Phil Gramm

Mr. GRAMM

Mr. GRAMM. Mr. President, we are in the process of rapidly completing this bill. I would not have come over to speak, except that it was clear to me that, for the moment, nothing was happening. I have not yet spoken on it. And while I think it is clear what the outcome will be, I at least want to go on record on this issue. Free speech in America is a very funny thing. If a person goes out and burns the American flag and they say they are exercising free speech or they dance naked in a nightclub and say that that was personal expression, a league of defenders springs up in America to defend the first amendment of the Constitution. Yet when someone proposes that we preserve free speech about the election of our Government and the election of the men and women who serve the greatest country in the history of the world, when such a motion is made, it dies from a lack of a second. It is astounding to me that free speech in America has come to protect flag burning and nude dancing but yet the greatest deliberative body in the history of the world feels perfectly comfortable in denying the ability of free men and women to put up their time and their talent and their money to support the candidates of their choice. I can't help but say a little something about the protagonists in this debate. I would like to begin by saying of my dear friend Senator McCain, with whom I profoundly differ on this issue, I have the highest respect for him. In fact, he has reminded me in this debate of an ancient god, Antaeus, whose mother was the earth, and every time he was thrown to the ground, he became stronger than he had been when he was cast down. Having said that, having admired his diligence and his determination, I would say that seldom has a more noble effort been made on behalf of a poorer cause in the history of the U.S. Senate. I would like to say of our colleague from Kentucky that he has again won our admiration and our respect. He has been vilified in every media outlet in the Nation. Yet his sin is to stand up and defend freedom. You ask yourself: Why do people want to influence the Government? Why do people want to influence the Government of the United States of America? It seems to me there are really two reasons: One, they have strong feelings about something. They love their country. They have strong passions and they want to express them. And who would want to prevent them from expressing themselves? I say nobody should. The second reason they want to influence the Government is that the Government spends $2 trillion a year, most of it on a noncompetitive basis. The Government sets the price of milk. The Government grants numerous favors. If we were serious about campaign reform, we would try to change the things that lead people to want to influence the Government for their advantage, and we would want to leave in place a system where people could express their love and their passions. Yet there is no proposal here to end the Government setting the price of milk. There is no proposal here that would have competitive bidding on contracts. Instead, we single out one source of influence, and that source of influence is money. Our problem is not bad money corrupting good men, our problem is bad men corrupting good money. When I listen to my colleagues talk about this corrupting influence, let me say they apparently have lived a different political life than I have lived. I have never in my 22 years in public office and in the 2 years prior to that, when I ran unsuccessfully for the Senate and lost, had anyone come up to me and say: If you will vote the way I want you to vote, I will contribute to your campaign. I am proud that 84,000 people contribute to my campaign, and I believe they contribute to me because they believe in the things I believe in. I am proud to have their support. I don't apologize for it. Remember this, and this is what is lost in this whole debate: This is an Alice in Wonderland debate where black is white and wrong is right. It is a debate that ignores the fundamental nature of the American political system. Government has power and people want to influence it. If we limit the power of people to spend their money, we strengthen the power of people who exert influence in other ways. We don't reduce power. We don't reduce whatever corruptive influence may exist among the people who want to influence government. We simply take power away from some people and, by the very nature of the system, we give it to somebody else. Why should the New York Times have more to say in my election than the New York Stock Exchange? Is the New York Times not a for-profit company? Why should they have the right to run editorials and write front-page articles that can have a profound impact on your election, and they are a for-profit corporation, publicly traded, and yet we say in this bill, they, but not others, have freedom of speech? They can say whatever they want to say. But yet the New York Stock Exchange is denied the same freedom. How can that be rational? How can that be just? Who says that freedom of speech should belong only to people who own radio stations and television stations and newspapers? I reject it. What makes this debate an Alice in Wonderland debate is that the people who support this bill are the very people who will benefit from taking the American people out of the debate by limiting the ability of people to put up their time and their talent and their money. The very groups, the so-called public interest groups, the media, the very people who preach endlessly about this issue and about this bill being in the public interest, they are the very people who win an enhancement of their political power from this bill. What we are hearing identified as public interest is greedy, selfish, special interest. The amazing thing is that the voice of freedom and the right of people to be heard is not represented to any substantial degree on the floor of the Senate. If I should believe, as a free person, that the Senator from Virginia is the new Thomas Jefferson and I believe the future of my children will be affected by his political success, don't I have the right to sell my house, to sell my car and to use that money to help him be elected? Why shouldn't I have that right? Who has the right to take that away from me? No one has the right to take it away from me. But this bill does take it away from me. This distinction between soft money and hard money is a fraud. What we are seeing here is an effort to collect political power and to concentrate it. Our Founders understood special interests. The Senator from Arizona and the Senator from Wisconsin are not the first people in the history of this country who have ever been concerned about special interests. James Madison understood special interests. He understood that the way you deal with them is to allow many special interests to be created and have them compete against each other. The editorial proponents of this bill see it as somehow corrupting when somebody contributes money to my campaign. But I wonder if really they support the bill because they know that the contributors of such money, with that participation and interest, offset the influence of their editorials and their political power. Why should some people have freedom and not others? That is the profound issue that is being debated here. I suspect this bill is going to pass, but this is not a bright hour in American history, in my opinion. The amazing thing--I never cease to be amazed by our system--is there is no constituency for this bill. This is a total fabrication. The constituency for this bill is a group of special interests who cloak themselves as public interest advocates and it is they who will have their power enhanced by limiting the ability of people to put up their time, talent, and money in support of candidates. The so-called public interest promotion of the bill in editorials across America is coming from the very people who will become more powerful if this bill is adopted. So what we have is an incredible example, cloaked in great self- righteousness, of special interest triumphing over public interest through the power of the same groups that will have their power enhanced if this bill is adopted. If editorialists in America, if Common Cause, and all these similar groups, can induce the Congress to limit freedom of speech to enhance their power, what strength will those who oppose their views have when freedom of speech has been, in fact, limited? I think that is something that should give us all pause, though I have no doubt there will be no pause tonight. It is as if we look at the Constitution and we say that what is at stake is either protection of the first amendment of the Constitution, or whether we are going to get a good editorial in tomorrow morning's newspaper, and the judgement is made that tomorrow morning's newspaper is much more important than the first amendment of the Constitution. Let me conclude by quoting, because I never think it hurts to read from the greatest document in history, other than the Bible--the Constitution. Let me read amendment No. 1 of the Constitution, and I will read the relevant points: Congress shall make no law abridging the freedom of speech. If I believe the Senator from Virginia is the next Thomas Jefferson and I want to sell my house to support his candidacy, who has the right under the Constitution to deny me that right? No one has that right. Yet we are about to vote on the floor of the Senate to keep me from doing that. The Constitution says that: The right of the people peaceably to assemble and to petition the government for a redress of grievances shall not be abridged. If I am not permitted to spend my money to present my grievances to my Government, how am I going to be heard? In modern society, the ability to communicate depends on the ability to have funds to amplify your voice so it can be heard in a nation of 285 million people. If I don't have the right to use my time and my talent and my money to enhance my voice, how can I be heard? Well, what the advocates of this bill are really saying is we don't want you to be heard because we might not like what you have to say. We have a bill before us that says you can't run ads. If I wanted to run ads supporting you, or give you money to spend, I can't do it. We are all unhappy that these special interest groups run ads. It hurts my feelings. When people tell my mama that I am this terrible, bad person, that I have sold out to the special interests, my mama asks me, ``Why can they say that?'' How can they say it? You know why they can say it? Because they have the right to say it because of the first amendment of the Constitution. It is not true, but it doesn't have to be true. It amazes me--and I will conclude on this remark--I hear colleagues talk about corruption, corruption, corruption. I wonder if people back home know that there has never been a Congress in American history less corrupt than this Congress. I don't agree with many of the people in this body, but I don't believe there is a person in this body who is dishonest. I can only speak for myself, but I have never, ever felt compromised because somebody supported me. I have felt honored, I have felt grateful, but I have always believed they supported me because of what I believed. In fact, on many occasions, when people have supported me-- the AMA is a perfect example. When I was a young man running for Congress, the American Medical Association supported me and just thought I was wonderful. Now they don't like me. What changed? They changed; I didn't change. I have always been for freedom. When I stood right at this desk and helped lead the effort to kill the Clinton health care bill, I did it because I believed in freedom, and they loved it. Now that they want to kill HMOs, they don't think so much of freedom anymore. But I didn't feel corrupted by them giving me money. They supported me because of what I believed in. When they didn't believe it anymore, they changed; I didn't change. So I don't know what is in the hearts of those who feel this corruption. I do not feel it. I think corruption, as it is portrayed in the media, has increasingly become a codeword for anybody who can speak for themselves and, therefore, doesn't have to be too concerned about the commentary of some special interest group or the media. I love the Dallas Morning News, especially when they write good things about me. When they endorse me and support me, I like it. But I have 84,000 contributors. The newspaper can go ahead and say whatever they want to say about me because my contributors and supporters have ensured that I will get to respond and tell my side of the story. What this bill is going to do, and the terrible effect of it if it does become law, is that it is going to limit the ability of people to tell their side of the story. I think that is fundamentally wrong. I still do not understand how someone can burn a flag, and that is freedom of speech; someone can dance naked in a night club, and that is freedom of public expression; but if I want to sell my house and support somebody that I believe in with all my heart, that is fundamentally wrong; that is corrupt. I believe there is salvation. I believe we are going to get salvation from this bill. I think the salvation is going to come from this ancient document, our Constitution, because I believe this bill is going to be struck down by the courts, and that is ultimately going to be our salvation. I want to say to my dear colleague from Kentucky that I admire him, and I want to thank him for the great sacrifice he has made to stand up on behalf of freedom, when very few people are offering compliments, and very few pundits are applauding. I am one person who is applauding, and I will never, ever forget what you have done. It may not be in an editorial, but it will be enshrined in my heart. I yield the floor.

