II 111th CONGRESS 1st Session S. 961 IN THE SENATE OF THE UNITED STATES May 4, 2009 Mr. Levin (for himself and Ms. Collins) introduced the following bill; which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs A BILL To authorize the regulation of credit default swaps and other swap agreements, and for other purposes.

1.

Short title

This Act may be cited as the Authorizing the Regulation of Swaps Act.

2.

Repeal of prohibition on certain regulation of swap agreements

The following provisions of law are repealed: (1)Sections 206A, 206B, and 206C of the Gramm-Leach-Bliley Act (15 U.S.C. 78c note). (2)Section 2A of the Securities Act of 1933 (15 U.S.C. 77b–1). (3)Section 17(d) of the Securities Act of 1933 (15 U.S.C. 77q(d)). (4)Section 3A of the Securities Exchange Act of 1934 (15 U.S.C. 78c–1). (5)Section 9(i) of the Securities Exchange Act of 1934 (15 U.S.C. 78i(i)). (6)Section 15(i) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(i)), as added by section 303(f) of the Commodity Futures Modernization Act of 2000 (Public Law 106–554; 114 Stat. 2763A–455). (7)Section 16(g) of the Securities Exchange Act of 1934 (15 U.S.C. 78p(g)). (8)Section 20(f) of the Securities Exchange Act of 1934 (15 U.S.C. 78t(f)). (9)Section 21A(g) of the Securities Exchange Act of 1934 (15 U.S.C. 78u–1(g)). (10)Sections 301(b) and 304 of the Commodity Futures Modernization Act of 2000 (Public Law 106–554; 114 Stat. 2763A–451, 2763A–457). (11)Sections 403, 404, and 407 of the Legal Certainty for Bank Products Act of 2000 (7 U.S.C. 27a, 27b, 27e). (12)Subsection (d), subsection (g), and paragraphs (1) and (2) of subsection (h) of section 2 of the Commodity Exchange Act (7 U.S.C. 2). (13)Section 5d of the Commodity Exchange Act (7 U.S.C. 7a–3).

3.

Authorization of regulation and oversight regarding swap agreements

(a)

Authorization of regulation and oversight

Notwithstanding any other provision of law, and subject to subsections (b) through (d), each Federal financial regulator may— (1)exercise oversight over— (A)any swap agreement that is entered into, purchased, or sold (or as to which the transaction, purchase, or sale is effected) by any financial institution, entity, or person (for its own account or for the account of others) that is subject to the jurisdiction of the Federal financial regulator; and (B)any swap agreement that is subject to the jurisdiction of the Federal financial regulator; and (2)promulgate, interpret, and enforce regulations, issue orders of general applicability, and impose disclosure, reporting, or recordkeeping requirements, procedures, or standards, relating to any swap agreement— (A)that is entered into, purchased, or sold (or as to which the transaction, purchase, or sale is effected) by any financial institution, entity, or person (for its own account or for the account of others) that is subject to the jurisdiction of the Federal financial regulator; and (B)that is subject to the jurisdiction of the Federal financial regulator. (b)

Exchanges and trading facilities

In carrying out subsection (a)— (1)the Securities and Exchange Commission (and not any other Federal financial regulator) shall exercise oversight and carry out regulatory or oversight activity over— (A)any exchange or clearing agency (as those terms are defined in section 3(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)); and (B)any swap agreement traded on or cleared through such exchange or clearing agency; and (2)the Commodity Futures Trading Commission (and not any other Federal financial regulator) shall exercise oversight and carry out regulatory or oversight activity over— (A)any trading facility or registered entity (as those terms are defined in section 1a of the Commodity Exchange Act (7 U.S.C. 1a)); and (B)any swap agreement executed on, traded on, or cleared through such trading facility or registered entity. (c)

Rules of construction

Nothing in this Act may be construed as— (1)limiting or reducing the authority of a Federal financial regulator in effect on the date of enactment of this Act with respect to swap agreements; (2)affecting the authority of the Commodity Futures Trading Commission under section 2(h)(3) or 4(c) of the Commodity Exchange Act (7 U.S.C. 2(h)(3), 6(c)), or affecting any exemption granted under that section 4(c); or (3)requiring any swap agreement to be— (A)conducted on or subject to the rules of a board of trade which has been designated or registered by the Commodity Futures Trading Commission as a contract market or derivatives transaction execution facility; or (B)traded through an exchange or broker or dealer registered or required to be registered under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.). (d)

Consistent treatment of swap agreements

Prior to taking action under subsection (a)(2), each Federal financial regulator shall consult, work, and cooperate with other Federal financial regulators to promote consistency in the treatment of swap agreements.

