[Congressional Bills 109th Congress]
[From the U.S. Government Publishing Office]
[H.R. 5585 Enrolled Bill (ENR)]
H.R.5585
One Hundred Ninth Congress
of the
United States of America
AT THE SECOND SESSION
Begun and held at the City of Washington on Tuesday,
the third day of January, two thousand and six
An Act
To improve the netting process for financial contracts, and for other
purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Financial Netting Improvements Act
of 2006''.
SEC. 2. TREATMENT OF CERTAIN AGREEMENTS BY CONSERVATORS OR RECEIVERS OF
DEPOSITORY INSTITUTIONS.
(a) Definition of Securities Contract.--
(1) FDIC-insured depository institutions.--Section
11(e)(8)(D)(ii) of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(8)(D)(ii)) is amended--
(A) in subclause (I)--
(i) by striking ``mortgage loan, or'' and inserting
``mortgage loan,''; and
(ii) by inserting before the semicolon ``(whether or
not such repurchase or reverse repurchase transaction is a
`repurchase agreement', as defined in clause (v))'';
(B) in subclause (IV)--
(i) by inserting ``(including by novation)'' after
``the guarantee''; and
(ii) by inserting before the semicolon ``(whether or
not such settlement is in connection with any agreement or
transaction referred to in subclauses (I) through (XII)
(other than subclause (II))'';
(C) in subclause (IX), by striking ``or (VIII)'' each place
such term appears and inserting ``(VIII), (IX), or (X)'';
(D) by redesignating subclauses (VI), (VII), (VIII), (IX),
and (X) as subclauses (VIII), (IX), (X), (XI), and (XII),
respectively; and
(E) by inserting after subclause (V) the following new
subparagraphs:
``(VI) means any extension of credit for the
clearance or settlement of securities transactions;
``(VII) means any loan transaction coupled with a
securities collar transaction, any prepaid securities
forward transaction, or any total return swap
transaction coupled with a securities sale
transaction;''.
(2) Insured credit unions.--Section 207(c)(8)(D)(ii) of the
Federal Credit Union Act (12 U.S.C. 1787(c)(8)(D)(ii)) is amended--
(A) in subclause (I)--
(i) by striking ``mortgage loan, or'' and inserting
``mortgage loan,''; and
(ii) by inserting before the semicolon ``(whether or
not such repurchase or reverse repurchase transaction is a
`repurchase agreement', as defined in clause (v))'';
(B) in subclause (IV)--
(i) by inserting ``(including by novation)'' after
``the guarantee''; and
(ii) by inserting before the semicolon ``(whether or
not such settlement is in connection with any agreement or
transaction referred to in subclauses (I) through (XII)
(other than subclause (II))'';
(C) in subclause (IX), by striking ``or (VIII)'' each place
such term appears and inserting ``(VIII), (IX), or (X)'';
(D) by redesignating subclauses (VI), (VII), (VIII), (IX),
and (X) as subclauses (VIII), (IX), (X), (XI), and (XII),
respectively; and
(E) by inserting after subclause (V) the following new
subparagraphs:
``(VI) means any extension of credit for the
clearance or settlement of securities transactions;
``(VII) means any loan transaction coupled with a
securities collar transaction, any prepaid securities
forward transaction, or any total return swap
transaction coupled with a securities sale
transaction;''.
(b) Definition of Forward Contract.--
(1) FDIC-insured depository institutions.--Section
11(e)(8)(D)(iv)(I) of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(8)(D)(iv)(I)) is amended by striking ``transaction, reverse
repurchase transaction'' and inserting ``or reverse repurchase
transaction (whether or not such repurchase or reverse repurchase
transaction is a `repurchase agreement', as defined in clause
(v))''.
(2) Insured credit unions.--Section 207(c)(8)(D)(iv)(I) of the
Federal Credit Union Act (12 U.S.C. 1787(c)(8)(D)(iv)(I)) is
amended by striking ``transaction, reverse repurchase transaction''
and inserting ``or reverse repurchase transaction (whether or not
such repurchase or reverse repurchase transaction is a `repurchase
agreement', as defined in clause (v))''.