Mr. GRAMM. I ask the Senator from Kentucky to yield me 20 minutes.

Mr. GRAMM

Mr. GRAMM. Regular order.

Mr. GRAMM. Mr. President, I move to reconsider the vote.

Mr. GRAMM

Mr. GRAMM. I ask unanimous consent that the amendments, en bloc, be agreed to.

Mr. GRAMM. The distinguished Chairman of the Committee on finance is correct.

Mr. GRAMM. I ask unanimous consent the committee substitute, as amended, be agreed to; the bill, as amended, be read the third time and passed; and the motion to reconsider be laid upon the table and any statements related to the bill be printed in the Record.

Mr. GRAMM. Mr. President, I ask unanimous consent that the Senate now proceed to the consideration of Calendar No. 20, S. 143.

Mr. GRAMM. I have two amendments at the desk and I ask they be considered en bloc.

Mr. GRAMM

Mr. GRAMM. Mr. President, I ask unanimous consent that when the Senate completes its business today, it adjourn until the hour of 8:45 a.m. on Friday, March 23. I further ask unanimous consent that on Friday, immediately following the prayer, the Journal of proceedings be approved to date, the morning hour be deemed expired, the time for the two leaders be reserved for their use later in the day, and the Senate then begin the pending Helms amendment and there be 15 minutes for closing remarks, as previously ordered.

Mr. GRAMM

Mr. GRAMM. If there is no further business to come before the Senate, I now ask unanimous consent the Senate stand in adjournment under the previous order.

Mr. GRAMM

Mr. GRAMM. Mr. President, I ask unanimous consent that there now be a period for the transaction of routine morning business, with Senators permitted to speak up to 10 minutes each.

Mr. GRAMM

Mr. GRAMM. Mr. President, I ask unanimous consent that the Judiciary Committee be discharged from further consideration of S. Res. 25, and the Senate then proceed to its immediate consideration.

Mr. GRAMM. Mr. President, I ask unanimous consent the order for the quorum call be rescinded.

Mr. GRAMM. Mr. President, I suggest the absence of a quorum.

Mr. GRAMM. Mr. President, I ask unanimous consent the resolution be agreed to, the preamble be agreed to, the motion to reconsider be laid upon the table, and any statements be printed in the Record.

Mr. GRAMM

Mr. GRAMM. For the information of all Senators, the Senate will conduct a rollcall vote at 9 a.m. on Friday. Other amendments are expected to be offered during Friday's session. On Monday at 2 p.m., the Senate will consider Senator Hollings constitutional amendment relating to elections. There will be debate throughout the day, with a vote scheduled to occur at 6 p.m. Further votes can be expected to occur following that vote at 6 p.m. on Monday.

Mr. GRAMM

Mr. GRAMM. Mr. President, all over the world tonight, legislative bodies are meeting to try to protect their citizens from living up to obligations that they have with American economic interests. All over the world tonight, legislative bodies that don't live up to the standards we have set for this, the greatest deliberative body in history, are trying to change domestic laws to make it possible for people to violate international standards of business. There is no one in this body I care more about than the distinguished Senator from Alabama, and I have no doubt that there may very well have been wrongs committed in terms of selling people part of this liability. But I urge my colleagues tonight to look at the big issue of the viability of world commerce, and the enforceability of contracts, and to live up to the standards of the greatest deliberative body in history by adopting this amendment.

