[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.

                                  <all>