(c) Definition of Swap Agreement.--
(1) FDIC-insured depository institutions.--Section
11(e)(8)(D)(vi) of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(8)(D)(vi)) is amended--
(A) in subclause (I)--
(i) by striking ``or precious metals'' and inserting
``, precious metals, or other commodity''; and
(ii) by striking ``or a weather swap, weather
derivative, or weather option'' and inserting ``weather
swap, option, future, or forward agreement; an emissions
swap, option, future, or forward agreement; or an inflation
swap, option, future, or forward agreement'';
(B) in subclause (II)--
(i) by inserting ``or other derivatives'' after
``dealings in the swap''; and
(ii) by striking ``future, or option'' and inserting
``future, option, or spot transaction''; and
(C) by striking ``the Securities Act of 1933, the
Securities Exchange Act of 1934, the Public Utility Holding
Company Act of 1935, the Trust Indenture Act of 1939, the
Investment Company Act of 1940, the Investment Advisers Act of
1940, the Securities Investor Protection Act of 1970, the
Commodity Exchange Act, the Gramm-Leach-Bliley Act, and the
Legal Certainty for Bank Products Act of 2000'' and inserting
``the Gramm-Leach-Bliley Act, the Legal Certainty for Bank
Products Act of 2000, the securities laws (as such term is
defined in section 3(a)(47) of the Securities Exchange Act of
1934) and the Commodity Exchange Act''.
(2) Insured credit unions.--Section 207(c)(8)(D)(vi) of the
Federal Credit Union Act (12 U.S.C. 1787(c)(8)(D)(vi)) is amended--
(A) in subclause (I)--
(i) by striking ``or precious metals'' and inserting
``, precious metals, or other commodity''; and
(ii) by striking ``or a weather swap, weather
derivative, or weather option'' and inserting ``weather
swap, option, future, or forward agreement; an emissions
swap, option, future, or forward agreement; or an inflation
swap, option, future, or forward agreement'';
(B) in subclause (II)--
(i) by inserting ``or other derivatives'' after
``dealings in the swap''; and
(ii) by striking ``future, or option'' and inserting
``future, option, or spot transaction''; and
(C) by striking ``the Securities Act of 1933, the
Securities Exchange Act of 1934, the Public Utility Holding
Company Act of 1935, the Trust Indenture Act of 1939, the
Investment Company Act of 1940, the Investment Advisers Act of
1940, the Securities Investor Protection Act of 1970, the
Commodity Exchange Act, the Gramm-Leach-Bliley Act, and the
Legal Certainty for Bank Products Act of 2000'' and inserting
``the Gramm-Leach-Bliley Act, the Legal Certainty for Bank
Products Act of 2000, the securities laws (as such term is
defined in section 3(a)(47) of the Securities Exchange Act of
1934) and the Commodity Exchange Act''.
SEC. 3. CLARIFYING AMENDMENTS RELATING TO DEFINITION OF PERSON.
(a) FDIC-Insured Depository Institutions Definition of Person.--
Section 11(e)(8)(D) of the Federal Deposit Insurance Act (12 U.S.C.
1821(e)(8)(D)) is amended by adding at the end the following:
``(ix) Person.--The term `person' includes any governmental
entity in addition to any entity included in the definition of
such term in section 1 of title 1, United States Code.''.
(b) Insured Credit Unions Definition of Person.--Section
207(c)(8)(D) of the Federal Credit Union Act (12 U.S.C. 1787(c)(8)(D))
is amended by adding at the end the following:
``(ix) Person.--The term `person' includes any
governmental entity in addition to any entity included in
the definition of such term in section 1 of title 1, United
States Code.''.
SEC. 4. FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991.