Mr. GRAMM. Mr. President, Title IX of S. 420, the Bankruptcy Reform Act of 2001, involves financial contract provisions. The provisions of Title IX have been carefully crafted with the assistance of the President's Working Group on Financial Markets following a review of current statutory provisions governing the treatment of qualified financial contracts and similar financial contracts upon the insolvency of a counterparty. Title IX amends the Bankruptcy Code, the Federal Deposit Insurance Act, FDIA, as amended by the Financial Institutions Reform, Recovery, and Enforcement Act of 1989, FIRREA, the payment system risk reduction and netting provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991, FDICIA, and the Securities Investor Protection Act of 1970, SIPI. These amendments address the treatment of certain financial transactions following the insolvency of a party to such transactions. The amendments are designed to clarify and improve the consistency between the applicable statutes and to minimize the risk of a disruption within or between financial markets upon the insolvency of a market participant. Since its adoption in 1978, the Bankruptcy Code has been amended several times to afford different treatment for certain financial transactions upon the bankruptcy of a debtor, as compared with the treatment of other commercial contracts and transactions. These amendments were designed to further the policy goal of minimizing the systemic risks potentially arising from certain interrelated financial activities and markets. Similar amendments have been made to the FDIA and the FDICIA. Both the Federal Deposit Insurance Corporation, FDIC, and the Securities investor Protection Corporation, SIPC, have issued policy statements and letters clarifying general issues in this regard. Systemic risk has been defined as the risk that a disruption at a firm, in a market segment, to a settlement system, etc., can cause widespread difficulties at other firms, in other market segments or in the financial system as a whole. If participants in certain financial activities are unable to enforce their rights to terminate financial contracts with an insolvent entity in a timely manner, to offset or net payment and other transfer obligations and entitlements arising under such contracts, and to foreclose on collateral securing such contracts, the resulting uncertainty and potential lack of liquidly could increase the risk of an inter-market disruption. Congress has in the past taken steps to ensure that the risk of such systemic events is minimized. For example, both the Bankruptcy Code and the FDIA contain provisions that protect the rights of financial participants to terminate swap agreements, forward contracts, securities contracts, commodity contracts and repurchase agreements following the bankruptcy or insolvency of a counterparty to such contracts or agreements. Furthermore, other provisions prevent transfers made under such circumstances from being avoided as preferences or fraudulent conveyances, except when made with actual intent to defraud and taken in bad faith. Protections also are afforded to ensure that the acceleration, termination, liquidation, netting, setoff and collateral foreclosure provisions of such transactions and master agreements for such transactions are enforceable. In addition, FDICIA sought to protect the enforceability of close-out netting provisions in ``netting contracts'' between ``financial institutions.'' FDICIA states that the goal of enforcing netting arrangements is to reduce systemic risk within the banking system and financial markets. The orderly resolution of insolvencies involving counterparties to such contracts also is an important element in the reduction of systemic risk. The FDIA allows the receiver for an insolvent insured depository institution the opportunity to review the status of certain contracts to determine whether to terminate or transfer the contracts to new counterparties. These provisions provide the receiver with flexibility in determining the most appropriate resolution for the failed institution and facilitate the reduction of systemic risk by permitting the transfer, rather than termination, of such contracts. In general, Title IX is designed to clarify the treatment of certain financial contracts upon the insolvency of a counterparty and to promote the reduction of systemic risk. It furthers the goals of prior amendments to the Bankruptcy Code and the FDIA regarding the treatment of those financial contracts and of the payment system risk reduction provisions in FDICIA. It has four principal purposes: 1. To strengthen the provisions of the Bankruptcy Code and the FDIA that protect the enforceability of acceleration, termination, liquidation, close-out netting, collateral foreclosure and related provisions of certain financial agreements and transactions. 2. To harmonize the treatment of these financial agreements and transactions under the Bankruptcy Code and the FDIA. 3. To amend the FDIA and FDICIA to clarify that certain rights of the FDIC acting as conservator or receiver for a failed insured depository institution (and in some situations, rights of SIPC and receivers of certain uninsured institutions) cannot be defeated by operation of the terms of FDICIA. 4. To make other substantive and technical amendments to clarify the enforceability of financial agreements and transactions in bankruptcy or insolvency. All these changes are designed to further minimize systemic risk to the banking system and the financial markets. In section 901, subsections (a) through (f) amend the FDIA definitions of ``qualified financial contract,'' ``securities contract,'' ``commodity contract,'' ``forward contract,'' ``repurchase agreement'' and ``swap agreement'' to make them consistent with the definitions in the Bankruptcy Code and to reflect the enactment of the Commodity Futures Modernization Act of 2000 (CFMA). It is intended that the legislative history and case law surrounding those terms, to the date of this amendment, be incorporated into the legislative history of the FDIA. Subsection (b) amends the definition of ``securities contract'' expressly to encompass margin loans, to clarify the coverage of securities options and to clarify the coverage of repurchase and reverse repurchase transactions. The inclusion of ``margin loans'' in the definition is intended to encompass only those loans commonly known in the securities industry as ``margin loans,'' such as arrangements where a securities broker or dealer extends credit to a customer in connection with the purchase, sale or trading of securities, and does not include loans that are not commonly referred to as ``margin loans,'' however documented. The reference in subsection (b) to a ``guarantee by or to any securities clearing agency'' is intended to cover other arrangements, such as novation, that have an effect similar to a guarantee. The reference to a ``loan'' of a security in the definition is intended to apply to loans of securities, whether or not for a ``permitted purpose'' under margin regulations. The reference to ``repurchase and reverse repurchase transactions'' is intended to eliminate any inquiry under the qualified financial contract provisions of the FDIA as to whether a repurchase or reverse repurchase transaction is a purchase and sale transaction or a secured financing. Repurchase and reverse repurchase transactions meeting certain criteria are already covered under the definition of ``repurchase agreement'' in the FDIA (and a regulation of the FDIC). Repurchase and reverse repurchase transactions on all securities (including, for example, equity securities, asset-backed securities, corporate bonds and commercial paper) are included under the definition of ``securities contract''. Subsection (b) also specifies that purchase, sale and repurchase obligations under a participation in a commercial mortgage loan do not constitute ``securities contracts.'' While a contract for the purchase, sale or repurchase of a participation may constitute a ``securities contract,'' the purchase, sale or repurchase obligation embedded in a participation agreement does not make that agreement a ``securities contract.'' A number of terms used in the qualified financial contract provisions, but not defined therein, are intended to have the meanings set forth in the analogous provisions of the Bankruptcy Code or FDICIA (for example, ``securities clearing agency''). The term ``person,'' however, is not intended to be so interpreted. Instead, ``person'' is intended to have the meaning set forth in 1 U.S.C. Sec. 1. Subsection (e) amends the definition of ``repurchase agreement'' to codify the substance of the FDIC's 1995 regulation defining repurchase agreement to include those on qualified foreign government securities. See 12 CFR Sec. 360.5. The term ``qualified foreign government securities'' is defined to include those that are direct obligations of, or fully guaranteed by, central governments of members of the Organization for Economic Cooperation and Development, OECD. Subsection (e) reflects developments in the repurchase agreement markets, which increasingly use foreign government securities as the underlying asset. The securities are limited to those issued by or guaranteed by full members of the OECD, as well as countries that have concluded special lending arrangements with the International Monetary fund associated with the Fund's General Arrangements to Borrow. Subsection (e) also amends the definition of ``repurchase agreement'' to include those on mortgage-related securities, mortgage loans and interests therein, and expressly to include principal and interest-only U.S. government and agency securities as securities that can be the subject of a ``repurchase agreement.'' This amendment is not intended to affect the status of repos involving securities or commodities as securities contracts, commodity contracts, or forward contracts, and their consequent eligibility for similar treatment under the qualified financial contract provisions. In particular, an agreement for the same and repurchase of a security would continue to be a securities contract as defined in the FDIA, even if not a ``repurchase agreement'' as defined in the FDIA. Similarly, an agreement for the sale and repurchase of a commodity, even though not a ``repurchase agreement'' as defined int he FDIA, would continue to be a forward contract for purposes of the FDIA. Subsection (e), like subsection (b) for ``securities contracts,'' specifies that repurchase obligations under a participation in a commercial mortgage loan do not make the participation agreement a ``repurchase agreement.'' such repurchase obligations embedded in participations in commercial loans (such as recourse obligations) do not constitute a ``repurchase agreement.'' However, a repurchase agreement involving the transfer of participations in commercial mortgage loans with a simultaneous agreement to repurchase the participation on demand or at a date certain one year or less after such transfer would constitute a ``repurchase agreement'', as well as a ``securities contract''. Subsection (f) amends the definition of ``swap agreement'' to include an ``interest rate swap, option, future, or forward agreement, including a rate floor, rate cap, rate collar, cross-currency rate swap, and basis swap; a spot, same day-tomorrow, tomorrow-next, forward, or other foreign exchange of precious metals agreement; a currency swap, option, future, or forward agreement; an equity index or equity sway, option future, or forward agreement; a debt index or debt swap, option, future, or forward agreement; a total return, credit spread or credit swap, option, future, or forward agreement; a commodity index or commodity swap, option, future, or forward agreement; or a weather swap, weather derivative, or weather option.'' As amended, the definition of ``swap agreement'' will update the statutory definition and achive contractual netting across economically similar transactions. The definition of ``swap agreement'' originally was intended to provide sufficient flexibility to avoid the need to amend the definition as the nature and uses of swap transactions matured. to that end, the phrase ``or any other similar agreement'' was included int he definition. (The phrase ``or any similar agreement'' has been added to the definition of ``forward contract,'' ``commodity contract,'' ``repurchase agreement'' and ``securities contract'' for the same reason.) To clarify this, subsection (f) expands the definition of ``swap agreement'' to include ``any agreement or trqansaction that is similar to any other agreement or transaction referred to in Section 11(e)(8)(D)(vi) of the FDIA and is of a type that has been, is presently, or in the future becomes, the subject of recurrent dealings in the swap markets and that is a forward, swap, future, or option on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities or other debt instruments, quantitative measures associated with an occurrence, extent of an occurrence, or contingency associated with a financial, commercial, or economic consequence, or economic or financial indices or measures of economic or financial risk or value.'' The definition of ``swap agreement,'' however, should not be interpreted to permit parties to