
unallocated transaction, or any
other similar agreement;
(II) any combination of
agreements or transactions
referred to in subclauses (I)
and (III);
(III) any option to enter
into any agreement or
transaction referred to in
subclause (I) or (II);
(IV) a master agreement that
provides for an agreement or
transaction referred to in
subclauses (I), (II), or (III),
together with all supplements
to any such master agreement,
without regard to whether the
master agreement provides for
an agreement or transaction
that is not a forward contract
under this clause, except that
the master agreement shall be
considered to be a forward
contract under this clause only
with respect to each agreement
or transaction under the master
agreement that is referred to
in subclause (I), (II), or
(III); or
(V) any security agreement or
arrangement or other credit
enhancement related to any
agreement or transaction
referred to in subclause (I),
(II), (III), or (IV), including
any guarantee or reimbursement
obligation in connection with
any agreement or transaction
referred to in any such
subclause.
(v) Repurchase agreement.--The term
``repurchase agreement'' (which
definition also applies to a reverse
repurchase agreement)--
(I) means an agreement,
including related terms, which
provides for the transfer of
one or more certificates of
deposit, mortgage-related
securities (as such term is
defined in the Securities
Exchange Act of 1934), mortgage
loans, interests in mortgage-
related securities or mortgage
loans, eligible bankers'
acceptances, qualified foreign
government securities or
securities that are direct
obligations of, or that are
fully guaranteed by, the United
States or any agency of the
United States against the
transfer of funds by the
transferee of such certificates
of deposit, eligible bankers'
acceptances, securities,
mortgage loans, or interests
with a simultaneous agreement
by such transferee to transfer
to the transferor thereof
certificates of deposit,
eligible bankers' acceptances,
securities, mortgage loans, or
interests as described above,
at a date certain not later
than 1 year after such
transfers or on demand, against
the transfer of funds, or any
other similar agreement;
(II) does not include any
repurchase obligation under a
participation in a commercial
mortgage loan unless the
Corporation determines by
regulation, resolution, or
order to include any such
participation within the
meaning of such term;
(III) means any combination
of agreements or transactions
referred to in subclauses (I)
and (IV);
(IV) means any option to
enter into any agreement or
transaction referred to in
subclause (I) or (III);
(V) means a master agreement
that provides for an agreement
or transaction referred to in
subclause (I), (III), or (IV),
together with all supplements
to any such master agreement,
without regard to whether the
master agreement provides for
an agreement or transaction
that is not a repurchase
agreement under this clause,
except that the master
agreement shall be considered
to be a repurchase agreement
under this subclause only with
respect to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (III), or
(IV); and
(VI) means any security
agreement or arrangement or
other credit enhancement
related to any agreement or
transaction referred to in
subclause (I), (III), (IV), or
(V), including any guarantee or
reimbursement obligation in
connection with any agreement
or transaction referred to in
any such subclause.
For purposes of this clause, the term
``qualified foreign government
security'' means a security that is a
direct obligation of, or that is fully
guaranteed by, the central government
of a member of the Organization for
Economic Cooperation and Development
(as determined by regulation or order
adopted by the appropriate Federal
banking authority).
(vi) Swap agreement.--The term ``swap
agreement'' means--
(I) any agreement, including
the terms and conditions
incorporated by reference in
any such agreement, which is an
interest rate swap, option,
future, or forward agreement,
including a rate floor, rate
cap, rate collar, cross-
currency rate swap, and basis
swap; a spot, same day-
tomorrow, tomorrow-next,
forward, or other foreign
exchange or precious metals
agreement; a currency swap,
option, future, or forward
agreement; an equity index or
equity swap, option, future, or
forward agreement; a debt index
or debt swap, option, future,
or forward agreement; a total
return, credit spread or credit
swap, option, future, or
forward agreement; a commodity
index or commodity swap,
option, future, or forward
agreement; or a weather swap,
weather derivative, or weather
option;
(II) any agreement or
transaction that is similar to
any other agreement or
transaction referred to in this
clause and that is of a type
that has been, is presently, or
in the future becomes, the
subject of recurrent dealings
in the swap markets (including
terms and conditions
incorporated by reference in
such agreement) and that is a
forward, swap, future, or
option on one or more rates,
currencies, commodities, equity
securities or other equity
instruments, debt securities or
other debt instruments,
quantitative measures
associated with an occurrence,
extent of an occurrence, or
contingency associated with a
financial, commercial, or
economic consequence, or
economic or financial indices
or measures of economic or
financial risk or value;
(III) any combination of
agreements or transactions
referred to in this clause;
(IV) any option to enter into
any agreement or transaction
referred to in this clause;
(V) a master agreement that
provides for an agreement or
transaction referred to in
subclause (I), (II), (III), or
(IV), together with all
supplements to any such master
agreement, without regard to
whether the master agreement
contains an agreement or
transaction that is not a swap
agreement under this clause,
except that the master
agreement shall be considered
to be a swap agreement under
this clause only with respect
to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (II), (III),
or (IV); and
(VI) any security agreement
or arrangement or other credit
enhancement related to any
agreements or transactions
referred to in subclause (I),
(II), (III), (IV), or (V),
including any guarantee or
reimbursement obligation in
connection with any agreement
or transaction referred to in
any such subclause.
Such term is applicable for purposes of
this subsection only and shall not be
construed or applied so as to challenge
or affect the characterization,
definition, or treatment of any swap
agreement under any other statute,
regulation, or rule, including 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.
(vii) Treatment of master agreement
as one agreement.--Any master agreement
for any contract or agreement described
in any preceding clause of this
subparagraph (or any master agreement
for such master agreement or
agreements), together with all
supplements to such master agreement,
shall be treated as a single agreement
and a single qualified financial
contract. If a master agreement
contains provisions relating to
agreements or transactions that are not
themselves qualified financial
contracts, the master agreement shall
be deemed to be a qualified financial
contract only with respect to those
transactions that are themselves
qualified financial contracts.
(viii) Transfer.--The term
``transfer'' means every mode, direct
or indirect, absolute or conditional,
voluntary or involuntary, of disposing
of or parting with property or with an
interest in property, including
retention of title as a security
interest and foreclosure of the
depository institution's equity of
redemption.
(E) Certain protections in event of
appointment of conservator.--Notwithstanding
any other provision of this Act ([other than
paragraph (12) of this subsection, subsection
(d)(9)] other than subsections (d)(9) and
(e)(10) of this section, and section 13(e) of
this Act), any other Federal law, or the law of
any State, no person shall be stayed or
prohibited from exercising--
(i) * * *
[(ii) any right under any security
arrangement relating to such qualified
financial contracts; or]
(ii) any right under any security
agreement or arrangement or other
credit enhancement related to one or
more qualified financial contracts
described in clause (i);
* * * * * * *
(F) Clarification.--No provision of law shall
be construed as limiting the right or power of
the Corporation, or authorizing any court or
agency to limit or delay, in any manner, the
right or power of the Corporation to transfer
any qualified financial contract in accordance
with paragraphs (9) and (10) of this subsection
or to disaffirm or repudiate any such contract
in accordance with subsection (e)(1) of this
section.
(G) Walkaway clauses not effective.--
(i) In general.--Notwithstanding the
provisions of subparagraphs (A) and
(E), and sections 403 and 404 of the
Federal Deposit Insurance Corporation
Improvement Act of 1991, no walkaway
clause shall be enforceable in a
qualified financial contract of an
insured depository institution in
default.
(ii) Walkaway clause defined.--For
purposes of this subparagraph, the term
``walkaway clause'' means a provision
in a qualified financial contract that,
after calculation of a value of a
party's position or an amount due to or
from 1 of the parties in accordance
with its terms upon termination,
liquidation, or acceleration of the
qualified financial contract, either
does not create a payment obligation of
a party or extinguishes a payment
obligation of a party in whole or in
part solely because of such party's
status as a nondefaulting party.
(H) Recordkeeping requirements.--The
Corporation, in consultation with the
appropriate Federal banking agencies and the
National Credit Union Administration Board, may
prescribe regulations requiring more detailed
recordkeeping by any insured depository
institution with respect to qualified financial
contracts (including market valuations) only if
such insured depository institution is in a
troubled condition (as such term is defined by
the Corporation pursuant to section 32).
[(9) Transfer of qualified financial contracts.--In
making any transfer of assets or liabilities of a
depository institution in default which includes any
qualified financial contract, the conservator or
receiver for such depository institution shall either--
[(A) transfer to 1 depository institution
(other than a depository institution in
default)--
[(i) all qualified financial
contracts between--
[(I) any person or any
affiliate of such person; and
[(II) the depository
institution in default;
[(ii) all claims of such person or
any affiliate of such person against
such depository institution under any
such contract (other than any claim
which, under the terms of any such
contract, is subordinated to the claims
of general unsecured creditors of such
institution);
[(iii) all claims of such depository
institution against such person or any
affiliate of such person under any such
contract; and
[(iv) all property securing any claim
described in clause (ii) or (iii) under
any such contract; or
[(B) transfer none of the financial
contracts, claims, or property referred to in
subparagraph (A) (with respect to such person
and any affiliate of such person).]
(9) Transfer of qualified financial contracts.--
(A) In general.--In making any transfer of
assets or liabilities of a depository
institution in default which includes any
qualified financial contract, the conservator
or receiver for such depository institution
shall either--
(i) transfer to one financial
institution, other than a financial
institution for which a conservator,
receiver, trustee in bankruptcy, or
other legal custodian has been
appointed or which is otherwise the
subject of a bankruptcy or insolvency
proceeding--
(I) all qualified financial
contracts between any person or
any affiliate of such person
and the depository institution
in default;
(II) all claims of such
person or any affiliate of such
person against such depository
institution under any such
contract (other than any claim
which, under the terms of any
such contract, is subordinated
to the claims of general
unsecured creditors of such
institution);
(III) all claims of such
depository institution against
such person or any affiliate of
such person under any such
contract; and
(IV) all property securing or
any other credit enhancement
for any contract described in
subclause (I) or any claim
described in subclause (II) or
(III) under any such contract;
or
(ii) transfer none of the qualified
financial contracts, claims, property
or other credit enhancement referred to
in clause (i) (with respect to such
person and any affiliate of such
person).
(B) Transfer to foreign bank, foreign
financial institution, or branch or agency of a
foreign bank or financial institution.--In
transferring any qualified financial contracts
and related claims and property under
subparagraph (A)(i), the conservator or
receiver for the depository institution shall
not make such transfer to a foreign bank,
financial institution organized under the laws
of a foreign country, or a branch or agency of
a foreign bank or financial institution unless,
under the law applicable to such bank,
financial institution, branch or agency, to the
qualified financial contracts, and to any
netting contract, any security agreement or
arrangement or other credit enhancement related
to one or more qualified financial contracts,
the contractual rights of the parties to such
qualified financial contracts, netting
contracts, security agreements or arrangements,
or other credit enhancements are enforceable
substantially to the same extent as permitted
under this section.
(C) Transfer of contracts subject to the
rules of a clearing organization.--In the event
that a conservator or receiver transfers any
qualified financial contract and related
claims, property, and credit enhancements
pursuant to subparagraph (A)(i) and such
contract is cleared by or subject to the rules
of a clearing organization, the clearing
organization shall not be required to accept
the transferee as a member by virtue of the
transfer.