4.

Definitions

For the purposes of this Act, the following definitions shall apply: (1)

Federal financial regulator

(A)

In general

The term Federal financial regulator means— (i)the Commodity Futures Trading Commission; (ii)the Federal Deposit Insurance Corporation; (iii)the Board of Governors of the Federal Reserve System; (iv)the National Credit Union Administration; (v)the Office of the Comptroller of the Currency; (vi)the Office of Thrift Supervision; (vii)the Securities and Exchange Commission; and (viii)any other Federal agency that is authorized under any provision of Federal law to regulate any financial institution or type or class of financial instrument or offering thereof. (2)

Purchase; sale

The terms purchase and sale, when used with respect to a swap agreement, means the execution, termination (prior to its scheduled maturity date), assignment, exchange, or similar transfer or conveyance of, or extinguishing of rights or obligations under a swap agreement, as the context may require. (3)

Swap agreement

(A)

In general

The term swap agreement means any agreement, contract, or transaction between eligible contract participants (as defined in section 1a(12) of the Commodity Exchange Act (7 U.S.C. 1a(12))), the material terms of which (other than price and quantity) are subject to individual negotiation and that— (i)is a put, call, cap, floor, collar, or similar option of any kind for the purchase or sale of, or based on the value of, 1 or more interest or other rates, currencies, commodities, indices, quantitative measures, or other financial or economic interests or property of any kind; (ii)provides for any purchase, sale, payment, or delivery (other than a dividend on an equity security) that is dependent on the occurrence, nonoccurrence, or the extent of the occurrence of any event or contingency associated with a potential financial, economic, or commercial consequence; (iii)provides on an executory basis for the exchange, on a fixed or contingent basis, of 1 or more payments based on the value or level of 1 or more interest or other rates, currencies, commodities, securities, instrument of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind, or any interest therein or based on the value thereof, and that transfers, as between the parties to the transactions, in whole or in part, the financial risk associated with a future change in any such value or level without also conveying a current or future direct or indirect ownership interest in an asset (including any enterprise or investment pool) or liability that incorporates the financial risk so transferred, including any such agreement, contract, or transaction commonly known as an interest rate swap, including a rate floor, rate cap, rate collar, cross-currency rate swap, basis swap, currency swap, equity index swap, equity swap, debt index swap, debt swap, credit spread, credit default swap, credit swap, weather swap, or commodity swap; (iv)provides for the purchase or sale, on a fixed or contingent basis, of any commodity, currency, instrument, interest, right, service, good, articles, or property of any kind; or (v)is any combination or permutation of, or option on, any agreement, contract, or transaction described in any of clauses (i) through (iv). (B)

Exclusions

The term swap agreement does not include— (i)any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities, including any interest therein or based on the value thereof; (ii)any put, call, straddle, option, or privilege entered into on a national securities exchange registered pursuant to section 6(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(a)) relating to foreign currency; (iii)any agreement, contract, or transaction providing for the purchase or sale of 1 or more securities on a fixed basis; (iv)any agreement, contract, or transaction providing for the purchase or sale of 1 or more securities on a contingent basis, unless the agreement, contract, or transaction predicates the purchase or sale on the occurrence of a bona fide contingency that might reasonably be expected to affect or be affected by the creditworthiness of a party other than a party to the agreement, contract, or transaction; (v)any note, bond, or evidence of indebtedness that is a security; or (vi)any agreement, contract, or transaction that is— (I)based on a security; and (II)entered into directly or through an underwriter (as defined in section 2(a) of the Securities Act of 1933 (15 U.S.C. 77b(a))) by the issuer of the security for the purpose of raising capital, unless such agreement, contract, or transaction is entered into to manage a risk associated with capital raising. (C)