document non-swaps as swap transactions. Traditional commercial arrangements, such as supply agreements, or other non-financial market transactions, such as commercial, residential or consumer loans, cannot be treated as ``swaps'' under either the FDIA or the Bankruptcy Code simply because the parties purport to document or label the transactions as ``swap agreements.'' In addition, these definitions apply only for purposes of the FDIA and the Bankruptcy Code. These definitions, and the characterization of a certain transaction as a ``swap agreement,'' are not intended to affect the characterization, definition, or treatment of any instruments under any other statute, regulation, or rule including, but not limited to, the statutes, regulations or rules enumerated in subsection (f). Similarly, Section 914 and a new paragraph of Section 11(e) of the FDIA provide that the definitions of ``securities contract,'' ``repurchase agreement,'' ``forward contract,'' and ``commodity contract,'' and the characterization of certain transactions as such a contract or agreement, are not intended to affect the characterization, definition, or treatment of any instruments under any other statute, regulation, or rule including, but not limited to, the statutes, regulations or rules enumerated in subsection (f). The definition also includes any security agreement or arrangement, or other credit enhancement, related to a swap agreement, including any guarantee or reimbursement obligation related to a swap agreement. This ensures that any such agreement, arrangement or enhancement is itself deemed to be a swap agreement, and therefore eligible for treatment as such for purposes of termination, liquidation, acceleration, offset and netting under the FDIA and the Bankruptcy Code. Similar changes are made in the definitions of ``forward contract,'' ``commodity contract,'' ``repurchase agreement'' and ``securities contract.'' The use of the term ``forward'' in the definition of ``swap agreement'' is not intended to refer only to transactions that fall within the definition of ``forward contract.'' Instead, a ``forward'' transaction could be a ``swap agreement'' even if not a ``forward contract.'' Subsection (g) amends the FDIA by adding a definition for ``transfer,'' which is a key term used in the FDIA, to ensure that it is broadly construed to encompass dispositions of property or interests in property. The definition tracks that in section 101 of the Bankruptcy Code. Subsection (h) makes clarifying technical changes to conform the receivership and conservatorship provisions of the FDIA. This subsection (h) also clarifies that the FDIA expressly protects rights under security agreements, arrangements or other credit enhancements related to one or more qualified financial contracts, QFCs. An example of a security arrangement is a right of setoff, and examples of other credit enhancements are letters of credit, guarantees, reimbursement obligations and other similar agreements. Subsection (i) clarifies that no provision of Federal or state law relating to the avoidance of preferential or fraudulent transfers, including the anti-preference provision of the National Bank Act, can be invoked to avoid a transfer made in connection with any QFC of an insured depository institution in conservatorship or receivership, absent actual fraudulent intent on the part of the transferee. Section 902 provides that no provision of law, including FDICIA, shall be construed to limit the power of the FDIC to transfer or to repudiate any QFC in accordance with its powers under the FDIA. As discussed below, there has been some uncertainty regarding whether or not FDICIA limits the authority of the FDIC to transfer or to repudiate QFCs of an insolvent financial institution. Section 902, as well as other provisions in the Act, clarify that FDICIA does not limit the transfer powers of the FDIC with respect to QFCs. Section 902 denies enforcement to ``walkaway'' clauses in QFCs. A walkaway clause is defined as a provision that, after calculation of a value of a party's position or an amount due to or from one of the parties upon termination, liquidation or acceleration of the QFC, either does not create a payment obligation of a party or extinguishes a payment obligation of a party in whole or in part solely because of such party's status as a non-defaulting party. In Section 903, subsection (a) amends the FDIA to expand the transfer authority of the FDIC to permit transfers of QFCs to ``financial institutions'' as defined in FDICIA or in regulations. This provision will allow the FDIC to transfer QFCs to a non-depository financial institution, provided the institution is not subject to bankruptcy or insolvency proceedings. The new FDIA provision specifies that when the FDICa QFCs that are cleared on or subject to the rules of a particular clearing organization, the transfer will not require the clearing organization to accept the transferee as a member of the organization. This provision gives the FCIC flexibility in resolving QFCs cleared on or subject to the rules of a clearing organization to accept for clearing any QFCs from the transferee, except on the terms and conditions applicable to other parties permitted to clear through that clearing organization. ``Clearing organization'' is defined to mean a ``clearing organization'' within the meaning of FDICIA, as amended both by the CFMA and by Section 906 of the Act. The new FDIA provision also permits transfers to an eligible financial institution that is a non-U.S. person, or the branch or agency of a on-U.S. person or a U.S. financial institution that is not an FDIC-insured institution if, following the transfer, the contractual rights of the parties would be enforceable substantially to the same extent as under the FDIA. It is expected that the FDIC would not transfer QFCs to such a financial institution if there were an impending change of law that would impair the enforceability of the parties' contractual rights. Subsection (b) amends the notification requirements following a transfer of the QFCs of a failed depository institution to require the FDIC to notify any party to a transferred QFC of such transfer by 5:00 p.m. Eastern Time on the business day following the date of the appointment of the FDIC acting as receiver or following the date of such transfer by the FDIC acting as a conservator. This amendment is consistent with the policy statement on QFCs issued by the FDIC on December 12, 1989. Subsection (c) amends the FDIA to clarify the relationship between the FDIA and FDICIA. There has been some uncertainty whether FDICIA permits counterparties to terminate or liquidate a QFC before the expiration of the time period provided by the FDIA during which the FDIC may repudiate or transfer a QFC in a conservatorship or receivership. Subsection (c) provides that a party may not terminate a QFC based solely on the appointment of the FDIC as receiver until 5:00 p.m. (Eastern Time) on the business day following the appointment of the receiver or after the person has received notice of a transfer under FDIA section 11(d)(9), or based solely on the appointment of the FDIC as conservator, notwithstanding the provisions of FDICIA. This provides the FDIC with an opportunity to undertake an orderly resolution of the insured depository institution. The amendment also prohibits the enforcement of rights of termination or liquidation that arise solely because of the insolvency of the institution or are based on the ``financial condition'' of the depository institution in receivership or conservatorship. For example, termination based on a cross-default provision in a QFC that is triggered upon a default under another contract could be rendered ineffective if such other default was caused by an acceleration of amounts due under that other contract, and such acceleration was based solely on the appointment of a conservator or receiver for that depository institution. Similarly, a provision in a QFC permitting termination of the QFC based solely on a downgraded credit rating of a party will not be enforceable in an FDIC receivership or conservatorship because the provision is based solely on the financial condition of the depository institution in default. However, any payment, delivery or other performance-based default, or breach of a representation or covenant putting in question the enforceability of the agreement, will not be deemed to be based solely on financial condition for purposes of this provision. The amendment is not intended to prevent counterparties from taking all actions permitted and recovering all damages authorized upon repudiation of any QFC by a conservator or receiver, or from taking actions based upon a receivership or other financial condition-triggered default in the absence of a transfer (as contemplated in Section 11 (e)(10) of the FDIA). The amendment allows the FDIC to meet its obligation to provide notice to parties to transferred QFCs by taking steps reasonably calculated to provide notice to such parties by the required time. This is consistent with the existing policy statement on QFCs issued by the FDIC on December 12, 1989. Finally, the amendment permits the FDIC to transfer QFCs of a failed depository institution to a bridge bank or a depository institution organized by the FDIC for which a conservator is appointed either (i) immediately upon the organization of such institution or (ii) at the time of a purchase and assumption transaction between the FDIC and the institution. This provision clarifies that such institutions are not to be considered financial institutions that are ineligible to receive such transfers under FDIA section 11(e)(9). This is consistent with the existing policy statement on QFCs issued by the FDIC on December 12, 1989. Section 904 limits the disaffirmance and repudiation authority of the FDIC with respect to QFCs so that such authority is consistent with the FDIC's transfer authority under FDIA section 11(e)(9). This ensures that no disaffirmance, repudiation or transfer authority of the FDIC may be exercised to ``cherry-pick'' or otherwise treat independently all the QFCs between a depository institution in default and a person or any affiliate of such person. The FDIC has announced that its policy is not to repudiate or disaffirm QFCs selectively. This unified treatment is fundamental to the reduction of systemic risk. Section 905 states that a master agreement for one or more securities contracts, commodity contracts, forward contracts, repurchase agreements or swap agreements will be treated as a single QFC under the FDIA (but only to the extent the underlying agreements are themselves QFCs). This provision ensures that cross-product netting pursuant to a master agreement, or pursuant to an umbrella agreement for separate master agreements between the same parties, each of which is used to document one or more qualified financial contracts, will be enforceable under the FDIA. Cross-product netting permits a wide variety of financial transactions between two parties to be netted, thereby maximizing the present and potential future risk-reducing benefits of the netting arrangement between the parties. Express recognition of the enforceability of such cross-product master agreements furthers the policy of increasing legal certainty and reducing systemic risks in the case of an insolvency of a large financial participant. In section 906, subsection (a)(1) amends the definition of ``clearing organization'' to include clearinghouses that are subject to exemptions pursuant to orders of the Securities and Exchange Commission or the Commodity Futures Trading Commission and to include multilateral clearing organizations, the definition of which was added to FDICIA by the CFMA. Subsection (a)(2). FDICIA provides that a netting arrangement will be enforced pursuant to its terms, notwithstanding the failure of a party to the agreement. However, the current netting provisions of FDICIA limit this protection to ``financial institutions,'' which include depository institutions. This subsection amends the FDICIA definition of covered institutions to include (i) uninsured national and State member banks, irrespective of their eligibility for deposit insurance and (ii) foreign banks, including the foreign bank and its branches or agencies as a combined group, or only the foreign bank parent of a branch or agency. The latter change will extend the protections of FDICIA to ensure that U.S. financial organizations participating in netting agreements with foreign banks are covered by the Act, thereby enhancing the safety and soundness of these arrangements. It is intended that a non-defaulting foreign bank and its branches and agencies be considered to be a single financial institution for purposes of the bilateral netting provisions of FDICIA (except to the extent that the non-defaulting foreign bank and its branches and agencies on the one hand, and the defaulting financial institution, on the other, have entered into agreements that clearly evidence an intention that the non-defaulting foreign bank and its branches and agencies be treated as separate financial institutions for purposes of the bilateral netting provisions of FDICIA). Subsection (a)(3) amends FDICIA to provide that, for purposes of FDICIA, two or more clearing organizations