(a) Enforceability of Bilateral Netting Contracts.--Section 403 of
the Federal Deposit Insurance Corporation Improvement Act of 1991 (12
U.S.C. 4403) is amended--
(1) in each of subsections (a) and (f), by striking
``paragraphs (8)(E), (8)(F), and (10)(B) of'' each place such term
appears; and
(2) in subsection (a), by inserting ``terminated, liquidated,
accelerated, and'' after ``institutions shall be''.
(b) Enforceability of Clearing Organization Netting Contracts.--
Section 404 of the Federal Deposit Insurance Corporation Improvement
Act of 1991 (12 U.S.C. 4404) is amended--
(1) in each of subsections (a) and (h), by striking
``paragraphs (8)(E), (8)(F), and (10)(B) of'' each place such term
appears; and
(2) in subsection (a), by inserting ``terminated, liquidated,
accelerated, and'' after ``organization shall be''.
SEC. 5. CONFORMING AMENDMENTS.
(a) Clarifying Definitions.--Title 11, United States Code, is
amended--
(1) in section 101--
(A) in paragraph (22)(A)--
(i) by striking ``(domestic or foreign)'' after ``an
entity''; and
(ii) by inserting ``(whether or not a `customer', as
defined in section 741)'' after ``custodian for a
customer'';
(B) in paragraph (22A)--
(i) by striking ``on any day during the previous 15-
month period'' each place it appears and inserting ``at
such time or on any day during the 15-month period
preceding the date of the filing of the petition''; and
(ii) by inserting ``(aggregated across
counterparties)'' after ``principal amount outstanding'';
(C) in paragraph (25)(A)--
(i) by inserting ``, as defined in section 761'' after
``commodity contract''; and
(ii) by striking ``repurchase transaction, reverse
repurchase transaction,'' and inserting ``repurchase or
reverse repurchase transaction (whether or not such
repurchase or reverse repurchase transaction is a
`repurchase agreement', as defined in this section)'';
(D) in paragraph (53B)(A)--
(i) in clause (i)--
(I) in subclause (II), by striking ``or precious
metals'' and inserting ``, precious metals, or other
commodity'';
(II) in subclause (VII), by striking ``or'' at the
end;
(III) in subclause (VIII), by striking ``weather
derivative, or weather option'' and inserting ``option,
future, or forward agreement''; and
(IV) by adding at the end the following:
``(IX) an emissions swap, option, future, or
forward agreement; or
``(X) an inflation swap, option, future, or forward
agreement;''; and
(ii) in clause (ii)--
(I) in subclause (I), by inserting ``or other
derivatives'' after ``dealings in the swap''; and
(II) in subclause (II), by striking ``future, or
option'' and inserting ``future, option, or spot
transaction''; and
(E) in paragraph (53B)(B), by striking ``the Securities Act
of 1933, the Securities Exchange Act of 1934, the Public
Utility Holding Company Act of 1935, the Trust Indenture Act of
1939, the Investment Company Act of 1940, the Investment
Advisers Act of 1940, the Securities Investor Protection Act of
1970, the Commodity Exchange Act, the Gramm-Leach-Bliley Act,
and the Legal Certainty for Bank Products Act of 2000'' and
inserting ``the Gramm-Leach-Bliley Act, the Legal Certainty for
Bank Products Act of 2000, the securities laws (as such term is
defined in section 3(a)(47) of the Securities Exchange Act of
1934) and the Commodity Exchange Act'';
(2) in section 362(b)--
(A) by striking paragraphs (6) and (7) and inserting the
following:
``(6) under subsection (a) of this section, of the exercise by
a commodity broker, forward contract merchant, stockbroker,
financial institution, financial participant, or securities
clearing agency of any contractual right (as defined in section 555
or 556) under any security agreement or arrangement or other credit
enhancement forming a part of or related to any commodity contract,
forward contract or securities contract, or of any contractual
right (as defined in section 555 or 556) to offset or net out any
termination value, payment amount, or other transfer obligation
arising under or in connection with 1 or more such contracts,
including any master agreement for such contracts;
