II 110th CONGRESS 2d Session S. 3691 IN THE SENATE OF THE UNITED STATES November 19, 2008 Ms. Collins introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To amend the Commodity Exchange Act to require reporting and recordkeeping for positions involving credit-default swaps, to grant the Federal Reserve Board authority over investment-bank holding companies, and for other purposes.

1.

Short title

This Act may be cited as the Financial Regulation Reform Act of 2008.

2.

Reporting and recordkeeping for positions involving credit-default swaps

(a)

In general

Section 2(h) of the Commodity Exchange Act (7 U.S.C. 2(h)) is amended by adding at the end the following: (8)

Reporting and recordkeeping for positions involving credit-default swaps

(A)

Definitions

In this paragraph: (i)

Credit-default swap

The term credit-default swap means a bilateral derivative contract that transfers, in exchange for 1 or more lump-sum or other payments, from 1 party to another, the risk that an entity, regardless of whether owned by the buyer of the protection, may experience a loss of value from a credit event such as a default, credit downgrade, or other contractually agreed-upon adverse event. (ii)

Credit-default swap trading clearinghouse

The term credit-default swap trading clearinghouse means an approved centralized clearinghouse for credit-default swap trading that is designated by the Securities and Exchange Commission, in consultation with the Commodity Futures Trading Commission and the Chairman of the Board of Governors of the Federal Reserve System. (iii)

Reportable contract

The term reportable contract means a contract, agreement, or transaction involving a credit-default swap, executed through a credit-default swap trading clearinghouse. (B)

Use of credit-default swap trading clearinghouses

Each credit-default swap trading clearinghouse— (i)shall be subject to regulation by the Commission; (ii)shall be capitalized by participants in the credit-default swap trading clearinghouse at a level that is sufficient to guarantee payment for trading in credit-default swaps; and (iii)may assess participants in the credit-default swap trading clearinghouse in an amount necessary to maintain a default fund for the credit-default swap trading clearinghouse. (C)

Recordkeeping

The Commission, by rule, shall require any person holding, maintaining, or controlling any position in any reportable contract under this paragraph— (i)to maintain such records as directed by the Commission for a period of 5 years, or longer, if directed by the Commission; and (ii)to provide such records upon request to the Commission, the Department of Justice, the Securities and Exchange Commission, or the Federal Reserve System, as applicable. (D)

Reporting of positions involving credit-default swaps

The Commission shall prescribe rules requiring such regular or continuous reporting of positions in reportable contracts in accordance with such requirements regarding size limits for reportable positions and the form, timing, and manner of filing such reports under this paragraph, as the Commission shall determine. . (b)

Conforming amendments

Section 4a(e) of the Commodity Exchange Act (7 U.S.C. 6a(e)) is amended— (1)in the first sentence— (A)by inserting , by any credit-default swap trading clearinghouse (as defined in section 2(h)(8)(A)), after registered by the Commission; and (B)by inserting , credit-default swap trading clearinghouse, after derivatives transaction execution facility; and (2)in the second sentence, by inserting , by any credit-default swap trading clearinghouse (as defined in section 2(h)(8)(A)), after registered by the Commission.

3.

Federal Reserve Board authority over investment bank holding companies

(a)

Regulation by the Board of Governors of the Federal Reserve System

(1)

Rulemaking required

Not later than 90 days after the date of enactment of this Act, the Board of Governors of the Federal Reserve System (in this section referred to as the Board) shall issue final rules to provide for the examination of the safety and soundness of, and the extent of systemic financial risk posed by, any investment bank holding company organized in or doing business in the United States. (2)

Information from investment bank holding companies

The rules of the Board under this section shall provide for reasonable reporting of information by each investment bank holding company, to the extent necessary to carry out the purposes of this section. (b)

Rule of construction

Nothing in this section shall be construed as negating or preempting the authority of the Securities and Exchange Commission to exercise its authority over broker or dealer operations in accordance with applicable provisions of law. (c)

Exchange of information on systemic risk

The Securities and Exchange Commission, the Commodity Futures Trading Commission, and other appropriate Federal regulatory agencies shall provide to the Board all relevant information, as directed by the Board, on the activities of investment bank holding companies with respect to the prevention of systemic risks posed by such activities to the United States economy. (d)

Enforcement provisions

Any violation of this section or the rules of the Board under this section shall be subject to the enforcement and penalty provisions of the Bank Holding Company Act of 1956, in the same manner and to the same extent as those provisions are applicable to violations of that Act by a bank holding company (as defined in that Act). (e)

Authorization of appropriations

There are authorized to be appropriated to the Board such sums as may be necessary to carry out this section. (f)

Definitions

For purposes of this section, the term investment bank holding company means— (1)any person other than a natural person that owns or controls one or more brokers or dealers (as those terms are defined in section 3 of the Securities Exchange Act of 1934 (15 U.S.C. 78c)); and (2)the associated persons thereof. (g)

Conforming amendments

The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended— (1)in section 6(g)(4)(A)(iv) (15 U.S.C. 78f(g)(4)(A)(iv)), by striking and (k) and inserting and (i); (2)in section 15(b) (15 U.S.C. 78(o)(b))— (A)in paragraph (11)(B)(vi), by striking (h), and (i) and inserting and (h); and (B)in paragraph (12)(B)(vi), by striking (h), and (i) and inserting and (h); (3)in section 15A(k)(4)(C) (15 U.S.C. 78o–3(k)(4)(C)), by striking and (k) and inserting and (i); and (4)in section 17 (15 U.S.C. 78q)— (A)by striking subsections (i) and (j); and (B)by redesignating subsection (k) as subsection (i).