that enter into a netting contract are considered ``members'' of each other. This assures the enforceability of netting arrangements involving two or more clearing organizations and a member common to all such organizations, thus reducing systemic risk in the event of the failure of such a member. Under the current FDICIA provisions, the enforceability of such arrangements depends on a case-by-case determination that clearing organizations could be regarded as members of each other for purposes of FDICIA. Subsection (a)(4) amends the FDICIA definition of netting contract and the general rules applicable to netting contracts. The current FDICIA provisions require that the netting agreement must be governed by the law of the United States or a State to receive the protections of FDICIA. However, many of these agreements, particularly netting arrangements covering positions taken in foreign exchange dealings, are governed by the laws of a foreign country. This subsection broadens the definition of ``netting contract'' to include those agreements governed by foreign law, and preserves the FDICIA requirement that a netting contract not be invalid under, or precluded by, Federal law. Subsections (b) and (c) establish two exceptions to FDICIA's protection of the enforceability of the provisions of netting contracts between financial institutions and among clearing organization members. First, the termination provisions of netting contracts will not be enforceable based solely on (i) the appointment of a conservator for an insolvent depository institution under the FDIA or (ii) the appointment of a receiver for such institution under the FDIA, if such receiver transfers or repudiates QFCs in accordance with the FDIA and gives notice of a transfer by 5:00 p.m. on the business day following the appointment of a receiver. This change is made to confirm the FDIC's flexibility to transfer or repudiate the QFCs of an insolvent depository institution in accordance with the terms of the FDIA. This modification also provides important legal certainly regarding the treatment of QFCs under the FDIA, because the current relationship between the FDIA and FDICIA is unclear. The second exception provides that FDICIA does not override a stay order under SIPA with respect to foreclosure on securities, but not cash, collateral of a debtor, section 911 makes a conforming change to SIPA. There is also an exception relating to insolvent commodity brokers. Subsections (b) and (c) also clarify that a security agreement or other credit enhancement related to a netting contract is enforceable to the same extent as the underlying netting contract. Subsection (d) adds a new section 407 to FDICIA. This new section provides that, notwithstanding any other law, QFCs with uninsured national banks, uninsured Federal branches or agencies, or Edge Act corporations, or uninsured State member banks that operate, or operate as, a multilateral cleaning organization and that are placed in receivership or conservatorship will be treated in the same manner as if the contract were with an insured national bank or insured Federal branch for which a receiver or conservator was appointed. This provision will ensure that parties to QFCs with these institutions will have the same rights and obligations as parties entering into the same agreements with insured depository institutions. The new section also specifically limits the powers of a receiver or conservator for such an institution to those contained in 12 U.S.C. Sec. Sec. 1821(e)(8), (9), (10), and (11), which address QFCs. While the amendment would apply the same rules to such institutions that apply to insured institutions, the provision would not change the rules that apply to insured institutions. Nothing in this section would amend the International Banking Act, the Federal Deposit Insurance Act, the national Bank Act, or other statutory provisions with respect to receiverships of insured national banks or Federal branches. In section 907, subsection (a)(1) amends the Bankruptcy Code definitions of `'repurchase agreement'' and ``swap agreement'' to conform with the amendments to the FDIA contained in sections 901(c) and 901(f) of the Act. In connection with the definition of ``repurchase agreement,'' the term ``qualified foreign government securities'' is defined to include securities that are direct obligations of, or fully guaranteed by, central governments of members of the Organization for Economic Cooperation and Development OECD. This language reflects developments in the repurchase agreement markets, which increasingly use foreign government securities as the underlying asset. The securities are limited to those issued by or guaranteed by full members of the OECD, as well as countries that have concluded special lending arrangements with the International Monetary Fund associated with the Fund's General Arrangements to Borrow. Subsection (a)(1) also amends the definition of ``repurchase agreement'' to include those on mortgage-related securities, mortgage loans and interests therein, and expressly to include principal and interest-only U.S. government and agency securities as securities that can be the subject of a ``repurchase agreement.'' The reference in the definition to United States government- and agency-issued or fully guaranteed securities is intended to include obligations issued or guaranteed by Fannie Mae and the Federal Home Loan Mortgage Corporation (Feddie Mac) as well as all obligations eligible for purchase by Federal Reserve banks under the similar language of section 14(b) of the Federal Reserve Act. This amendment is not intended to affect the status of repos involving securities or commodities as securities contracts, commodity contracts, or forward contracts, and their consequent eligibility for similar treatment under other provisions of the Bankruptcy Code. In particular, an agreement for the sale and repurchase of a security would continue to be a securities contract as defined in the Bankruptcy Code and thus also would be subject to the Bankruptcy Code provisions pertaining to securities contracts, even if not a ``repurchase agreement'' as defined in the Bankruptcy Code. Similarly, an agreement for the sale and repurchase of a commodity, even though not a ``repurchase agreement'' as defined in the Bankruptcy Code, would continue to be a forward contract for purposes of the Bankruptcy Code and would be subject to the Bankruptcy Code provisions pertaining to forward contracts. Subsection (a)(1) specifies that repurchase obligations under a participation in a commercial mortgage loan do not make the participation agreement a ``repurchase agreement.'' Such repurchase obligations embedded in participations in commercial loans, such as recourse obligations, do not constitute a ``repurchase agreement.'' However, a repurchase agreement involving the transfer of participations in commercial mortgage loans with a simultaneous agreement to repurchase the participation on demand or at a date certain one year or less after such transfer would constitute a ``repurchase agreement'', as well as a ``securities contract''. The definition of ``swap agreement'' is amended to include an ``interest rate swap, option, future, or forward agreement, including a rate floor, rate cap, rate collar, cross-currency rate swap, and basis swap; a spot, same day-tomorrow, tomorrow-next, forward, or other foreign exchange or precious metals agreement; a currency swap, option, future, or forward agreement; an equity index or equity swap, option, future, or forward agreement; a debt index or debt swap, option, future, or forward agreement; a total return, credit spread or credit swap, option, future, or forward agreement; a commodity index or commodity swap, option, future, or forward agreement; or a weather swap, weather derivative, or weather option.'' As amended, the definition of ``swap agreement'' will update the statutory definition and achieve contractual netting across economically similar transactions. The definition of ``swap agreement'' originally was intended to provide sufficient flexibility to avoid the need to amend the definition as the nature and uses of swap transactions matured. To that end, the phrase ``or any other similar agreement'' was included in the definition. The phrase ``or any similar agreement'' has been added to the definitions of ``forward contract,'' ``commodity contract,'' ``repurchase agreement,'' and ``securities contract'' for the same reason. To clarify this, subsection (a)(1) expands the definition of ``swap agreement'' to include ``any agreement or transaction that is similar to any other agreement or transaction referred to in [Section 101(53B) of the Bankruptcy Code] and that is of a type that has been, is presently, or in the future becomes, the subject of recurrent dealings in the swap markets and that is a forward, swap, future, or option on one or more rates, currencies, commodities, equity securities or other equity instruments, debt securities or other debt instruments, quantitative measures associated with an occurrence, extent of an occurrence, or contingency associated with a financial, commercial, or economic consequence, or economic or financial indices or measures of economic or financial risk or value.'' The definition of ``swap agreement'' in this subsection should not be interpreted to permit parties to document non-swaps as swap transactions. Traditional commercial arrangements, such as supply agreements, or other non-financial market transactions, such as commercial, residential or consumer loans, cannot be treated as ``swaps'' under either the FDIA or the Bankruptcy Code because the parties purport to document or label the transactions as ``swap agreements.'' These definitions, and the characterization of a certain transaction as a ``swap agreement,'' are not intended to affect the characterization, definition, or treatment of any instruments under any other statute, regulation, or rule including, but not limited to, the statutes, regulations or rules enumerated in subsection (a)(1)(C). Similarly, Section 914 provides that the definitions of ``securities contract,'' ``repurchase agreement,'' ``forward contract,'' and ``commodity contract,'' and the characterization of certain transactions as such a contract or agreement, are not intended to affect the characterization, definition, or treatment of any instruments under any other statute, regulation, or rule including, but not limited to, the statutes, regulations or rules enumerated in the definition of ``swap agreement.'' The definition also includes any security agreement or arrangement, or other credit enhancement, related to a swap agreement, including any guarantee or reimbursement obligation related to a swap agreement. This ensures that any such agreement, arrangement or enhancement is itself deemed to be a swap agreement, and therefore eligible for treatment as such for purposes of termination, liquidation, acceleration, offset and netting under the Bankruptcy Code and the FDIA. Similar changes are made in the definitions of ``forward contract,'' ``commodity contract,'' ``repurchase agreement,'' and ``securities contract.'' An example of a security arrangement is a right of setoff; examples of other credit enhancements are letters of credit and other similar agreements. A security agreement or arrangement or guarantee or reimbursement obligation related to a ``swap agreement,'' ``forward contract,'' ``commodity contract,'' ``repurchase agreement'' or ``securities contract'' will be such an agreement or contract only to the extent of the damages in connection with such agreement measured in accordance with Section 562 of the Bankruptcy Code (added by the Act). This limitation does not affect, however, the other provisions of the Bankruptcy Code (including Section 362(b)) relating to security arrangements in connection with agreements or contracts that otherwise qualify as ``swap agreements,'' ``forward contracts,'' ``commodity contracts,'' ``repurchase agreements'' or ``securities contracts.'' The use of the term ``forward'' in the definition of ``swap agreement'' is not intended to refer only to transactions that fall within the definition of ``forward contract.'' Instead, a ``forward'' transaction could be a ``swap agreement'' even if not a ``forward contract.'' Subsections (a)(2) and (a)(3) amend the Bankruptcy Code definitions of ``securities contract'' and ``commodity contract,'' respectively, to conform them to the definitions in the FDIA. Subsection (a)(2), like the amendments to the FDIA, amends the definition of ``securities contract'' expressly to encompass margin loans, to clarify the coverage of securities options and to clarify the coverage of repurchase and reverse repurchase transactions. The inclusion of ``margin loans'' in the definition is intended to encompass only those loans commonly known in the securities industry as ``margin loans,'' such as arrangements where a securities broker or dealer extends credit to a customer in connection with the purchase, sale or trading of securities, and does not include loans that are not commonly referred to as ``margin loans,'' however documented. The reference in subsection (b) to a ``guarantee'' by or to a ``securities clearing agency'' is intended to cover other arrangements, such as novation, that