``(7) under subsection (a) of this section, of the exercise by
a repo participant or financial participant of any contractual
right (as defined in section 559) under any security agreement or
arrangement or other credit enhancement forming a part of or
related to any repurchase agreement, or of any contractual right
(as defined in section 559) to offset or net out any termination
value, payment amount, or other transfer obligation arising under
or in connection with 1 or more such agreements, including any
master agreement for such agreements;'';
(B) by striking paragraph (17) and inserting the following:
``(17) under subsection (a) of this section, of the exercise by
a swap participant or financial participant of any contractual
right (as defined in section 560) under any security agreement or
arrangement or other credit enhancement forming a part of or
related to any swap agreement, or of any contractual right (as
defined in section 560) to offset or net out any termination value,
payment amount, or other transfer obligation arising under or in
connection with 1 or more such agreements, including any master
agreement for such agreements;''; and
(C) by striking paragraph (27) and inserting the following:
``(27) under subsection (a) of this section, of the exercise by
a master netting agreement participant of any contractual right (as
defined in section 555, 556, 559, or 560) under any security
agreement or arrangement or other credit enhancement forming a part
of or related to any master netting agreement, or of any
contractual right (as defined in section 555, 556, 559, or 560) to
offset or net out any termination value, payment amount, or other
transfer obligation arising under or in connection with 1 or more
such master netting agreements to the extent that such participant
is eligible to exercise such rights under paragraph (6), (7), or
(17) for each individual contract covered by the master netting
agreement in issue; and''; and
(3) in section 741(7)(A)--
(A) in clause (i)--
(i) by striking ``mortgage loan or'' and inserting
``mortgage loan,''; and
(ii) by inserting before the semicolon ``(whether or
not such repurchase or reverse repurchase transaction is a
`repurchase agreement', as defined in section 101)'';
(B) in clause (iii)--
(i) by inserting ``(including by novation)'' after
``the guarantee''; and
(ii) by inserting before the semicolon ``(whether or
not such settlement is in connection with any agreement or
transaction referred to in clauses (i) through (xi))'';
(C) in clause (viii), by striking ``or (vii)'' each place
it appears and inserting ``(vii), (viii), or (ix)'';
(D) by redesignating clauses (v) through (ix) as clauses
(vii) through (xi), respectively; and
(E) by inserting after clause (iv) the following:
``(v) any extension of credit for the clearance or
settlement of securities transactions;
``(vi) any loan transaction coupled with a
securities collar transaction, any prepaid forward
securities transaction, or any total return swap
transaction coupled with a securities sale
transaction;''.
(b) Limitation of Avoidance Powers Under Master Netting
Agreement.--Section 546 of title 11, United States Code, is amended--
(1) in subsection (e)--
(A) by inserting ``(or for the benefit of)'' before ``a
commodity broker''; and
(B) by inserting ``or that is a transfer made by or to (or
for the benefit of) a commodity broker, forward contract
merchant, stockbroker, financial institution, financial
participant, or securities clearing agency, in connection with
a securities contract, as defined in section 741(7), commodity
contract, as defined in section 761(4), or forward contract,''
after ``securities clearing agency,'';
(2) in subsection (f)--
(A) by striking ``that is a margin payment, as defined in
section 741 or 761 of this title, or settlement payment, as
defined in section 741 of this title,''; and
(B) by inserting ``(or for the benefit of)'' before ``a
repo participant'';
(3) in subsection (g), by inserting ``(or for the benefit of)''
before ``a swap participant''; and
(4) in subsection (j), by inserting ``(or for the benefit of)''
after ``made by or to''.
