[109th Congress Public Law 390]
[From the U.S. Government Printing Office]
[DOCID: f:publ390.109]
[[Page 2691]]
FINANCIAL NETTING IMPROVEMENTS ACT OF 2006
[[Page 120 STAT. 2692]]
Public Law 109-390
109th Congress
An Act
To improve the netting process for financial contracts, and for other
purposes. <<NOTE: Dec. 12, 2006 - [H.R. 5585]>>
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress <<NOTE: Financial Netting
Improvements Act of 2006.>> assembled,
SECTION 1. <<NOTE: 11 USC 101 note.>> 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;''.
[[Page 120 STAT. 2693]]
(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'';
[[Page 120 STAT. 2694]]
(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.''.
[[Page 120 STAT. 2695]]
(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'';
[[Page 120 STAT. 2696]]
(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
[[Page 120 STAT. 2697]]
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
[[Page 120 STAT. 2698]]
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. <<NOTE: Applicability. 11 USC 101 note.>> 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.
[[Page 120 STAT. 2699]]
``(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.''.
[[Page 120 STAT. 2700]]
SEC. 7. <<NOTE: 11 USC 101 note.>> 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.
Approved December 12, 2006.
LEGISLATIVE HISTORY--H.R. 5585:
---------------------------------------------------------------------------
HOUSE REPORTS: No. 109-648, Pt. 1 (Comm. on Financial Services).
CONGRESSIONAL RECORD, Vol. 152 (2006):
Sept. 27, considered and passed House.
Sept. 29, considered and passed Senate, amended.
Nov. 15, House concurred in Senate amendments.
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