have an effect similar to a guarantee. The reference to a ``loan'' of security in the definition is intended to apply to loans of securities, whether or not for a ``permitted purpose'' under margin regulations. The reference to ``repurchase and reverse repurchase transactions'' is intended to eliminate any inquiry under Section 555 and related provisions as to whether a repurchase or reverse repurchase transaction is a purchase and sale transaction or a secured financing. Repurchase and reverse repurchase transactions meeting certain criteria are already covered under the definition or ``repurchase agreement'' in the Bankruptcy Code. Repurchase and reverse repurchase transactions on all securities (including, for example, equity securities, asset-backed securities, corporate bonds and commercial paper) are included under the definition of ``securities contract''. A repurchase or reverse repurchase transaction which is a ``securities contract'' but not a ``repurchase agreement'' would thus be subject to the ``counterparty limitations'' contained in Section 555 of the Bankruptcy Code (i.e., only stockbrokers, financial institutions, securities clearing agencies and financial participants can avail themselves of Section 555 and related provisions). Subsection (a)(2) also specifies that purchase, sale and repurchase obligations under a participation in a commercial mortgage loan do not constitute ``securities contracts.'' While a contract for the purchase, sale or repurchase of a participation may constitute a ``securities contract,'' the purchase, sale or repurchase obligation embedded in a participation agreement does not make that agreement a ``securities contract.'' Subsection (b) amends the Bankruptcy Code definitions of ``financial institution'' and ``forward contract merchant.'' The definition for ``financial institution'' includes Federal Reserve Banks and the receivers or conservators of insolvent depository institutions. With respect to securities contracts, the definition of ``financial institution'' expressly includes investment companies registered under the Investment Company Act of 1940. Subsection (b) also adds a new definition of ``financial participant'' to limit the potential impact of insolvencies upon other major market participants. This definition will allow such market participants to close-out and net agreements with insolvent entities under sections 362(b)(6), 555 and 556 even if the creditor could not qualify as, for example, a commodity broker. Sections 362(b)(6), 555 and 556 preserve the limitations of the right of close-out and net such contracts, in most cases, to entities who qualify under the Bankruptcy Code's counterparty limitations. However, where the counterparty has transactions with a total gross dollar value of at least $1 billion in notional or actual principal amount outstanding on any day during the previous 15-month period, or has gross mark-to-market positions of at least $100 million (aggregated across counterparties) in one or more agreements or transactions on any day during the previous 15-month period, sections 362(b)(6), 555 and 556 and corresponding amendments would permit it to exercise netting and related rights irrespective of its inability otherwise to satisfy those counterparty limitations. This change will help prevent systemic impact upon the markets from a single failure, and is derived from threshold tests contained in Regulation EE promulgated by the Federal Reserve Board in implementing the netting provisions of the Federal Deposit Insurance Corporation Improvement Act. It is intended that the 15-month period be measured with reference to the 15 months preceding the filing of a petition by or against the debtor. ``Financial participant'' is also defined to include ``clearing organizations'' within the meaning of FDICIA, as amended by the CFMA and Section 906 of the Act. This amendment, together with the inclusion of ``financial participants'' as eligible counterparties in connection with ``commodity contracts,'' ``forward contracts'' and ``securities contracts'' and the amendments made in other Sections of the Act to include ``financial participants'' as counterparties eligible for the protections in respect of ``swap agreements'' and ``repurchase agreements,'' take into account the CFMA and will allow clearing organizations to benefit from the protections of all of the provisions of the Bankruptcy Code relating to these contracts and agreements. This will further the goal of promoting the clearing of derivatives and other transactions as a way to reduce systemic risk. The definition of ``financial participant'' (as with the other provisions of the Bankruptcy Code relating to ``securities contracts,'' ``forward contracts,'' ``commodity contracts,'' ``repurchase agreements'' and ``swap agreements) is not mutually exclusive, i.e., an entity that qualifies as a ``financial participant'' could also be a ``swap participant,'' ``repo participant,'' ``forward contract merchant,'' `commodity broker,'' ``stockbroker,'' ``securities clearing agency'' and/or ``financial institution.'' Subsection (c) adds to the Bankruptcy Code new definitions for the terms ``master netting agreement'' and master netting agreement participant.'' The definition of ``master netting agreement'' is designed to protect the termination and close-out netting provisions of cross-product master agreements between parties. Such an agreement may be used (i) to document a wide variety of securities contracts, commodity contracts, forward contracts, repurchase agreements and swap agreements of (ii) as an umbrella agreement for separate master agreement between the same parties, each of which is used to document a discrete type of transaction. The definition includes security agreements or arrangements or other credit enhancements related to one or more such agreements and clarifies that a master netting agreement will be treated as such even if it documents transactions that are not within the enumerated categories of qualifying transactions (but the provisions of the Bankruptcy Code relating to master netting agreements and the other categories of transactions will not apply to such other transactions). A ``master netting agreement participant'' is an entity that is a party to an outstanding master netting agreement with a debtor before the filing of a bankruptcy petition. Subsection (d) amends section 362(b) of the Bankruptcy Code to protect enforcement, free from the automatic stay, of setoff or netting provisions in swap agreements and in master netting agreements and security agreements or arrangements related to one or more swaping agreements or master netting agreements. This provision parallels the other provisions of the Bankruptcy Code that protect netting provisions of securities contracts, commodity contracts, forward contracts, and repurchase agreements. Because the relevant definitions include related security agreements, the references to ``setoff' in these provisions, as well in section 362(b)(6) and (7) of the Bankruptcy Code, are intended to refer also to rights to foreclose on, and to set off against-obligations to return, collateral securing swap agreements, mater netting agreements, repurchase agreements, securities contracts, commodity contracts, or forward contracts. Collateral may be pledged to cover the cost of replacing the defaulted transactions in the relevant market, as well as other costs and expenses incurred or estimated to be incurred for the purpose of hedging or reducing the risks arising out of such termination. Enforcement of these agreements and arrangement free from the automatic stay is consistent with the policy goals of minimizing systemic risk. Subsection (d) also clarifies that the provisions protecting setoff and foreclosure in relation to securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements, and master netting agreements free from the automatic stay apply to collateral pledged by the debtor but that cannot technically be ``held by'' the creditor, such as receivables and book-entry securities, and to collateral that has been repledged by the creditor and securities re-sold pursuant to repurchase agreements. The current codification of section 546 of the Bankruptcy Code contains two subsections designated as ``(g)''; subsection (e) corrects this error. Subsections (e) and (f) amend sections 546 and 548(d) of the Bankruptcy Code to provide that transfers made under or in connection with a master netting agreement may not be avoided by a trustee except where such transfer is made with actual intent to hinder, delay or defraud and not taken in good faith. This amendment provides the same protections for a transfer made under, or in connection with, a master netting agreement as currently is provided for margin payments, settlement payments and other transfers received by commodity brokers, forward contract merchants, stockbrokers, financial institutions, securities clearing agencies, repo participants, and swap participants under Sections 546 and 548(d), except to the extent the trustee could otherwise avoid such a transfer made under an individual contract covered by such master netting agreement. Subsections (g), (h), (i) and (j) clarify that the provisions of the Bankruptcy Code that protect (i) rights of liquidation under securities contracts, commodity contracts, forward contracts and repurchase agreements also protect rights of termination or acceleration under such contracts, and (ii) rights to terminate under swap agreements also protect rights of liquidation and acceleration. Subsection (k) adds a new section 561 to the Bankruptcy Code to protect the contractual right of a master netting agreement participant to enforce any rights of termination, liquidation, acceleration, offset or netting under a master netting agreement. Such rights include rights arising (i) from the rules of a derivatives clearing organization, multilateral clearing organization, securities clearing agency, securities exchange, securities association, contract market, derivatives transaction execution facility or board of trade, (ii) under common law, law merchant or (iii) by reason of normal business practice. This reflects the enactment of the CFMA and the current treatment of rights under swap agreements under section 560 of the Bankruptcy Code. Similar changes to reflect the enactment of the CFMA have been made to the definition of ``contractual right'' for purposes of Sections 555, 556, 559 and 560 of the Bankruptcy Code. Subsections (b)(2)(A) and (b)(2)(B) of new Section 561 limit the exercise of contractual rights to net or to offset obligations where the debtor is a commodity broker and one leg of the obligations sought to be netted relates to commodity contracts traded on or subject to the rules of a contract market designated under the Commodity Exchange Act or a derivatives transaction execution facility registered under the Commodity Exchange Act. Under subsection (b)(2)(A) netting or offsetting is not permitted in these circumstances if the party seeking to net or to offset has no positive net equity in the commodity accounts at the debtor. Subsection (b)(2)(B) applies only if the debtor is a commodity broker, acting on behalf of its own customer, and is in turn a customer of another commodity broker. In that case, the latter commodity broker may not net or offset obligations under such commodity contracts with other claims against its customer, the debtor. Subsections (b)(2)(A) and (b)(2)(B) limit the depletion of assets available for distribution to customers of commodity brokers. This is consistent with the principle of subchapter IV of chapter 7 of title 11 that gives priority to customer claims in the bankruptcy of a commodity broker. Subsection (b)(2)(C) provides an exception to subsections (b)(2)(A) and (b)(2)(B) for cross-margining and other similar arrangements approved by, or submitted to and not rendered ineffective by, the Commodity Futures Trading Commission, as well as certain other netting arrangements. For the purposes of Bankruptcy Code sections 555, 556, 559, 560 and 561, it is intended that the normal business practice in the event of a default of a party based on bankruptcy or insolvency is to terminate, liquidate or accelerate securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements and master netting agreements with the bankrupt or insolvent party. The protection of netting and offset rights in sections 560 and 561 is in addition to the protections afforded in sections 362(b)(6), (b)(7), (b)(17) and (b)(28). Under the Act, the termination, liquidation or acceleration rights of a master netting agreement participant are subject to limitations contained in other provisions of the Bankruptcy Code relating to securities contracts and repurchase agreements. In particular, if a securities contract or repurchase agreement is documented under a master netting agreement, a party's termination, liquidation and acceleration rights would be subject to the provisions of the Bankruptcy Code relating to orders authorized under the provisions of SIPA or any statute administered by the SEC. In addition, the netting rights of a party to a master netting agreement would be subject to any contractual terms between the parties limiting or waiving netting or set off rights. Similarly, a waiver by a