(c) SIPC Stay.--Section 5(b)(2)(C)(iii) of the Securities Investor
Protection Act of 1970 (15 U.S.C. 78eee(b)(2)(C)(iii)) is amended--
(1) by inserting ``a derivatives clearing organization (as
defined in the Commodity Exchange Act), a multilateral clearing
organization (as defined in the Federal Deposit Insurance
Corporation Improvement Act of 1991),'' after ``rule or bylaw of'';
and
(2) by striking ``or a securities clearance agency, a right set
forth in a bylaw of a clearing organization or contract market''
and inserting ``a securities clearing agency, a contract market
designated under the Commodity Exchange Act, a derivatives
transaction execution facility registered under the Commodity
Exchange Act, or a board of trade (as defined in the Commodity
Exchange Act),''.
(d) Savings Clause.--Title IX of the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005 (Public Law 109-8, 119 Stat. 146)
is amended by adding at the end the following:
``SEC. 912. SAVINGS CLAUSE.
``The meanings of terms used in this title are applicable for the
purposes of this title only, and shall not be construed or applied so
as to challenge or affect the characterization, definition, or
treatment of any similar terms under any other statute, regulation, or
rule, including the Gramm-Leach-Bliley Act, the Legal Certainty for
Bank Products Act of 2000, the securities laws (as such term is defined
in section 3(a)(47) of the Securities Exchange Act of 1934), and the
Commodity Exchange Act.''.
SEC. 6. WALKAWAY CLAUSES.
(a) FDIC-Insured Depository Institutions.--Section 11(e)(8)(G) of
the Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)(G)) is amended
by striking clause (ii) and inserting the following new clauses:
``(ii) Limited suspension of certain obligations.--In
the case of a qualified financial contract referred to in
clause (i), any payment or delivery obligations otherwise
due from a party pursuant to the qualified financial
contract shall be suspended from the time the receiver is
appointed until the earlier of--
``(I) the time such party receives notice that such
contract has been transferred pursuant to subparagraph
(A); or
``(II) 5:00 p.m. (eastern time) on the business day
following the date of the appointment of the receiver.
``(iii) Walkaway clause defined.--For purposes of this
subparagraph, the term `walkaway clause' means any
provision in a qualified financial contract that suspends,
conditions, or extinguishes a payment obligation of a
party, in whole or in part, or does not create a payment
obligation of a party that would otherwise exist, solely
because of such party's status as a nondefaulting party in
connection with the insolvency of an insured depository
institution that is a party to the contract or the
appointment of or the exercise of rights or powers by a
conservator or receiver of such depository institution, and
not as a result of a party's exercise of any right to
offset, setoff, or net obligations that exist under the
contract, any other contract between those parties, or
applicable law.''.
(b) Insured Credit Unions.--Section 207(c)(8)(G) of the Federal
Credit Union Act (12 U.S.C. 1787(c)(8)(G)) is amended by striking
clause (ii) and inserting the following new clauses:
``(ii) Limited suspension of certain obligations.--In
the case of a qualified financial contract referred to in
clause (i), any payment or delivery obligations otherwise
due from a party pursuant to the qualified financial
contract shall be suspended from the time the liquidating
agent is appointed until the earlier of--
``(I) the time such party receives notice that such
contract has been transferred pursuant to subparagraph
(A); or
``(II) 5:00 p.m. (eastern time) on the business day
following the date of the appointment of the
liquidating agent.
``(iii) Walkaway clause defined.--For purposes of this
subparagraph, the term `walkaway clause' means any
provision in a qualified financial contract that suspends,
conditions, or extinguishes a payment obligation of a
party, in whole or in part, or does not create a payment
obligation of a party that would otherwise exist, solely
because of such party's status as a nondefaulting party in
connection with the insolvency of an insured credit union
or the appointment of or the exercise of rights or powers
by a conservator or liquidating agent of such credit union,
and not as a result of a party's exercise of any right to
offset, setoff, or net obligations that exist under the
contract, any other contract between those parties, or
applicable law.''.
SEC. 7. SCOPE OF APPLICATION.
The amendments made by this Act shall not apply to any cases
commenced under title 11, United States Code, or appointments made
under any Federal or State law, before the date of the enactment of
this Act.
Speaker of the House of Representatives.
Vice President of the United States and
President of the Senate.