4.

Regulations on clearinghouse operations and fraudulent, deceptive, and manipulative acts

(a)

Rulemaking required

Not later than 90 days after the date of enactment of this Act, the Securities and Exchange Commission, in consultation with the Board of Governors of the Federal Reserve System and the Commodity Futures Trading Commission, shall issue final rules— (1)to designate clearinghouses for credit-default swaps; and (2)to prohibit fraudulent, deceptive, or manipulative acts or practices in connection with credit-default swaps. (b)

Criteria

Rules of the Commission under this section shall require that clearinghouses— (1)are capitalized by participants to a level adequate to guarantee payments; and (2)are authorized to assess members for a default fund. (c)

Required use of clearinghouses

Any person that engages in a credit-default swap transaction shall utilize a clearinghouse designated by the Commission for such purpose in accordance with the rules issued under subsection (a).

5.

Establishing an independent, bipartisan commission

(a)

Commission establishment

There is established a temporary commission to be known as the Commission on Financial Regulatory Reform (referred to in this section as the Commission). The Commission shall review the financial regulatory structure and propose a comprehensive framework for fundamental reform of financial regulation in the United States. (b)

Functions of the Commission

(1)

In general

The Commission shall conduct a top-to-bottom review of the Nation’s existing financial regulatory structure and the contribution of the current structure to the stability or instability of financial markets, in order to develop a comprehensive framework for— (A)reforming the laws governing our Nation’s financial markets; (B)strengthening and reconstituting regulatory agencies; and (C)improving transparency and oversight. (2)

Analysis

In the course of its activities, the Commission shall analyze— (A)the impact of the financial regulatory structure on the health and stability of the United States economy; (B)the strength, sustainability, and competitiveness of the Nation’s financial institutions; and (C)the financial well-being of American taxpayers, investors, and businesses. (3)

Considerations

The Commission shall review and consider all aspects of financial regulation, including the regulation of— (A)bank holding companies, financial holding companies, commercial banks, investment banks, thrifts, credit unions, and industrial loan companies; (B)payment and settlement systems; (C)hedge funds, private equity funds, and the markets for alternative investments; (D)special purpose vehicles and off-balance sheet financing for financial companies; (E)the securitization of mortgages and other assets; (F)exchange-based, electronic, and over-the-counter markets for financial derivative products; (G)the mortgage finance industry, including mortgage brokers and mortgage lending institutions; (H)equity markets, including short-selling practices, and commodity futures markets; and (I)the insurance industry and its role in the financial markets. (c)

Powers of the Commission

(1)

In general

(A)

Hearings and evidence

The Commission or, on the authority of the Commission, any subcommittee or member thereof, may, for the purpose of carrying out this Act— (i)hold such hearings and sit and act at such times and places, take such testimony, receive such evidence, administer such oaths; and (ii)require the attendance and testimony of such witnesses and the production of such books, records, correspondence, memoranda, papers, and documents, as the Commission or such designated subcommittee or designated member may determine advisable. (B)

First meeting

The first meeting of the Commission shall occur not later than 30 days after the date of enactment of this Act. (2)

Contracting

The Commission may, to such extent and in such amounts as are provided in appropriation Acts, enter into contracts to enable the Commission to discharge its duties under this Act. (3)

Information from Federal agencies

(A)

In general

The Commission is authorized to secure directly from any executive department, bureau, agency, board, commission, office, independent establishment, or instrumentality of the Government, information, suggestions, estimates, and statistics for the purposes of this Act. Each department, bureau, agency, board, commission, office, independent establishment, or instrumentality shall, to the extent authorized by law, furnish such information, suggestions, estimates, and statistics directly to the Commission, upon request made by the chairman, the chairman of any subcommittee created by a majority of the Commission, or any member designated by a majority of the Commission. (B)

Receipt, handling, storage, and dissemination

Information shall only be received, handled, stored, and disseminated by members of the Commission and its staff consistent with all applicable statutes, regulations, and Executive orders. (4)

Assistance from Federal agencies

(A)

General services administration

The Administrator of General Services shall provide to the Commission on a reimbursable basis administrative support and other services for the performance of the Commission's functions. (B)

Other departments and agencies

In addition to the assistance prescribed in subparagraph (A), departments and agencies of the United States may provide to the Commission such services, funds, facilities, staff, and other support services as they may determine advisable and as may be authorized by law. (5)

Gifts

The Commission may accept, use, and dispose of gifts or donations of services or property. (6)