bank or a counterparty of netting or set off rights in connection with QFCs would be enforceable under the FDIA. Section 502 of the Act clarifies that, with respect to municipal bankruptcies, all the provisions of the Bankruptcy Code relating to securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements and master netting agreements (which by their terms are intended to apply in all proceedings under title 11) will apply in a Chapter 9 proceeding for a municipality. Although sections 555, 556, 559 and 560 provide that they apply in any proceeding under the Bankruptcy Code, Section 502 makes a technical amendment in Chapter 9 to clarify the applicability of these provisions. New section 561 of the Bankruptcy Code clarifies that the provisions of the Bankruptcy Code related to securities contracts, commodity contracts, forward contracts, repurchasing agreements, swap agreements and master netting agreements apply in a proceeding ancillary to a foreign insolvency proceeding under new Chapter 15. Subsections (l) and (m) clarify that the exercise of termination and netting rights will not otherwise affect the priority of the creditor's claim after the exercise of netting, foreclosure and related rights. Subsection (n) amends section 553 of the Bankruptcy Code to clarify that the acquisition by a creditor of setoff rights in connection with swap agreements, repurchase agreements, securities contracts, forward contracts, commodity contracts and master netting agreements cannot be avoided as a preference. This subsection also adds setoff of the kinds described in sections 555, 556, 559, 560, and 561 of the Bankruptcy Code to the types of setoff excepted from section 553(b). Subsection (o), as well as other subsections of the Act, adds references to ``financial participant'' in all the provisions of the Bankruptcy Code relating to securities, forward and commodity contracts and repurchase and swap agreements. Section 908 amends section 11(e)(8) of the Federal Deposit Insurance Act to explicitly authorize the FDIC, in consultation with appropriate Federal banking agencies, to prescribe regulations on recordkeeping by any insured depository institution with respect to QFCs only if the insured depository institution is in a troubled condition (as such term is defined in the FDIA). Section 909 amends FDIA section 13(e)(2) to provide that an agreement for the collateralization of governmental deposits, bankruptcy estate funds, Federal Reserve Bank or Federal Home Loan Bank extensions of credit or one or more QFCs shall not be deemed invalid solely because such agreement was not entered into contemporaneously with the acquisition of the collateral or because of pledges, delivery or substitution of the collateral made in accordance with such agreement. The amendment codifies portions of policy statements issued by the FDIC regarding the application of section 13(e), which codifies the ``D'Oench Duhme'' doctrine. With respect to QFCs, this codification recognizes that QFCs often are subject to collateral and other security arrangements that may require posting and return of collateral on an ongoing basis based on the mark-to-market value of the collateralized transactions. The codification of only portions of the existing FDIC policy statements on these and related issues should not give to any negative implication regarding the continued validity of these policy statements. Section 910 adds a new section 562 to the Bankruptcy Code providing that damage under any swap agreement, securities contract, forward contract, commodity contract, repurchase agreement or master netting agreement will be calculated as of the earlier of (i) the date of rejection of such agreement by a trustee or (ii) the date of liquidation, termination or acceleration of such contract or agreement. New section 562 provides important legal certainty and makes the Bankruptcy Code consistent with the current provisions related to the timing of the calculation of damages under QFCs in the FDIA. Section 911 amends SIPA to provide that an order or decree issued pursuant to SIPA shall not operate as a stay of any right of liquidation, termination, acceleration, offset or netting under one or more securities contracts, commodity contracts, forward contracts, repurchase agreements, swap agreements or master netting agreements (as defined in the Bankruptcy Code and including rights of foreclosure on collateral), except that such order or decree may stay any right to foreclose on or dispose of securities (but not cash) collateral pledged by the debtor or sold by the debtor under a repurchase agreement or lent by the debtor under a securities lending agreement. A corresponding amendment to FDICIA is made by section 906. A creditor that was stayed in exercising rights against such securities would be entitled to post-insolvency interest to the extent of the value of such securities. Section 912 generally protects asset-backed securitization transactions from legal uncertainties and disruptions related to the bankruptcies of certain parties and allows for the further development of structured finance. Asset securitization involves the issuance of securities supported by assets having an ascertainable cash flow or market value. Securitization of receivables, such as small-business loans, commercial and multifamily mortgages, and car loans, allows for the funding of such loans from capital market sources. The process generally enlarges the pool of capital available and reduces financing costs for vital lending purposes such as the financing of small- business operations and home ownership. Through a number of definitions designed to ensure that the exclusion from property of the estate applies only to the intended type of transaction, new section 541(b)(5) of the Bankruptcy Code excludes from the property of a debtor's estate any ``eligible asset'', and proceeds thereof, tot he extent that such eligible asset was ``transferred'' by the debtor, before the date of commencement of the case, to an ``eligible entity'' in connection with an ``asset-backed securitization.'' Each term is explicitly defined to reflect its specific role or application in the securitization process to ensure that only bona fide securitizations are eligible for the safe harbor exclusion. All defined elements of a securitization must be present for the safe harbor to apply. Other commercial transactions lacking any of the defined elements, such as transactions documented and structured as collateralized lending arrangements and other commercial asset sales or financings that are unrelated to securitization transactions, would be ineligible for the safe harbor provided by section 541(b)(5). The phrase ``to the extent'' in new section 541(b)(5) makes clear that a portion of the eligible asset may remain part of the debtor's estate, for example, where the eligible entity obtains the right to receive only interest payments on the first 10 percent of payments due on a receivable in connection with an asset-backed securitization. In addition, the reference to section 548(a) in new section 541(b)(5) will make clear that the safe harbor does not supersede a trustee's power to avoid fraudulent transfers. New section 541(b)(5) is not intended to override state law requirements, if any, regarding ``perfection'' of an asset sale. However, regardless of strict compliance with such state law requirements, new section 541(b)(5) is intended to provide an exclusion of the debtor's interest in eligible assets, and proceeds thereof, from the debtor's estate, upon compliance with section 541(b)(5). Thus, despite an eligible entity's failure to have properly perfected a sale for state law purposes, the eligible assets in question would remain excluded from the debtor's estate. In such event, however, a third party creditor with an interest in such eligible assets under state law would not be precluded from asserting, outside of the bankruptcy proceedings, such interest against the issuer or any other party purporting to have an interest in those assets. In other words, the amendments do not purport to extinguish any party's interest in the securitized assets other than the debtor's interest to the extent transferred by the debtor to the securitization vehicle. In order to provide certainty to participants in the asset-backed securities marked, including both issuers and purchasers of such securities, it is noted that the ``strong-arm'' provisions of section 544 of the Bankruptcy Code are not intended to override the general rule set forth in new section 541(b)(5) so as to bring such assets back into the debtor's estate. Frequently, asset securitizations involve the issuance of more than one class of securities with differing payment priorities, subordination provisions and other characteristics. The definition of ``asset-backed securitization'' contained in new section 541(e)(1) requires that at least one tranche of the asset-backed securities backed by the eligible assets in question be rated investment grade, thereby requiring that each asset-backed securitization as to which eligible assets are excluded from the debtor's estate be a carefully reviewed transaction subjected to third party scrutiny by a nationally recognized statistical rating organization. The investment-grade rating requirement applies only when the security is initially issued. In view of the cost and time associated with obtaining an investment-grade rating, such ratings are generally not pursued for smaller transactions. These and other burdens of the rating process add further protection against potential abuse of the safe harbor for sham transactions and ensure its application of its intended purpose--to preserve payments on asset-backed securities issued in the public and private markets. New section 541(e)(4) defines the term ``eligible asset.'' This definition is based upon the definition provided in rule 3a-7 under the Investment Company Act of 1940, which provides an exemption from registration under the Investment Company Act for issuers of asset- backed securities (i.e., issuers in the business of purchasing, or otherwise acquiring, and holding eligible assets). The phrase ``or other assets'' is intended to cover assets often conveyed in connection with securitization transactions such as letters of credit, guarantees, cash collateral accounts, and other assets that are provided as additional credit support. This phrase would also cover other assets, such as swaps, hedge agreements, etc., that are provided to protect bondholders against interest rate, currency and other market risks. The inclusion of cash and securities as eligible assets allows so-called market-value based securitizations of equity and other non-amortizing securities to fall within the purview of the amendment, although securitizations of such securities are not included under Rule 3a-7 and therefore would be subject to regulation under the Investment Company Act if another exemption therefrom were not available. New sections 541(e)(3) and (4) define the terms ``eligible entity'' and ``issuer,'' respectively. The definitions exclude operating companies by encompassing only single purpose entities. Because securitization transactions often involve intermediary transferees, an eligible entity can be either an issuer or an entity engaged exclusively in the business of acquiring and transferring eligible assets directly or indirectly to an issuer. New section 541(e)(5) defines the term ``transferred.'' In order for the eligible assets to be excluded from the debtor's estate under section 541, the debtor must represent and warrant in a written agreement that such eligible assets were sold, contributed or otherwise conveyed with the intention of removing them from the debtor's estate pursuant to section 541 (whether or not reference is made to section 541 in the written agreement). The definition makes clear that the debtor's written intention as to the exclusion of the eligible assets will be honored, regardless of the state law characterization of the transfer as a sale, contribution or other conveyance, and regardless of any other aspect of the transaction (such as the debtor's holding an interest in the issuer or any securities issued by the issuer, the ongoing servicing obligation of the debtor; the tax and accounting characterization; or any recourse to the debtor, whether relating to a breach of a representation, warranty or covenant, or otherwise) which may affect a state law analysis as to the true sale. In Section 913, subsection (a) provides that the amendments made under Title IX take effect on the date of enactment. Subsection (b) provides that the amendments made under Title IX shall not apply with respect to cases commenced, or to conservator/receiver appointments made, before the date of enactment. The amendments would, however, apply to contracts entered into prior to the date of enactment, so long as a Bankruptcy Code case were commenced or a conservator/receiver appointment were made on or after the date of enactment under any Federal or state law. Section 914 provides that the meaning of terms used in Title IX are applicable for purposes of Title IX 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 that term is defined in Section 3(a)(47) of the Securities Exchange Act of 1934), and the Commodity Exchange Act.