(D) Definitions.--For purposes of this
paragraph, the term ``financial institution''
means a broker or dealer, a depository
institution, a futures commission merchant, or
any other institution, as determined by the
Corporation by regulation to be a financial
institution, and the term ``clearing
organization'' has the same meaning as in
section 402 of the Federal Deposit Insurance
Corporation Improvement Act of 1991.
(10) Notification of transfer.--
(A) In general.--If--
(i) the conservator or receiver for
an insured depository institution in
default makes any transfer of the
assets and liabilities of such
institution; and
(ii) the transfer includes any
qualified financial contract,
[the conservator or receiver shall use such
conservator's or receiver's best efforts to
notify any person who is a party to any such
contract of such transfer by 12:00, noon (local
time) on the business day following such
transfer.] the conservator or receiver shall
notify any person who is a party to any such
contract of such transfer by 5:00 p.m. (eastern
time) on the business day following the date of
the appointment of the receiver in the case of
a receivership, or the business day following
such transfer in the case of a conservatorship.
(B) Certain rights not enforceable.--
(i) Receivership.--A person who is a
party to a qualified financial contract
with an insured depository institution
may not exercise any right that such
person has to terminate, liquidate, or
net 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 or
incidental to the appointment of a
receiver for the depository institution
(or the insolvency or financial
condition of the depository institution
for which the receiver has been
appointed)--
(I) until 5:00 p.m. (eastern
time) on the business day
following the date of 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) Conservatorship.--A person who
is a party to a qualified financial
contract with an insured depository
institution may not exercise any right
that such person has to terminate,
liquidate, or net 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 or incidental to the
appointment of a conservator for the
depository institution (or the
insolvency or financial condition of
the depository institution for which
the conservator has been appointed).
(iii) Notice.--For purposes of this
paragraph, the Corporation as receiver
or conservator of an insured depository
institution shall be deemed to have
notified a person who is a party to a
qualified financial contract with such
depository institution if the
Corporation has taken steps reasonably
calculated to provide notice to such
person by the time specified in
subparagraph (A).
(C) Treatment of bridge banks.--The following
institutions shall not be considered to be a
financial institution for which a conservator,
receiver, trustee in bankruptcy, or other legal
custodian has been appointed or which is
otherwise the subject of a bankruptcy or
insolvency proceeding for purposes of paragraph
(9):
(i) A bridge bank.
(ii) A depository institution
organized by the Corporation, for which
a conservator is appointed either--
(I) immediately upon the
organization of the
institution; or
(II) at the time of a
purchase and assumption
transaction between the
depository institution and the
Corporation as receiver for a
depository institution in
default.
[(B)] (D) Business day defined.--For purposes
of this paragraph, the term ``business day''
means any day other than any Saturday, Sunday,
or any day on which either the New York Stock
Exchange or the Federal Reserve Bank of New
York is closed.
(11) Disaffirmance or repudiation of qualified
financial contracts.--In exercising the rights of
disaffirmance or repudiation of a conservator or
receiver with respect to any qualified financial
contract to which an insured depository institution is
a party, the conservator or receiver for such
institution shall either--
(A) disaffirm or repudiate all qualified
financial contracts between--
(i) any person or any affiliate of
such person; and
(ii) the depository institution in
default; or
(B) disaffirm or repudiate none of the
qualified financial contracts referred to in
subparagraph (A) (with respect to such person
or any affiliate of such person).
[(11)] (12) Certain security interests not
avoidable.--No provision of this subsection shall be
construed as permitting the avoidance of any legally
enforceable or perfected security interest in any of
the assets of any depository institution except where
such an interest is taken in contemplation of the
institution's insolvency or with the intent to hinder,
delay, or defraud the institution or the creditors of
such institution.
[(12)] (13) Authority to enforce contracts.--
(A) In general.--The conservator or receiver
may enforce any contract, other than a
director's or officer's liability insurance
contract or a depository institution bond,
entered into by the depository institution
notwithstanding any provision of the contract
providing for termination, default,
acceleration, or exercise of rights upon, or
solely by reason of, insolvency or the
appointment of or the exercise of rights or
powers by a conservator or receiver.
* * * * * * *
[(13)] (14) Exception for federal reserve and federal
home loan banks.--No provision of this subsection shall
apply with respect to--
(A) * * *
* * * * * * *
[(14)] (15) Selling credit card accounts
receivable.--
(A) * * *
* * * * * * *
[(15)] (16) Certain credit card customer lists
protected.--
(A) * * *
* * * * * * *
(17) Savings clause.--The meanings of terms used in
this subsection are applicable for purposes of this
subsection 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 that term
is defined in section 3(a)(47) of the Securities
Exchange Act of 1934), and the Commodity Exchange Act.
* * * * * * *
Sec. 13. (a) * * *
* * * * * * *
(e) Agreements Against Interests of Corporation.--
(1) * * *
[(2) Public deposits.--An agreement to provide for
the lawful collateralization of deposits of a Federal,
State, or local governmental entity or of any depositor
referred to in section 11(a)(2) shall not be deemed to
be invalid pursuant to paragraph (1)(B) solely because
such agreement was not executed contemporaneously with
the acquisition of the collateral or with any changes
in the collateral made in accordance with such
agreement.]
(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, or of any depositor referred to in
section 11(a)(2), 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) one or more qualified financial
contracts, as defined in section 11(e)(8)(D),
shall not be deemed invalid pursuant to paragraph
(1)(B) solely because such agreement was not executed
contemporaneously with the acquisition of the
collateral or because of pledges, delivery, or
substitution of the collateral made in accordance with
such agreement.
* * * * * * *
----------
FEDERAL CREDIT UNION ACT
TITLE II--SHARE INSURANCE
* * * * * * *
payment of insurance
Sec. 207. (a) * * *
* * * * * * *
(c) Provisions Relating to Contracts Entered Into Before
Appointment of Conservator or Liquidating Agent.--
(1) * * *
* * * * * * *
(8) Certain qualified financial contracts.--
(A) Rights of parties to contracts.--Subject
to [paragraph (12)] paragraphs (9) and (10) of
this subsection and notwithstanding any other
provision of this Act (other than subsection
(b)(9) of this section and section 208(a)(3)),
any other Federal law, or the law of any State,
no person shall be stayed or prohibited from
exercising--
(i) any right [to cause the
termination or liquidation] such person
has to cause the termination,
liquidation, or acceleration of any
qualified financial contract with an
insured credit union which arises upon
the appointment of the Board as
liquidating agent for such credit union
at any time after such appointment;
[(ii) any right under any security
arrangement relating to any contract or
agreement described in clause (i); or]
(ii) any right under any security
agreement or arrangement or other
credit enhancement related to 1 or more
qualified financial contracts described
in clause (i);
* * * * * * *
(C) Certain transfers not avoidable.--
(i) In general.--Notwithstanding
paragraph (11), section 5242 of the
Revised Statutes of the United States
or any other Federal or State law
relating to the avoidance of
preferential or fraudulent transfers,
the Board, whether acting as such or as
conservator or liquidating agent of an
insured credit union, may not avoid any
transfer of money or other property in
connection with any qualified financial
contract with an insured credit union.
* * * * * * *
(D) Certain contracts and agreements
defined.--For purposes of this [subsection--]
subsection, the following definitions shall
apply:
(i) Qualified financial contract.--
The term ``qualified financial
contract'' means any securities
contract, forward contract, repurchase
agreement, and any similar agreement
that the Board determines by
regulation, resolution, or order to be
a qualified financial contract for
purposes of this paragraph.
[(ii) Securities contract.--The term
``securities contract''--
[(I) has the meaning given to
such term in section 741 of
title 11, United States Code,
except that the term
``security'' (as used in such
section) shall be deemed to
include any mortgage loan, any
mortgage-related security (as
defined in section 3(a)(41) of
the Securities Exchange Act of
1934, and any interest in any
mortgage loan or mortgage-
related security; and
[(II) does not include any
participation in a commercial
mortgage loan unless the Board
determines by regulation,
resolution, or order to include
any such participation within
the meaning of such term.
[(iii) Forward contract.--The term
``forward contract'' has the meaning
given to such term in section 101 of
title 11, United States Code.
[(iv) Repurchase agreement.--The term
``repurchase agreement''--
[(I) has the meaning given to
such term in section 101 of
title 11, the United States
Code, except that the items (as
described in such section)
which may be subject to any
such agreement shall be deemed
to include mortgage-related
securities (as such term is
defined in section 3(a)(41) of
the Securities Exchange Act of
1934, any mortgage loan, and
any interest in any mortgage
loan; and
[(II) does not include any
participation in a commercial
mortgage loan unless the Board
determines by regulation,
resolution, or order to include
any such participation within
the meaning of such term.
[(v) Transfer.--The term ``transfer''
has the meaning given to such term in
section 101 of title 11, United States
Code.]
(ii) Securities contract.--The term
``securities contract''--
(I) means a contract for the
purchase, sale, or loan of a
security, a certificate of
deposit, a mortgage loan, or
any interest in a mortgage
loan, a group or index of
securities, certificates of
deposit, or mortgage loans or
interests therein (including
any interest therein or based
on the value thereof) or any
option on any of the foregoing,
including any option to
purchase or sell any such
security, certificate of
deposit, mortgage loan,
interest, group or index, or
option, and including any
repurchase or reverse
repurchase transaction on any
such security, certificate of
deposit, mortgage loan,
interest, group or index, or
option;
(II) does not include any
purchase, sale, or repurchase
obligation under a
participation in a commercial
mortgage loan unless the Board
determines by regulation,
resolution, or order to include
any such agreement within the
meaning of such term;
(III) means any option
entered into on a national
securities exchange relating to
foreign currencies;
(IV) means the guarantee by
or to any securities clearing
agency of any settlement of
cash, securities, certificates
of deposit, mortgage loans or
interests therein, group or
index of securities,
certificates of deposit, or
mortgage loans or interests
therein (including any interest
therein or based on the value
thereof) or option on any of
the foregoing, including any
option to purchase or sell any
such security, certificate of
deposit, mortgage loan,
interest, group or index, or
option;
(V) means any margin loan;
(VI) means any other
agreement or transaction that
is similar to any agreement or
transaction referred to in this
clause;
(VII) means any combination
of the agreements or
transactions referred to in
this clause;
(VIII) means any option to
enter into any agreement or
transaction referred to in this
clause;
(IX) means a master agreement
that provides for an agreement
or transaction referred to in
subclause (I), (III), (IV),
(V), (VI), (VII), or (VIII),
together with all supplements
to any such master agreement,
without regard to whether the
master agreement provides for
an agreement or transaction
that is not a securities
contract under this clause,
except that the master
agreement shall be considered
to be a securities contract
under this clause only with
respect to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (III), (IV),
(V), (VI), (VII), or (VIII);
and
(X) means any security
agreement or arrangement or
other credit enhancement
related to any agreement or
transaction referred to in this
clause, including any guarantee
or reimbursement obligation in
connection with any agreement
or transaction referred to in
this clause.