Inclusion

The term swap agreement includes a master agreement that provides for an agreement, contract, or transaction that is a swap agreement pursuant to subparagraphs (A) and (B), together with all supplements to any such master agreement, without regard to whether the master agreement contains an agreement, contract, or transaction that is not a swap agreement pursuant to subparagraphs (A) and (B), except that the master agreement shall be considered to be a swap agreement only with respect to each agreement, contract, or transaction under the master agreement that is a swap agreement pursuant to subparagraphs (A) and (B). (D)

Meaning of security

For purposes of this paragraph, the term security has the same meaning as in section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1)) or section 3(a)(10) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(10)).

5.

Conforming amendments

(a)

Securities Act of 1933

Section 17(a) of the Securities Act of 1933 (15 U.S.C. 77q(a)) is amended by striking security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) and inserting swap agreement. (b)

Securities Exchange Act of 1934

The Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amended— (1)by striking security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) each place that term appears and inserting swap agreement; (2)by striking security-based swap agreements (as defined in section 206B of the Gramm-Leach-Bliley Act) each place that term appears and inserting swap agreements; (3)in each of sections 9 and 16 (15 U.S.C. 78i, 78p)— (A)by striking security-based swap agreement each place that term appears and inserting swap agreement; and (B)by striking security-based swap agreements each place that term appears and inserting swap agreements; (4)in section 10(b) (15 U.S.C. 78j(b)), by striking securities-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) and inserting swap agreement; (5)in section 16(a)(2)(C) (15 U.S.C. 78p(a)(2)(C)), by striking security-based swap agreement (as defined in section 206(b) of the Gramm-Leach-Bliley Act (15 U.S.C. 78c note)) and inserting swap agreement; and (6)in section 3(a)(55)(A) (15 U.S.C. 78c(a)(55)(A)), by striking 2(c), 2(d), 2(f), or 2(g) and inserting 2(c) or 2(f). (c)

Commodity Exchange Act

(1)Section 1a of the Commodity Exchange Act (7 U.S.C. 1a) is amended— (A)in paragraph (12)(A)(x), by striking or an exempt board of trade; and (B)in paragraph (31), in the second sentence, by striking 2(c), 2(d), 2(f), or 2(g) of this Act and inserting 2(c) or 2(f). (2)Section 2 of the Commodity Exchange Act (7 U.S.C. 2) is amended— (A)in subsection (c)(1), by striking 5d,; (B)in subsection (e)— (i)in paragraph (1), by striking 2(d)(2), 2(g), or; and (ii)in paragraph (2), by striking , or operating as an exempt board of trade; (C)in subsection (h)(4)(A), by striking 5d,; and (D)in subsection (i)— (i)in paragraph (1)(A), by striking 2(d), 2(e), 2(f), or 2(g) and inserting 2(e), or 2(f); and (ii)in paragraph (2), by striking Act), 5b of this Act, or 5d of this Act and inserting Act) or 5b of this Act. (3)Section 5a(g)(1) of the Commodity Exchange Act (7 U.S.C. 7a(g)(1)) is amended by striking 2(c), 2(d), or 2(g) and inserting “2(c)”. (4)Section 5b of the Commodity Exchange Act (7 U.S.C. 7a–1) is amended— (A)in subsection (a)(1), by striking 2(d), 2(f), or 2(g) and inserting or 2(f); and (B)in subsection (b), by striking 2(c), 2(d), 2(f), or 2(g) and inserting 2(c) or 2(f). (5)Section 12(e) of the Commodity Exchange Act (7 U.S.C. 16(e)) is amended— (A)in paragraph (1)(B)(i), by striking or exempt board of trade; and (B)in paragraph (2)(B), by striking 2(c), 2(d), 2(f), or 2(g) and inserting 2(c) or 2(f). (d)

Federal Deposit Insurance Corporation Improvement Act

Section 408(2)(C) of the Federal Deposit Insurance Corporation Improvement Act of 1991 (12 U.S.C. 4421(2)(C)) is amended by striking 2(c), 2(d), 2(f), or 2(g) and inserting 2(c) or 2(f).