Mr. GRAMM

Mr. GRAMM. Mr. President, this amendment is really a usury limit amendment. Our distinguished colleague from Minnesota simply objects to people lending at high interest rates. I am sure there are some people who believe that if contracts are entered into at terms they find objectionable, the terms should not be enforced. But that is not the way the American commercial code works. What this amendment would do, in essence, is say that if I borrowed $100 for a week and I paid a $2 service charge on that loan, if the borrower went bankrupt, I wouldn't have to pay the loan because the Senator from Minnesota has judged that interest rate to be too high. That is great when you are making $146,000 a year. That is great when every bank in your State would love to lend you money. But the plain truth is, there are a lot of Americans who need to borrow money, a lot of Americans who would like to borrow money for a week to get over a temporary credit problem they have. The terrible impact of this amendment is that it would destroy the ability of those people to use legitimate lenders and, in the process, would force them in many cases to borrow elsewhere and pay many times as much in interest. Not only is this Government simply imposing its will on the marketplace, but it also has real unintended consequences. Let me give an example. Let's say you have a debit card and you pay a fee in case you have an overcharge from your balance. If you write a check for $100, that fee is going to exceed the amount prohibited under the Wellstone amendment and, as a consequence, you wouldn't have to pay that charge if something happened to the company and it went into bankruptcy. Here is the problem: The kinds of interest rates that are being talked about sound high, and they are high when they are calculated on an annualized basis. But when you borrow for a week, the carrying charges and the finance charges, which aren't necessarily high for that period of time, by their very nature, produce a high annual rate.

Mr. GRAMM. Let me give another example: If you took a cab in the District of Columbia and were driven to the airport, you would not consider the rate to be usurious. But if you took that same cab and were driven to Los Angeles, CA, and you were charged $50,000, you would likely consider that charge to be usurious. Do we have a law that tries to say that a rate going to California, which would be considered usurious, not be charged for traveling a much shorter local distance in the District of Columbia? The point is, when you are borrowing money for a week, you pay high annual interest rates. So, the net result of this amendment is to deny people access to credit. If the amendment were adopted, it is true that borrowers would no longer be paying high rates, but it is equally, and more significantly, true they wouldn't be getting any loans at all for which they were willing to pay. They will be driven into the black market, and they will pay a higher rate.

Mr. GRAMM. Mr. President, I ask unanimous consent for 1 additional minute.

Mr. GRAMM

Mr. GRAMM. Mr. President, this is a very complicated issue. I am opposed to the amendment. There was a dispute about whether an agreement had been reached. I think you can read the language and argue it one way or the other, but the Senator from New York thought he had an agreement. And if he thought he had an agreement, I am willing to defer to it. Here is the whole argument in a nutshell. The amendment would affect insurance companies, mortgage companies, securities companies. It is a change in current law. Here is the whole issue. Currently, if I have a mortgage, or if I am a customer of a company, and the company holds an asset as a result of my doing business with them, when bankruptcy occurs and that company goes out of business-- declares bankruptcy--my ability to file a claim against those assets is severed. Why is that the case? It is severed because at that point the people who are creditors of the company that has gone bankrupt have first claim against its assets. If the amendment of Senator Schumer is adopted, well-intended as it is--and I am sure we will have dire examples of why it would be a good thing in some very limited cases--what it will really mean is that if I have a mortgage with a company that goes bankrupt, under current law the creditors of that company can sell that mortgage to try to pay off their debt. Under the Schumer amendment, at that point, never having raised any complaint whatsoever, I would have the right to come in and say: I believe there was something wrong. I never raised the point before, but now that the company has gone bankrupt, I want to claim that there is a problem with that loan and whoever bought the loan should carry the problem with them. Here is the problem in a nutshell: This will destroy the secondary market for the assets of bankrupt companies. Now, who will suffer? Senator Schumer is going to say, maybe these people are crooks. But they are not going to suffer. They went bankrupt. The people who are going to suffer are the creditors who won't be able to sell the assets of the company because there will be a potential cloud against those assets. This is a perfect case in point where, to correct a little wrong, you create a great big wrong that hurts ten thousand times as many people. The reason we have bankruptcy laws is that the first claim against assets goes to creditors, not people who may have real or imagined or made-up grievances against the company. Surely in the midst of bankruptcy law in a country where we have a sanctity of contracts and where creditors have first claim, we are not going to create a situation where we taint the assets of a bankrupt company so that the people to whom the company owes money will end up not being able to get their money. That is the problem in a nutshell. I am not saying there may not be unscrupulous lenders. The point is, if you listen to Senator Schumer, he is, essentially, penalizing not on the unscrupulous party, but the people who are owed money. What we would do if this amendment passed is we would literally cloud the title and the marketability of every financial asset of every financial company in America. I hope this amendment will not be adopted. If it is adopted, I am determined that it not become law. I urge my colleagues to look at this amendment and keep in mind that bankruptcy law is primarily aimed at protecting creditors. Destroying the marketability of financial assets by creating the potential to raise new claims after the bankruptcy is something that cannot be in the public interest. It does nothing to hurt the bankrupt company. If we want to strengthen laws to put people in jail longer for bad lending practices, that is one thing. To punish creditors who have had nothing to do with this issue is fundamentally wrong. I yield the floor.

Mr. GRAMM. I will get recognized on my own.

Mr. GRAMM. Mr. President, first, I just came into this discussion. I've had a lot of people speaking on my behalf, and I greatly appreciate it, but I am even more appreciative of the right to speak for myself. I never made any agreement with regard to this amendment. One of my predecessors, Lyndon Johnson, used to say, ``I resent a deal I am not a party to.'' Having said that, when I read Senator Grassley's comments in full, I do not see the deal that our dear colleague from New York sees. Senator Grassley says on March 8, on page S. 2032, ``The point is we can assure the Senator from New York the yeas and nays on his amendment. We can't assure the Senator from New York when we are going to vote on the amendment.'' Reasonable men looking at the same facts are prone to disagree, as Thomas Jefferson said. But it looks to me as if this is a commitment to have the yeas and nays on having a rollcall vote. I don't see any commitment about ending debate on the amendment in advance. Having said that, let me say what I want to say. No. 1, I will object to a time limit on any amendment within the jurisdiction of the Banking Committee from this point forward. We have all had a good time. We have debated a lot of amendments, many of which were of dubious merit and no relevance whatsoever to the underlying bill. But we have reached the point now where you are either for the bankruptcy bill or you are against it. I am for it. And I think we need to get on with our job. Cloture has been filed. We are going to vote on that tomorrow. What I am willing to do is sit down with the Senator from New York and his staff, if we can do that, and try to figure out exactly what it is he is trying to do, get an opportunity to raise concerns I have, and then basically make a decision as to whether we can move forward with an amendment or substitute. But in terms of reaching a resolution, the best use of our time would be to sit down for a few minutes with our staff and see if we can potentially work something out. I would like to propose that to my colleague from New York. Let me also make clear, it would make me happy to have no more amendments. I don't understand why we are continuing to have all these votes. If the Senator wants to hold the Senate up and not allow votes, that doesn't break my heart. But that is up to the Senator from New York. What I would like to do is see if something can be worked out and for the two of us and our staff to sit down and see if something can be worked out. Since there is confusion about what Senator Grassley meant, I don't have any doubt that the Senator from New York reads it the way he is saying it is written. I read it the other way. The point is, perhaps something can be worked out. However he wants to proceed, I think our time would be well spent to take about 10 minutes and sit down and talk to the amendment. With that, let me suggest the absence of a quorum.