(iii) Commodity contract.--The term
``commodity contract'' means--
(I) with respect to a futures
commission merchant, a contract
for the purchase or sale of a
commodity for future delivery
on, or subject to the rules of,
a contract market or board of
trade;
(II) with respect to a
foreign futures commission
merchant, a foreign future;
(III) with respect to a
leverage transaction merchant,
a leverage transaction;
(IV) with respect to a
clearing organization, a
contract for the purchase or
sale of a commodity for future
delivery on, or subject to the
rules of, a contract market or
board of trade that is cleared
by such clearing organization,
or commodity option traded on,
or subject to the rules of, a
contract market or board of
trade that is cleared by such
clearing organization;
(V) with respect to a
commodity options dealer, a
commodity option;
(VI) any other agreement or
transaction that is similar to
any agreement or transaction
referred to in this clause;
(VII) any combination of the
agreements or transactions
referred to in this clause;
(VIII) any option to enter
into any agreement or
transaction referred to in this
clause;
(IX) a master agreement that
provides for an agreement or
transaction referred to in
subclause (I), (II), (III),
(IV), (V), (VI), (VII), or
(VIII), together with all
supplements to any such master
agreement, without regard to
whether the master agreement
provides for an agreement or
transaction that is not a
commodity contract under this
clause, except that the master
agreement shall be considered
to be a commodity contract
under this clause only with
respect to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (II), (III),
(IV), (V), (VI), (VII), or
(VIII); or
(X) any security agreement or
arrangement or other credit
enhancement related to any
agreement or transaction
referred to in this clause,
including any guarantee or
reimbursement obligation in
connection with any agreement
or transaction referred to in
this clause.
(iv) Forward contract.--The term
``forward contract'' means--
(I) a contract (other than a
commodity contract) for the
purchase, sale, or transfer of
a commodity or any similar
good, article, service, right,
or interest which is presently
or in the future becomes the
subject of dealing in the
forward contract trade, or
product or byproduct thereof,
with a maturity date more than
2 days after the date the
contract is entered into,
including, a repurchase
transaction, reverse repurchase
transaction, consignment,
lease, swap, hedge transaction,
deposit, loan, option,
allocated transaction,
unallocated transaction, or any
other similar agreement;
(II) any combination of
agreements or transactions
referred to in subclauses (I)
and (III);
(III) any option to enter
into any agreement or
transaction referred to in
subclause (I) or (II);
(IV) a master agreement that
provides for an agreement or
transaction referred to in
subclauses (I), (II), or (III),
together with all supplements
to any such master agreement,
without regard to whether the
master agreement provides for
an agreement or transaction
that is not a forward contract
under this clause, except that
the master agreement shall be
considered to be a forward
contract under this clause only
with respect to each agreement
or transaction under the master
agreement that is referred to
in subclause (I), (II), or
(III); or
(V) any security agreement or
arrangement or other credit
enhancement related to any
agreement or transaction
referred to in subclause (I),
(II), (III), or (IV), including
any guarantee or reimbursement
obligation in connection with
any agreement or transaction
referred to in any such
subclause.
(v) Repurchase agreement.--The term
``repurchase agreement'' (which
definition also applies to a reverse
repurchase agreement)--
(I) means an agreement,
including related terms, which
provides for the transfer of
one or more certificates of
deposit, mortgage-related
securities (as such term is
defined in the Securities
Exchange Act of 1934), mortgage
loans, interests in mortgage-
related securities or mortgage
loans, eligible bankers'
acceptances, qualified foreign
government securities or
securities that are direct
obligations of, or that are
fully guaranteed by, the United
States or any agency of the
United States against the
transfer of funds by the
transferee of such certificates
of deposit, eligible bankers'
acceptances, securities,
mortgage loans, or interests
with a simultaneous agreement
by such transferee to transfer
to the transferor thereof
certificates of deposit,
eligible bankers' acceptances,
securities, mortgage loans, or
interests as described above,
at a date certain not later
than 1 year after such
transfers or on demand, against
the transfer of funds, or any
other similar agreement;
(II) does not include any
repurchase obligation under a
participation in a commercial
mortgage loan unless the Board
determines by regulation,
resolution, or order to include
any such participation within
the meaning of such term;
(III) means any combination
of agreements or transactions
referred to in subclauses (I)
and (IV);
(IV) means any option to
enter into any agreement or
transaction referred to in
subclause (I) or (III);
(V) means a master agreement
that provides for an agreement
or transaction referred to in
subclause (I), (III), or (IV),
together with all supplements
to any such master agreement,
without regard to whether the
master agreement provides for
an agreement or transaction
that is not a repurchase
agreement under this clause,
except that the master
agreement shall be considered
to be a repurchase agreement
under this subclause only with
respect to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (III), or
(IV); and
(VI) means any security
agreement or arrangement or
other credit enhancement
related to any agreement or
transaction referred to in
subclause (I), (III), (IV), or
(V), including any guarantee or
reimbursement obligation in
connection with any agreement
or transaction referred to in
any such subclause.
For purposes of this clause, the term
``qualified foreign government
security'' means a security that is a
direct obligation of, or that is fully
guaranteed by, the central government
of a member of the Organization for
Economic Cooperation and Development
(as determined by regulation or order
adopted by the appropriate Federal
banking authority).
(vi) Swap agreement.--The term ``swap
agreement'' means--
(I) any agreement, including
the terms and conditions
incorporated by reference in
any such agreement, which is an
interest rate swap, option,
future, or forward agreement,
including a rate floor, rate
cap, rate collar, cross-
currency rate swap, and basis
swap; a spot, same day-
tomorrow, tomorrow-next,
forward, or other foreign
exchange or precious metals
agreement; a currency swap,
option, future, or forward
agreement; an equity index or
equity swap, option, future, or
forward agreement; a debt index
or debt swap, option, future,
or forward agreement; a total
return, credit spread or credit
swap, option, future, or
forward agreement; a commodity
index or commodity swap,
option, future, or forward
agreement; or a weather swap,
weather derivative, or weather
option;
(II) any agreement or
transaction that is similar to
any other agreement or
transaction referred to in this
clause and that is of a type
that has been, is presently, or
in the future becomes, the
subject of recurrent dealings
in the swap markets (including
terms and conditions
incorporated by reference in
such agreement) and that is a
forward, swap, future, or
option on one or more rates,
currencies, commodities, equity
securities or other equity
instruments, debt securities or
other debt instruments,
quantitative measures
associated with an occurrence,
extent of an occurrence, or
contingency associated with a
financial, commercial, or
economic consequence, or
economic or financial indices
or measures of economic or
financial risk or value;
(III) any combination of
agreements or transactions
referred to in this clause;
(IV) any option to enter into
any agreement or transaction
referred to in this clause;
(V) a master agreement that
provides for an agreement or
transaction referred to in
subclause (I), (II), (III), or
(IV), together with all
supplements to any such master
agreement, without regard to
whether the master agreement
contains an agreement or
transaction that is not a swap
agreement under this clause,
except that the master
agreement shall be considered
to be a swap agreement under
this clause only with respect
to each agreement or
transaction under the master
agreement that is referred to
in subclause (I), (II), (III),
or (IV); and
(VI) any security agreement
or arrangement or other credit
enhancement related to any
agreements or transactions
referred to in subclause (I),
(II), (III), (IV), or (V),
including any guarantee or
reimbursement obligation in
connection with any agreement
or transaction referred to in
any such subclause.
Such term is applicable for purposes of
this subsection only and shall not be
construed or applied so as to challenge
or affect the characterization,
definition, or treatment of any swap
agreement under any other statute,
regulation, or rule, including 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.
(vii) Treatment of master agreement
as one agreement.--Any master agreement
for any contract or agreement described
in any preceding clause of this
subparagraph (or any master agreement
for such master agreement or
agreements), together with all
supplements to such master agreement,
shall be treated as a single agreement
and a single qualified financial
contract. If a master agreement
contains provisions relating to
agreements or transactions that are not
themselves qualified financial
contracts, the master agreement shall
be deemed to be a qualified financial
contract only with respect to those
transactions that are themselves
qualified financial contracts.
(viii) Transfer.--The term
``transfer'' means every mode, direct
or indirect, absolute or conditional,
voluntary or involuntary, of disposing
of or parting with property or with an
interest in property, including
retention of title as a security
interest and foreclosure of the
depository institution's equity of
redemption.
(E) Certain protections in event of
appointment of conservator.--Notwithstanding
any other provision of this Act ([other than
paragraph (12) of this subsection, subsection
(b)(9)] other than subsections (b)(9) and
(c)(10) of this section, and section 208(a)(3)
of this Act), any other Federal law, or the law
of any State, no person shall be stayed or
prohibited from exercising--
(i) * * *
[(ii) any right under any security
arrangement relating to such qualified
financial contracts; or]
(ii) any right under any security
agreement or arrangement or other
credit enhancement related to 1 or more
qualified financial contracts described
in clause (i);
* * * * * * *
(F) Clarification.--No provision of law shall
be construed as limiting the right or power of
the Board, or authorizing any court or agency
to limit or delay, in any manner, the right or
power of the Board to transfer any qualified
financial contract in accordance with
paragraphs (9) and (10) of this subsection or
to disaffirm or repudiate any such contract in
accordance with subsection (c)(1) of this
section.
(G) Walkaway clauses not effective.--
(i) In general.--Notwithstanding the
provisions of subparagraphs (A) and
(E), and sections 403 and 404 of the
Federal Deposit Insurance Corporation
Improvement Act of 1991, no walkaway
clause shall be enforceable in a
qualified financial contract of an
insured credit union in default.
(ii) Walkaway clause defined.--For
purposes of this subparagraph, the term
``walkaway clause'' means a provision
in a qualified financial contract that,
after calculation of a value of a
party's position or an amount due to or
from 1 of the parties in accordance
with its terms upon termination,
liquidation, or acceleration of the
qualified financial contract, either
does not create a payment obligation of
a party or extinguishes a payment
obligation of a party in whole or in
part solely because of such party's
status as a nondefaulting party.
(H) Recordkeeping requirements.--The Board,
in consultation with the appropriate Federal
banking agencies, may prescribe regulations
requiring more detailed recordkeeping by any
insured credit union with respect to qualified
financial contracts (including market
valuations) only if such insured credit union
is in a troubled condition (as such term is
defined by the Board pursuant to section 212).
[(9) Transfer of qualified financial contracts.--In
making any transfer of assets or liabilities of a
credit union in default which includes any qualified
financial contract, the conservator or liquidating
agent for such credit union shall either--
[(A) transfer to 1 credit union (other than a
credit union in default)--
[(i) all qualified financial
contracts between--
[(I) any person or any
affiliate of such person; and
[(II) the credit union in
default;
[(ii) all claims of such person or
any affiliate of such person against
such credit union under any such
contract (other than any claim which,
under the terms of any such contract,
is subordinated to the claims of
general unsecured creditors of such
credit union);
[(iii) all claims of such credit
union against such person or any
affiliate of such person under any such
contract; and
[(iv) all property securing any claim
described in clause (ii) or (iii) under
any such contract; or
[(B) transfer none of the financial
contracts, claims, or property referred to in
subparagraph (A) (with respect to such person
and any affiliate of such person).]