Postal services

The Commission may use the United States mails in the same manner and under the same conditions as departments and agencies of the United States. (d)

Non-applicability of Federal Advisory Committee Act

(1)

In general

The Federal Advisory Committee Act (5 U.S.C. App.) shall not apply to the Commission. (2)

Public meetings and release of public versions of reports

The Commission shall— (A)hold public hearings and meetings to the extent appropriate; and (B)release public versions of the reports required under this Act. (3)

Public hearings

Any public hearings of the Commission shall be conducted in a manner consistent with the protection of information provided to or developed for or by the Commission as required by any applicable statute, regulation, or Executive order. (e)

Composition

(1)

In general

The Commission shall be composed of 12 members, selected not later than 15 days after the date of enactment of this Act, of whom— (A)three persons shall be appointed by the majority leader of the Senate, after consultation with the Chairman of the Committee on Banking, Housing and Urban Affairs; (B)three persons shall be appointed by the minority leader of the Senate, after consultation with the ranking minority members of the Committee on Banking, Housing and Urban Affairs; (C)three persons shall be appointed by the Speaker of the House of Representatives, after consultation with the Chairman of the Committee on Financial Services; and (D)three persons shall be appointed by the minority leader of the House of Representatives, after consultation with the ranking minority member of the Committee on Financial Services. (2)

Qualifications

An individual appointed may not be an officer or employee of the Federal Government or any State or local government. It is the sense of Congress that individuals appointed to the Commission should have national recognition as financial sector experts, and may include former government officials, private market participants, and representatives of the academic community, (3)

Officers

Officers of the Commission are to be chosen by the Commission’s membership. (f)

Final report of Commission

Not later than 120 days after the date of the enactment of this Act, the Commission shall submit to the President and Congress a final report containing such findings, conclusions, and recommendations for corrective measures as have been agreed to by a majority of committee members. (g)

Compensation of Commission staff

(1)

In general

(A)

Appointment and compensation

The chairman, in consultation with vice chairman, in accordance with rules agreed upon by the Commission, may appoint and fix the compensation of a staff director and such other personnel as may be necessary to enable the Commission to carry out its functions, without regard to the provisions of title 5, United States Code, governing appointments in the competitive service, and without regard to the provisions of chapter 51 and subchapter III of chapter 53 of such title relating to classification and General Schedule pay rates, except that no rate of pay fixed under this subsection may exceed the equivalent of that payable for a position at level V of the Executive Schedule under section 5316 of title 5, United States Code. (B)

Personnel as Federal employees

(i)

In general

The executive director and any personnel of the Commission who are employees shall be employees under section 2105 of title 5, United States Code, for purposes of chapters 63, 81, 83, 84, 85, 87, 89, and 90 of that title. (ii)

Members of Commission

Subparagraph (A) shall not be construed to apply to members of the Commission. (2)

Detailees

Any Federal Government employee may be detailed to the Commission without reimbursement from the Commission, and such detailee shall retain the rights, status, and privileges of his or her regular employment without interruption. (3)

Consultant services

The Commission is authorized to procure the services of experts and consultants in accordance with section 3109 of title 5, United States Code, but at rates not to exceed the daily rate paid a person occupying a position at level IV of the Executive Schedule under section 5315 of title 5, United States Code. (h)

Compensation and travel expenses

(1)

Compensation

Each member of the Commission may be compensated at not to exceed the daily equivalent of the annual rate of basic pay in effect for a position at level IV of the Executive Schedule under section 5315 of title 5, United States Code, for each day during which that member is engaged in the actual performance of the duties of the Commission. (2)

Travel expenses

While away from their homes or regular places of business in the performance of services for the Commission, members of the Commission shall be allowed travel expenses, including per diem in lieu of subsistence, in the same manner as persons employed intermittently in the Government service are allowed expenses under section 5703(b) of title 5, United States Code. (i)

Reports of Commission; termination

(1)

Interim reports

The Commission may submit to the President and Congress interim reports containing such findings, conclusions, and recommendations for corrective measures as have been agreed to by a majority of Commission members. (2)

Final report

Not later than 6 months after the date of the enactment of this Act, the Commission shall submit to the President and Congress a final report containing such findings, conclusions, and recommendations for corrective measures as have been agreed to by a majority of Commission members. (3)

Termination

(A)

In general

The Commission, and all the authorities of this Act, shall terminate 60 days after the date on which the final report is submitted under paragraph (2). (B)

Administrative activities before termination

The Commission may use the 60-day period referred to in subparagraph (A) for the purpose of concluding its activities, including providing testimony to committees of Congress concerning its reports and disseminating the final report. (j)

Funding

(1)

Transfer from the Department of the Treasury TARP program

Of the amounts authorized to be appropriated by this Act and made available in Public Law for the Troubled Asset Relief Program established under the Emergency Economic Stabilization Act of 2008, not to exceed $5,000,000 shall be available for transfer to the Commission for purposes of the activities of the Commission under this Act, and including assistance for participating Federal agencies. (2)

Duration of availability

Amounts made available to the Commission under paragraph (1) shall remain available until the termination of the Commission.