I 111th CONGRESS 1st Session H. R. 3145 IN THE HOUSE OF REPRESENTATIVES July 9, 2009 Ms. Waters introduced the following bill; which was referred to the Committee on Financial Services A BILL To amend the securities laws to prohibit credit default swaps and to provide the Securities and Exchange Commission with the authority to regulate swap agreements.

1.

Short title

This Act may be cited as the Credit Default Swap Prohibition Act of 2009.

2.

Findings and purpose

(a)

Findings

The Congress finds the following: (1)Credit default swaps were conceived as insurance instruments, used to diffuse risk and increase liquidity throughout our lending system. (2)The credit default swap market has grown over the past decade to include contracts that are entered into by persons with no economic interest in the contract’s underlying reference event, also known as naked credit default swaps. (3)Certain parties wrote credit default swap contracts without posting collateral, leaving them overexposed to certain asset classes and creating a systemic risk. (4)Unconnected and uncollateralized speculation creates an unnecessary risk for our financial system. (5)Credit default swaps have proved to be harmful financial instruments and have caused significant wealth destruction during our economic crisis. (b)

Purpose

The purposes of this Act are— (1)to allow the Securities and Exchange Commission to have oversight over all security-based swap agreements; and (2)to prevent further damage to our economy by prohibiting credit default swaps.

3.

Establishing securities and exchange commission oversight of credit default swaps

(a)

Definition of credit default swap

(1)Section 2(a) of the Securities Act of 1933 (15 U.S.C. 77b(a)) is amended by adding at the end the following: (17)

Credit default swap

The term credit default swap means— (A)a swap agreement (as such term is defined in section 206A of the Gramm-Leach-Bliley Act) that protects a party to such agreement against the risk of a loss of value because of the occurrence or non-occurrence of an event or contingency specified in such agreement relating to a security, loan, or other reference asset; and (B)such other forms of credit risk protection as the Commission may, by rule, prescribe as necessary or appropriate in the public interest or for the protection of investors. . (2)Section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)) is amended by adding at the end the following: (65)

Credit default swap

The term credit default swap means— (A)a swap agreement (as such term is defined in section 206A of the Gramm-Leach-Bliley Act) that protects a party to such agreement against the risk of a loss of value because of the occurrence or non-occurrence of an event or contingency specified in such agreement relating to a security, loan, or other reference asset; and (B)such other forms of credit risk protection as the Commission may, by rule, prescribe as necessary or appropriate in the public interest or for the protection of investors. . (b)

Securities act jurisdiction over swaps

Section 2A(b) of the Securities Act of 1933 (15 U.S.C. 77b–1(b)) is amended— (1)in paragraph (1), by striking does not and inserting shall; (2)by amending paragraph (2) to read as follows: (2)The Commission may require the registration of any security-based swap agreement under this title. ; and (3)by amending paragraph (3) to read as follows: (3)The Commission may promulgate rules, interpret rules, enforce rules, and issue orders of general applicability under this title in a manner that imposes or specifies reporting or recordkeeping requirements, procedures, or standards as prophylactic measures against fraud, manipulation, or insider trading with respect to any security-based swap agreement. . (c)

Securities exchange act jurisdiction over swaps

Section 3A(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78c–1(b)) is amended— (1)in paragraph (1), by striking does not and inserting shall; (2)by amending paragraph (2) to read as follows: (2)The Commission may require registration of any security-based swap agreement under this title. ; and (3)by amending paragraph (3) to read as follows: (3)The Commission may promulgate rules, interpret rules, enforce rules, and issue orders of general applicability under this title in a manner that imposes or specifies reporting or recordkeeping requirements, procedures, or standards as prophylactic measures against fraud, manipulation, or insider trading with respect to any security-based swap agreement. . (d)

Technical and conforming amendment

(1)Section 17 of the Securities Act of 1933 (15 U.S.C. 77q) is amended by striking subsection (d). (2)Section 9 of the Securities Exchange Act of 1934 (15 U.S.C. 78i) is amended by striking subsection (i). (3)Section 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o) is amended by striking subsection (i) (as added by section 303(f) of the Commodity Futures Modernization Act of 2000). (4)Section 16 of the Securities Exchange Act of 1934 (15 U.S.C. 78p) is amended by striking subsection (g). (5)Section 20 of the Securities Exchange Act of 1934 (15 U.S.C. 78t) is amended by striking subsection (f). (6)Section 21A of the Securities Exchange Act of 1934 (15 U.S.C. 78u–1) is amended by striking subsection (g).

4.

Prohibition on credit default swaps

The Securities Exchange Act of 1934 is amended by inserting after section 7 (15 U.S.C. 78g) the following new section:

7A.

Prohibition on credit default swaps

It shall be unlawful for any person to enter into a credit default swap agreement or contract.

.

5.

Effective date

This Act and the amendments made by this Act shall take effect with respect to swap agreements (as such term is defined in section 206A of the Gramm-Leach-Bliley Act) and credit default swaps (as such term is defined in section 3(a)(65) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(65))) entered into after the end of the 180-day period beginning on the date of the enactment of this Act.