(9) Transfer of qualified financial contracts.--
(A) In general.--In making any transfer of
assets or liabilities of a credit union in
default which includes any qualified financial
contract, the conservator or liquidating agent
for such credit union shall either--
(i) transfer to 1 financial
institution, other than a financial
institution for which a conservator,
receiver, trustee in bankruptcy, or
other legal custodian has been
appointed or which is otherwise the
subject of a bankruptcy or insolvency
proceeding--
(I) all qualified financial
contracts between any person or
any affiliate of such person
and the credit union in
default;
(II) all claims of such
person or any affiliate of such
person against such credit
union under any such contract
(other than any claim which,
under the terms of any such
contract, is subordinated to
the claims of general unsecured
creditors of such credit
union);
(III) all claims of such
credit union against such
person or any affiliate of such
person under any such contract;
and
(IV) all property securing or
any other credit enhancement
for any contract described in
subclause (I) or any claim
described in subclause (II) or
(III) under any such contract;
or
(ii) transfer none of the qualified
financial contracts, claims, property
or other credit enhancement referred to
in clause (i) (with respect to such
person and any affiliate of such
person).
(B) Transfer to foreign bank, foreign
financial institution, or branch or agency of a
foreign bank or financial institution.--In
transferring any qualified financial contracts
and related claims and property under
subparagraph (A)(i), the conservator or
liquidating agent for the credit union shall
not make such transfer to a foreign bank,
financial institution organized under the laws
of a foreign country, or a branch or agency of
a foreign bank or financial institution unless,
under the law applicable to such bank,
financial institution, branch or agency, to the
qualified financial contracts, and to any
netting contract, any security agreement or
arrangement or other credit enhancement related
to 1 or more qualified financial contracts, the
contractual rights of the parties to such
qualified financial contracts, netting
contracts, security agreements or arrangements,
or other credit enhancements are enforceable
substantially to the same extent as permitted
under this section.
(C) Transfer of contracts subject to the
rules of a clearing organization.--In the event
that a conservator or liquidating agent
transfers any qualified financial contract and
related claims, property, and credit
enhancements pursuant to subparagraph (A)(i)
and such contract is cleared by or subject to
the rules of a clearing organization, the
clearing organization shall not be required to
accept the transferee as a member by virtue of
the transfer.
(D) Definitions.--For purposes of this
paragraph--
(i) the term ``financial
institution'' means a broker or dealer,
a depository institution, a futures
commission merchant, a credit union, or
any other institution, as determined by
the Board by regulation to be a
financial institution; and
(ii) the term ``clearing
organization'' has the same meaning as
in section 402 of the Federal Deposit
Insurance Corporation Improvement Act
of 1991.
(10) Notification of transfer.--
(A) In general.--If--
(i) * * *
(ii) the transfer includes any
qualified financial contract,
[the conservator or liquidating agent shall use
such conservator's or liquidating agent's best
efforts to notify any person who is a party to
any such contract of such transfer by 12:00,
noon (local time), on the business day
following such transfer.] the conservator or
liquidating agent shall notify any person who
is a party to any such contract of such
transfer by 5:00 p.m. (eastern time) on the
business day following the date of the
appointment of the liquidating agent in the
case of a liquidation, or the business day
following such transfer in the case of a
conservatorship.
(B) Certain rights not enforceable.--
(i) Liquidation.--A person who is a
party to a qualified financial contract
with an insured credit union may not
exercise any right that such person has
to terminate, liquidate, or net 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 or incidental to the
appointment of a liquidating agent for
the credit union institution (or the
insolvency or financial condition of
the credit union for which the
liquidating agent has been appointed)--
(I) until 5:00 p.m. (eastern
time) on the business day
following the date of the
appointment of the liquidating
agent; or
(II) after the person has
received notice that the
contract has been transferred
pursuant to paragraph (9)(A).
(ii) Conservatorship.--A person who
is a party to a qualified financial
contract with an insured credit union
may not exercise any right that such
person has to terminate, liquidate, or
net 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 or
incidental to the appointment of a
conservator for the credit union or the
insolvency or financial condition of
the credit union for which the
conservator has been appointed).
(iii) Notice.--For purposes of this
paragraph, the Board as conservator or
liquidating agent of an insured credit
union shall be deemed to have notified
a person who is a party to a qualified
financial contract with such credit
union if the Board has taken steps
reasonably calculated to provide notice
to such person by the time specified in
subparagraph (A).
(C) Treatment of bridge banks.--The following
institutions shall not be considered to be a
financial institution for which a conservator,
receiver, trustee in bankruptcy, or other legal
custodian has been appointed or which is
otherwise the subject of a bankruptcy or
insolvency proceeding for purposes of paragraph
(9):
(i) A bridge bank.
(ii) A credit union organized by the
Board, for which a conservator is
appointed either--
(I) immediately upon the
organization of the credit
union; or
(II) at the time of a
purchase and assumption
transaction between the credit
union and the Board as receiver
for a credit union in default.
[(B)] (D) Business day defined.--For purposes
of this paragraph, the term ``business day''
means any day other than any Saturday, Sunday,
or any day on which either the New York Stock
Exchange or the Federal Reserve Bank of New
York is closed.
(11) Disaffirmance or repudiation of qualified
financial contracts.--In exercising the rights of
disaffirmance or repudiation of a conservator or
liquidating agent with respect to any qualified
financial contract to which an insured credit union is
a party, the conservator or liquidating agent for such
credit union shall either--
(A) disaffirm or repudiate all qualified
financial contracts between--
(i) any person or any affiliate of
such person; and
(ii) the credit union in default; or
(B) disaffirm or repudiate none of the
qualified financial contracts referred to in
subparagraph (A) (with respect to such person
or any affiliate of such person).
[(11)] (12) Certain security interests not
avoidable.--No provision of this subsection shall be
construed as permitting the avoidance of any legally
enforceable or perfected security interest in any of
the assets of any credit union except where such an
interest is taken in contemplation of the credit
union's insolvency or with the intent to hinder, delay,
or defraud the credit union or the creditors of such
credit union.
[(12)] (13) Authority to enforce contracts.--
(A) In general.--The conservator or
liquidating agent may enforce any contract,
other than a director's or officer's liability
insurance contract or a credit union bond,
entered into by the credit union
notwithstanding any provision of the contract
providing for termination, default,
acceleration, or exercise of rights upon, or
solely by reason of, insolvency or the
appointment of or the exercise of rights or
powers by a conservator or liquidating agent.
* * * * * * *
[(13)] (14) Exception for federal reserve and federal
home loan banks.--No provision of this subsection shall
apply with respect to--
(A) * * *
* * * * * * *
(15) Savings clause.--The meanings of terms used in
this subsection are applicable for purposes of this
subsection 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 that term
is defined in section (a)(47) of the Securities
Exchange Act of 1934), and the Commodity Exchange Act.
* * * * * * *
----------
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
* * * * * * *
TITLE IV--MISCELLANEOUS PROVISIONS
Subtitle A--Payment System Risk Reduction
CHAPTER 1--BILATERAL AND CLEARING ORGANIZATION NETTING
* * * * * * *
SEC. 402. DEFINITIONS.
For purposes of this chapter--
(1) * * *
(2) Clearing organization.--The term ``clearing
organization'' means a clearinghouse, clearing
association, clearing corporation, or similar
organization--
(A) that provides clearing, netting, or
settlement services for its members and--
(i) * * *
(ii) which is registered as a
clearing agency under the Securities
Exchange Act of 1934, or is exempt from
such registration by order of the
Securities and Exchange Commission; or
(B) that is registered as a derivatives
clearing organization under section 5b of the
Commodity Exchange Act, that has been granted
an exemption under section 4(c)(1) of the
Commodity Exchange Act, or that is a
multilateral clearing organization (as defined
in section 408 of this Act).
* * * * * * *
(6) Depository institution.--The term ``depository
institution'' means--
(A) * * *
(B) an uninsured national bank or an
uninsured State bank that is a member of the
Federal Reserve System, if the national bank or
State member bank is not eligible to make
application to become an insured bank under
section 5 of the Federal Deposit Insurance Act;
[(B) a branch or agency as defined in section
1(b) of the International Banking Act of 1978;]
(C) a branch or agency of a foreign bank, a
foreign bank and any branch or agency of the
foreign bank, or the foreign bank that
established the branch or agency, as those
terms are defined in section 1(b) of the
International Banking Act of 1978;
[(C)] (D) a corporation chartered under
section 25(a) of the Federal Reserve Act; or
[(D)] (E) a corporation having an agreement
or undertaking with the Board of Governors of
the Federal Reserve System under section 25 of
the Federal Reserve Act.
* * * * * * *
(11) Member.--The term ``member'' means a member of
or participant in a clearing organization, and includes
the clearing organization and any other clearing
organization with which such clearing organization has
a netting contract.
* * * * * * *
(14) Netting contract.--
(A) In general.--The term ``netting
contract''--
[(i) means a contract or agreement
between 2 or more financial
institutions or members, that--
[(I) is governed by the laws
of the United States, any
State, or any political
subdivision of any State, and
[(II) provides for netting
present or future payment
obligations or payment
entitlements (including
liquidation or close-out values
relating to the obligations or
entitlements) among the parties
to the agreement; and]
(i) means a contract or agreement
between 2 or more financial
institutions, clearing organizations,
or members that provides for netting
present or future payment obligations
or payment entitlements (including
liquidation or close out values
relating to such obligations or
entitlements) among the parties to the
agreement; and
* * * * * * *
(15) Payment.--The term ``payment'' means a payment
of United States dollars, another currency, or a
composite currency, and a noncash delivery, including a
payment or delivery to liquidate an unmatured
obligation.
SEC. 403. BILATERAL NETTING.
[(a) General Rule.--Notwithstanding any other provision of
law, the covered contractual payment obligations and the
covered contractual payment entitlements between any 2
financial institutions shall be netted in accordance with, and
subject to the conditions of, the terms of any applicable
netting contract.]
(a) General Rule.--Notwithstanding any other provision of
State or Federal law (other than paragraphs (8)(E), (8)(F), and
(10)(B) of section 11(e) of the Federal Deposit Insurance Act,
paragraphs (8)(E), (8)(F), and (10)(B) of section 207(c) of the
Federal Credit Union Act, or any order authorized under section
5(b)(2) of the Securities Investor Protection Act of 1970), the
covered contractual payment obligations and the covered
contractual payment entitlements between any 2 financial
institutions shall be netted in accordance with, and subject to
the conditions of, the terms of any applicable netting contract
(except as provided in section 561(b)(2) of title 11, United
States Code).
* * * * * * *
(f) Enforceability of Security Agreements.--The provisions of
any security agreement or arrangement or other credit
enhancement related to one or more netting contracts between
any 2 financial institutions shall be enforceable in accordance
with their terms (except as provided in section 561(b)(2) of
title 11, United States Code), and shall not be stayed,
avoided, or otherwise limited by any State or Federal law
(other than paragraphs (8)(E), (8)(F), and (10)(B) of section
11(e) of the Federal Deposit Insurance Act, paragraphs (8)(E),
(8)(F), and (10)(B) of section 207(c) of the Federal Credit
Union Act, and section 5(b)(2) of the Securities Investor
Protection Act of 1970).
SEC. 404. CLEARING ORGANIZATION NETTING.
[(a) General Netting Rule.--Notwithstanding any other
provision of law, the covered contractual payment obligations
and covered contractual payment entitlements of a member of a
clearing organization to and from all other members of a
clearing organization shall be netted in accordance with and
subject to the conditions of any applicable netting contract.]
(a) General Rule.--Notwithstanding any other provision of
State or Federal law (other than paragraphs (8)(E), (8)(F), and
(10)(B) of section 11(e) of the Federal Deposit Insurance Act,
paragraphs (8)(E), (8)(F), and (10)(B) of section 207(c) of the
Federal Credit Union Act, and any order authorized under
section 5(b)(2) of the Securities Investor Protection Act of
1970), the covered contractual payment obligations and the
covered contractual payment entitlements of a member of a
clearing organization to and from all other members of a
clearing organization shall be netted in accordance with and
subject to the conditions of any applicable netting contract
(except as provided in section 561(b)(2) of title 11, United
States Code).
* * * * * * *
(h) Enforceability of Security Agreements.--The provisions of
any security agreement or arrangement or other credit
enhancement related to one or more netting contracts between
any 2 members of a clearing organization shall be enforceable
in accordance with their terms (except as provided in section
561(b)(2) of title 11, United States Code), and shall not be
stayed, avoided, or otherwise limited by any State or Federal
law (other than paragraphs (8)(E), (8)(F), and (10)(B) of
section 11(e) of the Federal Deposit Insurance Act, paragraphs
(8)(E), (8)(F), and (10)(B) of section 207(c) of the Federal
Credit Union Act, and section 5(b)(2) of the Securities
Investor Protection Act of 1970).
* * * * * * *
SEC. 407. TREATMENT OF CONTRACTS WITH UNINSURED NATIONAL BANKS,
UNINSURED FEDERAL BRANCHES AND AGENCIES, CERTAIN
UNINSURED STATE MEMBER BANKS, AND EDGE ACT
CORPORATIONS.
(a) In General.--Notwithstanding any other provision of law,
paragraphs (8), (9), (10), and (11) of section 11(e) of the
Federal Deposit Insurance Act shall apply to an uninsured
national bank or uninsured Federal branch or Federal agency, a
corporation chartered under section 25A of the Federal Reserve
Act, or an uninsured State member bank which operates, or
operates as, a multilateral clearing organization pursuant to
section 409 of this Act, except that for such purpose--
(1) any reference to the ``Corporation as receiver''
or ``the receiver or the Corporation'' shall refer to
the receiver appointed by the Comptroller of the
Currency in the case of an uninsured national bank or
uninsured Federal branch or agency, or to the receiver
appointed by the Board of Governors of the Federal
Reserve System in the case of a corporation chartered
under section 25A of the Federal Reserve Act or an
uninsured State member bank;
(2) any reference to the ``Corporation'' (other than
in section 11(e)(8)(D) of such Act), the ``Corporation,
whether acting as such or as conservator or receiver'',
a ``receiver'', or a ``conservator'' shall refer to the
receiver or conservator appointed by the Comptroller of
the Currency in the case of an uninsured national bank
or uninsured Federal branch or agency, or to the
receiver or conservator appointed by the Board of
Governors of the Federal Reserve System in the case of
a corporation chartered under section 25A of the
Federal Reserve Act or an uninsured State member bank;
and
(3) any reference to an ``insured depository
institution'' or ``depository institution'' shall refer
to an uninsured national bank, an uninsured Federal
branch or Federal agency, a corporation chartered under
section 25A of the Federal Reserve Act, or an uninsured
State member bank which operates, or operates as, a
multilateral clearing organization pursuant to section
409 of this Act.
(b) Liability.--The liability of a receiver or conservator of
an uninsured national bank, uninsured Federal branch or agency,
a corporation chartered under section 25A of the Federal
Reserve Act, or an uninsured State member bank which operates,
or operates as, a multilateral clearing organization pursuant
to section 409 of this Act, shall be determined in the same
manner and subject to the same limitations that apply to
receivers and conservators of insured depository institutions
under section 11(e) of the Federal Deposit Insurance Act.
(c) Regulatory Authority.--
(1) In general.--The Comptroller of the Currency in
the case of an uninsured national bank or uninsured
Federal branch or agency and the Board of Governors of
the Federal Reserve System in the case of a corporation
chartered under section 25A of the Federal Reserve Act,
or an uninsured State member bank that operates, or
operates as, a multilateral clearing organization
pursuant to section 409 of this Act, in consultation
with the Federal Deposit Insurance Corporation, may
each promulgate regulations solely to implement this
section.
(2) Specific requirement.--In promulgating
regulations, limited solely to implementing paragraphs
(8), (9), (10), and (11) of section 11(e) of the
Federal Deposit Insurance Act, the Comptroller of the
Currency and the Board of Governors of the Federal
Reserve System each shall ensure that the regulations
generally are consistent with the regulations and
policies of the Federal Deposit Insurance Corporation
adopted pursuant to the Federal Deposit Insurance Act.
(d) Definitions.--For purposes of this section, the terms
``Federal branch'', ``Federal agency'', and ``foreign bank''
have the same meanings as in section 1(b) of the International
Banking Act of 1978.
SEC. [407.] 407A. NATIONAL EMERGENCIES.
The provisions of this subtitle may not be construed to limit
the authority of the President under the Trading With the Enemy
Act (50 U.S.C. App. 1 et seq.) or the International Emergency
Economic Powers Act (50 U.S.C. 1701 et seq.).
* * * * * * *
----------
TITLE 11, UNITED STATES CODE
* * * * * * *
CHAPTER 1--GENERAL PROVISIONS
* * * * * * *
Sec. 101. Definitions
In this title--
(1) * * *
* * * * * * *
[(22) the term ``financial institution''--
[(A) means--
[(i) a Federal reserve bank or an
entity (domestic or foreign) that is a
commercial or savings bank, industrial
savings bank, savings and loan
association, trust company, or receiver
or conservator for such entity and,
when any such Federal reserve bank,
receiver, conservator, or entity is
acting as agent or custodian for a
customer in connection with a
securities contract, as defined in
section 741 of this title, the
customer; or
[(ii) in connection with a securities
contract, as defined in section 741 of
this title, an investment company
registered under the Investment Company
Act of 1940; and
[(B) includes any person described in
subparagraph (A) which operates, or operates
as, a multilateral clearing organization
pursuant to section 409 of the Federal Deposit
Insurance Corporation Improvement Act of 1991;]
(22) ``financial institution'' means--
(A) a Federal reserve bank, or an entity
(domestic or foreign) that is a commercial or
savings bank, industrial savings bank, savings
and loan association, trust company, federally-
insured credit union, or receiver or
conservator for such entity and, when any such
Federal reserve bank, receiver, conservator or
entity is acting as agent or custodian for a
customer in connection with a securities
contract (as defined in section 741) such
customer; or
(B) in connection with a securities contract
(as defined in section 741) an investment
company registered under the Investment Company
Act of 1940;
(22A) ``financial participant'' means--
(A) an entity that, at the time it enters
into a securities contract, commodity contract,
swap agreement, repurchase agreement, or
forward contract, or at the time of the filing
of the petition, has one or more agreements or
transactions described in paragraph (1), (2),
(3), (4), (5), or (6) of section 561(a) with
the debtor or any other entity (other than an
affiliate) of a total gross dollar value of not
less than $1,000,000,000 in notional or actual
principal amount outstanding on any day during
the previous 15-month period, or has gross
mark-to-market positions of not less than
$100,000,000 (aggregated across counterparties)
in one or more such agreements or transactions
with the debtor or any other entity (other than
an affiliate) on any day during the previous
15-month period; or
(B) a clearing organization (as defined in
section 402 of the Federal Deposit Insurance
Corporation Improvement Act of 1991);
* * * * * * *
(25) ``forward contract'' [means a contract] means--
(A) a contract (other than a commodity
contract) for the purchase, sale, or transfer
of a commodity, as defined in section 761(8) of
this title, or any similar good, article,
service, right, or interest which is presently
or in the future becomes the subject of dealing
in the forward contract trade, or product or
byproduct thereof, with a maturity date more
than two days after the date the contract is
entered into, including, but not limited to, a
repurchase transaction, reverse repurchase
transaction, consignment, lease, swap, hedge
transaction, deposit, loan, option, allocated
transaction, unallocated transaction[, or any
combination thereof or option thereon;], or any
other similar agreement;
(B) any combination of agreements or
transactions referred to in subparagraphs (A)
and (C);
(C) any option to enter into an agreement or
transaction referred to in subparagraph (A) or
(B);
(D) a master agreement that provides for an
agreement or transaction referred to in
subparagraph (A), (B), or (C), together with
all supplements to any such master agreement,
without regard to whether such master agreement
provides for an agreement or transaction that
is not a forward contract under this paragraph,
except that such master agreement shall be
considered to be a forward contract under this
paragraph only with respect to each agreement
or transaction under such master agreement that
is referred to in subparagraph (A), (B), or
(C); or
(E) any security agreement or arrangement, or
other credit enhancement related to any
agreement or transaction referred to in
subparagraph (A), (B), (C), or (D), including
any guarantee or reimbursement obligation by or
to a forward contract merchant or financial
participant in connection with any agreement or
transaction referred to in any such
subparagraph, but not to exceed the damages in
connection with any such agreement or
transaction, measured in accordance with
section 562 of this title;
[(26) ``forward contract merchant'' means a person
whose business consists in whole or in part of entering
into forward contracts as or with merchants in a
commodity, as defined in section 761(8) of this title,
or any similar good, article, service, right, or
interest which is presently or in the future becomes
the subject of dealing in the forward contract trade;]
(26) ``forward contract merchant'' means a Federal
reserve bank, or an entity the business of which
consists in whole or in part of entering into forward
contracts as or with merchants in a commodity (as
defined in section 761) or any similar good, article,
service, right, or interest which is presently or in
the future becomes the subject of dealing in the
forward contract trade;
* * * * * * *
(38A) ``master netting agreement''--
(A) means an agreement providing for the
exercise of rights, including rights of
netting, setoff, liquidation, termination,
acceleration, or close out, under or in
connection with one or more contracts that are
described in any one or more of paragraphs (1)
through (5) of section 561(a), or any security
agreement or arrangement or other credit
enhancement related to one or more of the
foregoing, including any guarantee or
reimbursement obligation related to 1 or more
of the foregoing; and
(B) if the agreement contains provisions
relating to agreements or transactions that are
not contracts described in paragraphs (1)
through (5) of section 561(a), shall be deemed
to be a master netting agreement only with
respect to those agreements or transactions
that are described in any one or more of
paragraphs (1) through (5) of section 561(a);
(38B) ``master netting agreement participant'' means
an entity that, at any time before the filing of the
petition, is a party to an outstanding master netting
agreement with the debtor;
* * * * * * *
(46) ``repo participant'' means an entity that, [on
any day during the period beginning 90 days before the
date of] at any time before the filing of the petition,
has an outstanding repurchase agreement with the
debtor;
[(47) ``repurchase agreement'' (which definition also
applies to a reverse repurchase agreement) means an
agreement, including related terms, which provides for
the transfer of certificates of deposit, eligible
bankers' acceptances, or securities that are direct
obligations of, or that are fully guaranteed as to
principal and interest by, the United States or any
agency of the United States against the transfer of
funds by the transferee of such certificates of
deposit, eligible bankers' acceptances, or securities
with a simultaneous agreement by such transferee to
transfer to the transferor thereof certificates of
deposit, eligible bankers' acceptances, or securities
as described above, at a date certain not later than
one year after such transfers or on demand, against the
transfer of funds;]
(47) ``repurchase agreement'' (which definition also
applies to a reverse repurchase agreement)--
(A) means--
(i) an agreement, including related
terms, which provides for the transfer
of one or more certificates of deposit,
mortgage related securities (as defined
in section 3 of the Securities Exchange
Act of 1934), mortgage loans, interests
in mortgage related securities or
mortgage loans, eligible bankers'
acceptances, qualified foreign
government securities (defined as a
security that is a direct obligation
of, or that is fully guaranteed by, the
central government of a member of the
Organization for Economic Cooperation
and Development), or securities that
are direct obligations of, or that are
fully guaranteed by, the United States
or any agency of the United States
against the transfer of funds by the
transferee of such certificates of
deposit, eligible bankers' acceptances,
securities, mortgage loans, or
interests, with a simultaneous
agreement by such transferee to
transfer to the transferor thereof
certificates of deposit, eligible
bankers' acceptance, securities,
mortgage loans, or interests of the
kind described in this clause, at a
date certain not later than 1 year
after such transfer or on demand,
against the transfer of funds;
(ii) any combination of agreements or
transactions referred to in clauses (i)
and (iii);
(iii) an option to enter into an
agreement or transaction referred to in
clause (i) or (ii);
(iv) a master agreement that provides
for an agreement or transaction
referred to in clause (i), (ii), or
(iii), together with all supplements to
any such master agreement, without
regard to whether such master agreement
provides for an agreement or
transaction that is not a repurchase
agreement under this paragraph, except
that such master agreement shall be
considered to be a repurchase agreement
under this paragraph only with respect
to each agreement or transaction under
the master agreement that is referred
to in clause (i), (ii), or (iii); or
(v) any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in clause (i), (ii), (iii),
or (iv), including any guarantee or
reimbursement obligation by or to a
repo participant or financial
participant in connection with any
agreement or transaction referred to in
any such clause, but not to exceed the
damages in connection with any such
agreement or transaction, measured in
accordance with section 562 of this
title; and
(B) does not include a repurchase obligation
under a participation in a commercial mortgage
loan;
(48) ``securities clearing agency'' means person that
is registered as a clearing agency under section 17A of
the Securities Exchange Act of 1934, or exempt from
such registration under such section pursuant to an
order of the Securities and Exchange Commission, or
whose business is confined to the performance of
functions of a clearing agency with respect to exempted
securities, as defined in section 3(a)(12) of such Act
for the purposes of such section 17A;
* * * * * * *
[(53B) ``swap agreement'' means--
[(A) an agreement (including terms and
conditions incorporated by reference therein)
which is a rate swap agreement, basis swap,
forward rate agreement, commodity swap,
interest rate option, forward foreign exchange
agreement, spot foreign exchange agreement,
rate cap agreement, rate floor agreement, rate
collar agreement, currency swap agreement,
cross-currency rate swap agreement, currency
option, any other similar agreement (including
any option to enter into any of the foregoing);
[(B) any combination of the foregoing; or
[(C) a master agreement for any of the
foregoing together with all supplements;]
(53B) ``swap agreement''--
(A) means--
(i) any agreement, including the
terms and conditions incorporated by
reference in such agreement, which is--
(I) an interest rate swap,
option, future, or forward
agreement, including a rate
floor, rate cap, rate collar,
cross-currency rate swap, and
basis swap;
(II) a spot, same day-
tomorrow, tomorrow-next,
forward, or other foreign
exchange or precious metals
agreement;
(III) a currency swap,
option, future, or forward
agreement;
(IV) an equity index or
equity swap, option, future, or
forward agreement;
(V) a debt index or debt
swap, option, future, or
forward agreement;
(VI) a total return, credit
spread or credit swap, option,
future, or forward agreement;
(VII) a commodity index or a
commodity swap, option, future,
or forward agreement; or
(VIII) a weather swap,
weather derivative, or weather
option;
(ii) any agreement or transaction
that is similar to any other agreement
or transaction referred to in this
paragraph and that--
(I) is of a type that has
been, is presently, or in the
future becomes, the subject of
recurrent dealings in the swap
markets (including terms and
conditions incorporated by
reference therein); and
(II) is a forward, swap,
future, or option on one or
more rates, currencies,
commodities, equity securities,
or other equity instruments,
debt securities or other debt
instruments, quantitative
measures associated with an
occurrence, extent of an
occurrence, or contingency
associated with a financial,
commercial, or economic
consequence, or economic or
financial indices or measures
of economic or financial risk
or value;
(iii) any combination of agreements
or transactions referred to in this
subparagraph;
(iv) any option to enter into an
agreement or transaction referred to in
this subparagraph;
(v) a master agreement that provides
for an agreement or transaction
referred to in clause (i), (ii), (iii),
or (iv), together with all supplements
to any such master agreement, and
without regard to whether the master
agreement contains an agreement or
transaction that is not a swap
agreement under this paragraph, except
that the master agreement shall be
considered to be a swap agreement under
this paragraph only with respect to
each agreement or transaction under the
master agreement that is referred to in
clause (i), (ii), (iii), or (iv); or
(vi) any security agreement or
arrangement or other credit enhancement
related to any agreements or
transactions referred to in clause (i)
through (v), including any guarantee or
reimbursement obligation by or to a
swap participant or financial
participant in connection with any
agreement or transaction referred to in
any such clause, but not to exceed the
damages in connection with any such
agreement or transaction, measured in
accordance with section 562 of this
title; and
(B) is applicable for 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 swap agreement
under any other statute, regulation, or rule,
including 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;
* * * * * * *
CHAPTER 3--CASE ADMINISTRATION
* * * * * * *
SUBCHAPTER IV--ADMINISTRATIVE POWERS
* * * * * * *
Sec. 362. Automatic stay
(a) * * *
(b) The filing of a petition under section 301, 302, or 303
of this title, or of an application under section 5(a)(3) of
the Securities Investor Protection Act of 1970, does not
operate as a stay--
(1) * * *
* * * * * * *
(6) under subsection (a) of this section, of the
setoff by a commodity broker, forward contract
merchant, stockbroker, [financial institutions,]
financial institution, financial participant, or
securities clearing agency of any mutual debt and claim
under or in connection with commodity contracts, as
defined in section 761 of this title, forward
contracts, or securities contracts, as defined in
section 741 of this title, that constitutes the setoff
of a claim against the debtor for a margin payment, as
defined in section 101, 741, or 761 of this title, or
settlement payment, as defined in section 101 or 741 of
this title, arising out of commodity contracts, forward
contracts, or securities contracts against cash,
securities, or other property held by, pledged to,
under the control of, or due from such commodity
broker, forward contract merchant, stockbroker,
[financial institutions,] financial institution,
financial participant, or securities clearing agency to
margin, guarantee, secure, or settle commodity
contracts, forward contracts, or securities contracts;
(7) under subsection (a) of this section, of the
setoff by a repo participant or financial participant,
of any mutual debt and claim under or in connection
with repurchase agreements that constitutes the setoff
of a claim against the debtor for a margin payment, as
defined in section 741 or 761 of this title, or
settlement payment, as defined in section 741 of this
title, arising out of repurchase agreements against
cash, securities, or other property held by, pledged
to, under the control of, or due from such repo
participant or financial participant to margin,
guarantee, secure or settle repurchase agreements;
* * * * * * *
[(17) under subsection (a) of this section, of the
setoff by a swap participant, of any mutual debt and
claim under or in connection with any swap agreement
that constitutes the setoff of a claim against the
debtor for any payment due from the debtor under or in
connection with any swap agreement against any payment
due to the debtor from the swap participant under or in
connection with any swap agreement or against cash,
securities, or other property of the debtor held by or
due from such swap participant to guarantee, secure or
settle any swap agreement; or]
(17) under subsection (a), of the setoff by a swap
participant or financial participant of a mutual debt
and claim under or in connection with one or more swap
agreements that constitutes the setoff of a claim
against the debtor for any payment or other transfer of
property due from the debtor under or in connection
with any swap agreement against any payment due to the
debtor from the swap participant or financial
participant under or in connection with any swap
agreement or against cash, securities, or other
property held by, pledged to, under the control of, or
due from such swap participant or financial participant
to margin, guarantee, secure, or settle any swap
agreement;
(18) under subsection (a) of the creation or
perfection of a statutory lien for an ad valorem
property tax imposed by the District of Columbia, or a
political subdivision of a State, if such tax comes due
after the filing of the petition[.]; or
(19) under subsection (a), of the setoff by a master
netting agreement participant of a mutual debt and
claim under or in connection with one or more master
netting agreements or any contract or agreement subject
to such agreements that constitutes the setoff of a
claim against the debtor for any payment or other
transfer of property due from the debtor under or in
connection with such agreements or any contract or
agreement subject to such agreements against any
payment due to the debtor from such master netting
agreement participant under or in connection with such
agreements or any contract or agreement subject to such
agreements or against cash, securities, or other
property held by, pledged to, under the control of, or
due from such master netting agreement participant to
margin, guarantee, secure, or settle such agreements or
any contract or agreement subject to such agreements,
to the extent that such participant is eligible to
exercise such offset rights under paragraph (6), (7),
or (17) for each individual contract covered by the
master netting agreement in issue.
The provisions of paragraphs (12) and (13) of this subsection
shall apply with respect to any such petition filed on or
before December 31, 1989.
* * * * * * *
(i) The exercise of rights not subject to the stay arising
under subsection (a) pursuant to paragraph (6), (7), (17), or
(19) of subsection (b) shall not be stayed by any order of a
court or administrative agency in any proceeding under this
title.
CHAPTER 5--CREDITORS, THE DEBTOR, AND THE ESTATE
SUBCHAPTER I--CREDITORS AND CLAIMS
Sec.
501. Filing of proofs of claims or interests.
* * * * * * *
SUBCHAPTER III--THE ESTATE
541. Property of the estate.
* * * * * * *
[555. Contractual right to liquidate a securities contract.
[556. Contractual right to liquidate a commodity contract or forward
contract.]
555. Contractual right to liquidate, terminate, or accelerate a
securities contract.
556. Contractual right to liquidate, terminate, or accelerate a
commodities contract or forward contract.
* * * * * * *
[559. Contractual right to liquidate a repurchase agreement.
[560. Contractual right to terminate a swap agreement.]
559. Contractual right to liquidate, terminate, or accelerate a
repurchase agreement.
560. Contractual right to liquidate, terminate, or accelerate a swap
agreement.
561. Contractual right to terminate, liquidate, accelerate, or offset
under a master netting agreement and across contracts;
proceedings under section 304.
562. Timing of damage measure in connection with swap agreements,
securities contracts, forward contracts, commodity contracts,
repurchase agreements, or master netting agreements.
* * * * * * *
SUBCHAPTER I--CREDITORS AND CLAIMS
* * * * * * *
Sec. 502. Allowance of claims or interests
(a) * * *
* * * * * * *
(g)(1) A claim arising from the rejection, under section 365
of this title or under a plan under chapter 9, 11, 12, or 13 of
this title, of an executory contract or unexpired lease of the
debtor that has not been assumed shall be determined, and shall
be allowed under subsection (a), (b), or (c) of this section or
disallowed under subsection (d) or (e) of this section, the
same as if such claim had arisen before the date of the filing
of the petition.
(2) A claim for damages calculated in accordance with section
562 of this title shall be allowed under subsection (a), (b),
or (c), or disallowed under subsection (d) or (e), as if such
claim had arisen before the date of the filing of the petition.
* * * * * * *
SUBCHAPTER III--THE ESTATE
* * * * * * *
Sec. 546. Limitations on avoiding powers
(a) * * *
* * * * * * *
(e) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and
548(b) of this title, the trustee may not avoid a transfer that
is a margin payment, as defined in section 101, 741, or 761 of
this title, or settlement payment, as defined in section 101 or
741 of this title, made by or to a commodity broker, forward
contract merchant, stockbroker, financial institution,
financial participant, or securities clearing agency, that is
made before the commencement of the case, except under section
548(a)(1)(A) of this title.
(f) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and
548(b) of this title, the trustee may not avoid a transfer 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, made by or to a repo participant or financial
participant, in connection with a repurchase agreement and that
is made before the commencement of the case, except under
section 548(a)(1)(A) of this title.
(g) Notwithstanding sections 544, 545, 547, 548(a)(1)(B) and
548(b) of this title, the trustee may not avoid a transfer
[under a swap agreement], made by or to a swap participant or
financial participant, [in connection with a swap agreement]
under or in connection with any swap agreement and that is made
before the commencement of the case, except under section
548(a)(1)(A) of this title.
* * * * * * *
(j) Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and
548(b) the trustee may not avoid a transfer made by or to a
master netting agreement participant under or in connection
with any master netting agreement or any individual contract
covered thereby that is made before the commencement of the
case, except under section 548(a)(1)(A) and except to the
extent that the trustee could otherwise avoid such a transfer
made under an individual contract covered by such master
netting agreement.
* * * * * * *
Sec. 548. Fraudulent transfers and obligations
(a) * * *
* * * * * * *
(d)(1) * * *
(2) In this section--
(A) * * *
(B) a commodity broker, forward contract merchant,
stockbroker, financial institution, financial
participant, or securities clearing agency that
receives a margin payment, as defined in section 101,
741, or 761 of this title, or settlement payment, as
defined in section 101 or 741 of this title, takes for
value to the extent of such payment;
(C) a repo participant or financial participant that
receives a margin payment, as defined in section 741 or
761 of this title, or settlement payment, as defined in
section 741 of this title, in connection with a
repurchase agreement, takes for value to the extent of
such payment; [and]
(D) a swap participant or financial participant that
receives a transfer in connection with a swap agreement
takes for value to the extent of such transfer[.]; and
(E) a master netting agreement participant that
receives a transfer in connection with a master netting
agreement or any individual contract covered thereby
takes for value to the extent of such transfer, except
that, with respect to a transfer under any individual
contract covered thereby, to the extent that such
master netting agreement participant otherwise did not
take (or is otherwise not deemed to have taken) such
transfer for value.
* * * * * * *
Sec. 553. Setoff
(a) Except as otherwise provided in this section and in
sections 362 and 363 of this title, this title does not affect
any right of a creditor to offset a mutual debt owing by such
creditor to the debtor that arose before the commencement of
the case under this title against a claim of such creditor
against the debtor that arose before the commencement of the
case, except to the extent that--
(1) * * *
(2) such claim was transferred, by an entity other
than the debtor, to such creditor--
(A) * * *
(B)(i) * * *
(ii) while the debtor was insolvent (except
for a setoff of a kind described in section
362(b)(6), 362(b)(7), 362(b)(17), 362(b)(19),
555, 556, 559, 560, or 561); or
(3) the debt owed to the debtor by such creditor was
incurred by such creditor--
(A) * * *
* * * * * * *
(C) for the purpose of obtaining a right of
setoff against the debtor (except for a setoff
of a kind described in section 362(b)(6),
362(b)(7), 362(b)(17), 362(b)(19), 555, 556,
559, 560, or 561 of this title).
(b)(1) Except with respect to a setoff of a kind described in
section 362(b)(6), 362(b)(7), [362(b)(14),] 362(b)(17),
362(b)(19), 555, 556, 559, 560, 561, 365(h), 546(h), or
365(i)(2) of this title, if a creditor offsets a mutual debt
owing to the debtor against a claim against the debtor on or
within 90 days before the date of the filing of the petition,
then the trustee may recover from such creditor the amount so
offset to the extent that any insufficiency on the date of such
setoff is less than the insufficiency on the later of--
(A) * * *
* * * * * * *
[Sec. 555. Contractual right to liquidate a securities contract]
Sec. 555. Contractual right to liquidate, terminate, or accelerate a
securities contract
The exercise of a contractual right of a stockbroker,
financial institution, financial participant, or securities
clearing agency to cause the [liquidation] liquidation,
termination, or acceleration of a securities contract, as
defined in section 741 of this title, because of a condition of
the kind specified in section 365(e)(1) of this title shall not
be stayed, avoided, or otherwise limited by operation of any
provision of this title or by order of a court or
administrative agency in any proceeding under this title unless
such order is authorized under the provisions of the Securities
Investor Protection Act of 1970 or any statute administered by
the Securities and Exchange Commission. [As used in this
section, the term ``contractual right'' includes a right set
forth in a rule or bylaw of a national securities exchange, a
national securities association, or a securities clearing
agency.] As used in this section, the term ``contractual
right'' includes a right set forth in a rule or bylaw of 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), a national securities exchange, a national securities
association, 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), or in a resolution of the governing board
thereof, and a right, whether or not in writing, arising under
common law, under law merchant, or by reason of normal business
practice
[Sec. 556. Contractual right to liquidate a commodities contract or
forward contract]
Sec. 556. Contractual right to liquidate, terminate, or accelerate a
commodities contract or forward contract
The contractual right of a commodity broker or forward
contract merchant to cause the [liquidation] liquidation,
termination, or acceleration of a commodity contract, as
defined in section 761 of this title, or forward contract
because of a condition of the kind specified in section
365(e)(1) of this title, and the right to a variation or
maintenance margin payment received from a trustee with respect
to open commodity contracts or forward contracts, shall not be
stayed, avoided, or otherwise limited by operation of any
provision of this title or by the order of a court in any
proceeding under this title. [As used in this section, the term
``contractual right'' includes a right set forth in a rule or
bylaw of a clearing organization or contract market or in a
resolution of the governing board thereof and a right,] As used
in this section, the term ``contractual right'' includes a
right set forth in a rule or bylaw of 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), a
national securities exchange, a national securities
association, 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) or in a resolution of the governing board thereof
and a right, whether or not evidenced in writing, arising under
common law, under law merchant or by reason of normal business
practice.
* * * * * * *
[Sec. 559. Contractual right to liquidate a repurchase agreement]
Sec. 559. Contractual right to liquidate, terminate, or accelerate a
repurchase agreement
The exercise of a contractual right of a repo participant or
financial participant to cause the [liquidation] liquidation,
termination, or acceleration of a repurchase agreement because
of a condition of the kind specified in section 365(e)(1) of
this title shall not be stayed, avoided, or otherwise limited
by operation of any provision of this title or by order of a
court or administrative agency in any proceeding under this
title, unless, where the debtor is a stockbroker or securities
clearing agency, such order is authorized under the provisions
of the Securities Investor Protection Act of 1970 or any
statute administered by the Securities and Exchange Commission.
In the event that a repo participant or financial participant
liquidates one or more repurchase agreements with a debtor and
under the terms of one or more such agreements has agreed to
deliver assets subject to repurchase agreements to the debtor,
any excess of the market prices received on liquidation of such
assets (or if any such assets are not disposed of on the date
of liquidation of such repurchase agreements, at the prices
available at the time of liquidation of such repurchase
agreements from a generally recognized source or the most
recent closing bid quotation from such a source) over the sum
of the stated repurchase prices and all expenses in connection
with the liquidation of such repurchase agreements shall be
deemed property of the estate, subject to the available rights
of setoff. [As used in this section, the term ``contractual
right'' includes a right set forth in a rule or bylaw,
applicable to each party to the repurchase agreement, of a
national securities exchange, a national securities
association, or a securities clearing agency, and a right,] As
used in this section, the term `contractual right' includes a
right set forth in a rule or bylaw of 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), a
national securities exchange, a national securities
association, 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) or in a resolution of the governing board thereof
and a right, whether or not evidenced in writing, arising under
common law, under law merchant or by reason of normal business
practice.
[Sec. 560. Contractual right to terminate a swap agreement]
Sec. 560. Contractual right to liquidate, terminate, or accelerate a
swap agreement
The exercise of any contractual right of any swap participant
or financial participant to cause the [termination of a swap
agreement] liquidation, termination, or acceleration of one or
more swap agreements because of a condition of the kind
specified in section 365(e)(1) of this title or to offset or
net out any termination values or payment amounts arising under
or [in connection with any swap agreement] in connection with
the termination, liquidation, or acceleration of one or more
swap agreements shall not be stayed, avoided, or otherwise
limited by operation of any provision of this title or by order
of a court or administrative agency in any proceeding under
this title. [As used in this section, the term ``contractual
right'' includes a right,] As used in this section, the term
`contractual right' includes a right set forth in a rule or
bylaw of 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), a national securities exchange, a
national securities association, 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) or in a resolution of the governing
board thereof and a right, whether or not evidenced in writing,
arising under common law, under law merchant, or by reason of
normal business practice.
Sec. 561. Contractual right to terminate, liquidate, accelerate, or
offset under a master netting agreement and across
contracts; proceedings under section 304
(a) 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 the termination, liquidation, or
acceleration of or to offset or net termination values, payment
amounts, or other transfer obligations arising under or in
connection with one or more (or the termination, liquidation,
or acceleration of one or more)--
(1) securities contracts, as defined in section
741(7);
(2) commodity contracts, as defined in section
761(4);
(3) forward contracts;
(4) repurchase agreements;
(5) swap agreements; or
(6) master netting agreements,
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)(1) A party may exercise a contractual right described in
subsection (a) to terminate, liquidate, or accelerate only to
the extent that such 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.
(2) If a debtor is a commodity broker subject to subchapter
IV of chapter 7--
(A) a party may not net or offset an obligation to
the debtor arising under, or in connection with, a
commodity contract traded on or subject to the rules of
a contract market designated under the Commodity
Exchange Act or a derivatives transaction execution
facility registered under the Commodity Exchange Act
against any claim arising under, or in connection with,
other instruments, contracts, or agreements listed in
subsection (a) except to the extent that the party has
positive net equity in the commodity accounts at the
debtor, as calculated under such subchapter; and
(B) another commodity broker may not net or offset an
obligation to the debtor arising under, or in
connection with, a commodity contract entered into or
held on behalf of a customer of the debtor and traded
on or subject to the rules of a contract market
designated under the Commodity Exchange Act or a
derivatives transaction execution facility registered
under the Commodity Exchange Act against any claim
arising under, or in connection with, other
instruments, contracts, or agreements listed in
subsection (a).
(3) No provision of subparagraph (A) or (B) of paragraph (2)
shall prohibit the offset of claims and obligations that arise
under--
(A) a cross-margining agreement or similar
arrangement that has been approved by the Commodity
Futures Trading Commission or submitted to the
Commodity Futures Trading Commission under paragraph
(1) or (2) of section 5c(c) of the Commodity Exchange
Act and has not been abrogated or rendered ineffective
by the Commodity Futures Trading Commission; or
(B) any other netting agreement between a clearing
organization (as defined in section 761) and another
entity that has been approved by the Commodity Futures
Trading Commission.
(c) As used in this section, the term ``contractual right''
includes a right set forth in a rule or bylaw of 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),
a national securities exchange, a national securities
association, 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) or in a resolution of the governing board
thereof, and a right, whether or not evidenced in writing,
arising under common law, under law merchant, or by reason of
normal business practice.
(d) Any provisions of this title relating to securities
contracts, commodity contracts, forward contracts, repurchase
agreements, swap agreements, or master netting agreements shall
apply in a case under section 304, so that enforcement of
contractual provisions of such contracts and agreements in
accordance with their terms will not be stayed or otherwise
limited by operation of any provision of this title or by order
of a court in any case under this title, and to limit avoidance
powers to the same extent as in a proceeding under chapter 7 or
11 of this title (such enforcement not to be limited based on
the presence or absence of assets of the debtor in the United
States).
Sec. 562. Timing of damage measurement in connection with swap
agreements, securities contracts, forward
contracts, commodity contracts, repurchase
agreements, and master netting agreements
(a) If the trustee rejects a swap agreement, securities
contract (as defined in section 741), forward contract,
commodity contract (as defined in section 761), repurchase
agreement, or master netting agreement pursuant to section
365(a), or if a forward contract merchant, stockbroker,
financial institution, securities clearing agency, repo
participant, financial participant, master netting agreement
participant, or swap participant liquidates, terminates, or
accelerates such contract or agreement, damages shall be
measured as of the earlier of--
(1) the date of such rejection; or
(2) the date or dates of such liquidation,
termination, or acceleration.
(b) If there are not any commercially reasonable determinants
of value as of any date referred to in paragraph (1) or (2) of
subsection (a), damages shall be measured as of the earliest
subsequent date or dates on which there are commercially
reasonable determinants of value.
(c) For the purposes of subsection (b), if damages are not
measured as of the date or dates of rejection, liquidation,
termination, or acceleration, and the forward contract
merchant, stockbroker, financial institution, securities
clearing agency, repo participant, financial participant,
master netting agreement participant, or swap participant or
the trustee objects to the timing of the measurement of
damages--
(1) the trustee, in the case of an objection by a
forward contract merchant, stockbroker, financial
institution, securities clearing agency, repo
participant, financial participant, master netting
agreement participant, or swap participant; or
(2) the forward contract merchant, stockbroker,
financial institution, securities clearing agency, repo
participant, financial participant, master netting
agreement participant, or swap participant, in the case
of an objection by the trustee,
has the burden of proving that there were no commercially
reasonable determinants of value as of such date or dates.
CHAPTER 7--LIQUIDATION
SUBCHAPTER I--OFFICERS AND ADMINISTRATION
Sec.
701. Interim trustee.
* * * * * * *
SUBCHAPTER III--STOCKBROKER LIQUIDATION
741. Definitions for this subchapter.
* * * * * * *
753. Stockbroker liquidation and forward contract merchants, commodity
brokers, stockbrokers, financial institutions, financial
participants, securities clearing agencies, swap participants,
repo participants, and master netting agreement participants.
SUBCHAPTER IV--COMMODITY BROKER LIQUIDATION
761. Definitions for this subchapter.
* * * * * * *
767. Commodity broker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial institutions,
financial participants, securities clearing agencies, swap
participants, repo participants, and master netting agreement
participants.
* * * * * * *
SUBCHAPTER III--STOCKBROKER LIQUIDATION
Sec. 741. Definitions for this subchapter
In this subchapter--
(1) * * *
* * * * * * *
[(7) ``securities contract'' means contract for the
purchase, sale, or loan of a security, including an
option for the purchase or sale of a security,
certificate of deposit, or group or index of securities
(including any interest therein or based on the value
thereof), or any option entered into on a national
securities exchange relating to foreign currencies, or
the guarantee of any settlement of cash or securities
by or to a securities clearing agency;]
(7) ``securities contract''--
(A) means--
(i) a contract for the purchase,
sale, or loan of a security, a
certificate of deposit, a mortgage loan
or any interest in a mortgage loan, a
group or index of securities,
certificates of deposit, or mortgage
loans or interests therein (including
an interest therein or based on the
value thereof), or option on any of the
foregoing, including an option to
purchase or sell any such security,
certificate of deposit, mortgage loan,
interest, group or index, or option,
and including any repurchase or reverse
repurchase transaction on any such
security, certificate of deposit,
mortgage loan, interest, group or
index, or option;
(ii) any option entered into on a
national securities exchange relating
to foreign currencies;
(iii) the guarantee by or to any
securities clearing agency of a
settlement of cash, securities,
certificates of deposit, mortgage loans
or interests therein, group or index of
securities, or mortgage loans or
interests therein (including any
interest therein or based on the value
thereof), or option on any of the
foregoing, including an option to
purchase or sell any such security,
certificate of deposit, mortgage loan,
interest, group or index, or option;
(iv) any margin loan;
(v) any other agreement or
transaction that is similar to an
agreement or transaction referred to in
this subparagraph;
(vi) any combination of the
agreements or transactions referred to
in this subparagraph;
(vii) any option to enter into any
agreement or transaction referred to in
this subparagraph;
(viii) a master agreement that
provides for an agreement or
transaction referred to in clause (i),
(ii), (iii), (iv), (v), (vi), or (vii),
together with all supplements to any
such master agreement, without regard
to whether the master agreement
provides for an agreement or
transaction that is not a securities
contract under this subparagraph,
except that such master agreement shall
be considered to be a securities
contract under this subparagraph only
with respect to each agreement or
transaction under such master agreement
that is referred to in clause (i),
(ii), (iii), (iv), (v), (vi), or (vii);
or
(ix) any security agreement or
arrangement or other credit enhancement
related to any agreement or transaction
referred to in this subparagraph,
including any guarantee or
reimbursement obligation by or to a
stockbroker, securities clearing
agency, financial institution, or
financial participant in connection
with any agreement or transaction
referred to in this subparagraph, but
not to exceed the damages in connection
with any such agreement or transaction,
measured in accordance with section 562
of this title; and
(B) does not include any purchase, sale, or
repurchase obligation under a participation in
a commercial mortgage loan;
* * * * * * *
Sec. 753. Stockbroker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial
institutions, financial participants, securities
clearing agencies, swap participants, repo
participants, and master netting agreement
participants
Notwithstanding any other provision of this title, the
exercise of rights by a forward contract merchant, commodity
broker, stockbroker, financial institution, securities clearing
agency, swap participant, repo participant, financial
participant, or master netting agreement participant under this
title shall not affect the priority of any unsecured claim it
may have after the exercise of such rights.
SUBCHAPTER IV--COMMODITY BROKER LIQUIDATION
Sec. 761. Definitions for this subchapter
In this subchapter--
(1) * * *
* * * * * * *
(4) ``commodity contract'' means--
(A) * * *
* * * * * * *
(D) with respect to a clearing organization,
contract for the purchase or sale of a
commodity for future delivery on, or subject to
the rules of, a contract market or board of
trade that is cleared by such clearing
organization, or commodity option traded on, or
subject to the rules of, a contract market or
board of trade that is cleared by such clearing
organization; [or]
* * * * * * *
(F) any other agreement or transaction that
is similar to an agreement or transaction
referred to in this paragraph;
(G) any combination of the agreements or
transactions referred to in this paragraph;
(H) any option to enter into an agreement or
transaction referred to in this paragraph;
(I) a master agreement that provides for an
agreement or transaction referred to in
subparagraph (A), (B), (C), (D), (E), (F), (G),
or (H), together with all supplements to such
master agreement, without regard to whether the
master agreement provides for an agreement or
transaction that is not a commodity contract
under this paragraph, except that the master
agreement shall be considered to be a commodity
contract under this paragraph only with respect
to each agreement or transaction under the
master agreement that is referred to in
subparagraph (A), (B), (C), (D), (E), (F), (G),
or (H); or
(J) any security agreement or arrangement or
other credit enhancement related to any
agreement or transaction referred to in this
paragraph, including any guarantee or
reimbursement obligation by or to a commodity
broker or financial participant in connection
with any agreement or transaction referred to
in this paragraph, but not to exceed the
damages in connection with any such agreement
or transaction, measured in accordance with
section 562 of this title;
* * * * * * *
Sec. 767. Commodity broker liquidation and forward contract merchants,
commodity brokers, stockbrokers, financial
institutions, financial participants, securities
clearing agencies, swap participants, repo
participants, and master netting agreement
participants
Notwithstanding any other provision of this title, the
exercise of rights by a forward contract merchant, commodity
broker, stockbroker, financial institution, financial
participant, securities clearing agency, swap participant, repo
participant, or master netting agreement participant under this
title shall not affect the priority of any unsecured claim it
may have after the exercise of such rights.
* * * * * * *
CHAPTER 9--ADJUSTMENT OF DEBTS OF A MUNICIPALITY
* * * * * * *
SUBCHAPTER I--GENERAL PROVISIONS
Sec. 901. Applicability of other sections of this title
(a) Sections 301, 344, 347(b), 349, 350(b), 361, 362, 364(c),
364(d), 364(e), 364(f), 365, 366, 501, 502, 503, 504, 506,
507(a)(1), 509, 510, 524(a)(1), 524(a)(2), 544, 545, 546, 547,
548, 549(a), 549(c), 549(d), 550, 551, 552, 553, 555, 556, 557,
559, 560, 561, 562 1102, 1103, 1109, 1111(b), 1122, 1123(a)(1),
1123(a)(2), 1123(a)(3), 1123(a)(4), 1123(a)(5), 1123(b), 1124,
1125, 1126(a), 1126(b), 1126(c), 1126(e), 1126(f), 1126(g),
1127(d), 1128, 1129(a)(2), 1129(a)(3), 1129(a)(6), 1129(a)(8),
1129(a)(10), 1129(b)(1), 1129(b)(2)(A), 1129(b)(2)(B), 1142(b),
1143, 1144, and 1145 of this title apply in a case under this
chapter.
* * * * * * *
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SECTION 5 OF THE SECURITIES INVESTOR PROTECTION ACT OF 1970
SEC. 5. PROTECTION OF CUSTOMERS.
(a) * * *
(b) Court Action.--
(1) * * *
(2) Jurisdiction and powers of court.--
(A) * * *
* * * * * * *
(C) Exception from stay.--
(i) Notwithstanding section 362 of
title 11, United States Code, neither
the filing of an application under
subsection (a)(3) nor any order or
decree obtained by SIPC from the court
shall operate as a stay of any
contractual rights of a creditor to
liquidate, terminate, or accelerate a
securities contract, commodity
contract, forward contract, repurchase
agreement, swap agreement, or master
netting agreement, as those terms are
defined in sections 101, 741, and 761
of title 11, United States Code, to
offset or net termination values,
payment amounts, or other transfer
obligations arising under or in
connection with one or more of such
contracts or agreements, or to
foreclose on any cash collateral
pledged by the debtor, whether or not
with respect to one or more of such
contracts or agreements.
(ii) Notwithstanding clause (i), such
application, order, or decree may
operate as a stay of the foreclosure
on, or disposition of, securities
collateral pledged by the debtor,
whether or not with respect to one or
more of such contracts or agreements,
securities sold by the debtor under a
repurchase agreement, or securities
lent under a securities lending
agreement.
(iii) As used in this subparagraph,
the term ``contractual right'' includes
a right set forth in a rule or bylaw of
a national securities exchange, a
national securities association, or a
securities clearing agency, a right set
forth in a bylaw of a clearing
organization or contract market or in a
resolution of the governing board
thereof, and a right, whether or not in
writing, arising under common law,
under law merchant, or by reason of
normal business practice.
* * * * * * *