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From: Herzog, Laura (Corker) Sent: Thursday, July 30, 2009 12:23 PM To: Herzog, Laura (Corker) Subject: **Corker, Warner Introduce Bill Giving FDIC Authority to Wind Down Bank Holding Companies**

FOR IMMEDIATE RELEASE: Lefler Herzog (Corker) 202-224-3467 July 30, 2009 Hall (Warner) 202-224-2425

Laura Kevin

Corker, Warner Introduce Bill Giving FDIC Authority to Wind Down Bank Holding Companies Senators say this is an important interim step toward addressing broader regulatory reform

WASHINGTON U.S. Senators Bob Corker, R-Tenn., and Mark R. Warner, D-Va., today introduced legislation giving the FDIC authority to resolve, or wind down, bank holding companies, an important interim step toward addressing broader regulatory reform. The senators, both members of the Senate Banking Committee, say the FDIC needs this additional authority to fill a glaring regulatory gap that has come to light over the last 18 months.

The Resolution Reform Act of 2009, S. 1540, would extend the FDICs authority, putting a bank holding company into the hands of the FDIC if the bank (insured depository institution) within the holding company structure needs to be resolved. The bank holding company would be moved into receivership, the pieces would be sold off, and the company would no longer exist.

The FDIC has the authority to wind down a failing bank, but not a failing bank holding company, which has exacerbated the moral hazard problem weve seen over the past 18 months. Its important that we take our time with regulatory reform, but in the interim we need the ability to resolve bank holding companies in an orderly way, said Corker. At a hearing last week I asked FDIC Chairman Sheila Bair if having a resolution mechanism in place to deal with the problems with some of our too-big-to-fail financial institutions would have reduced the risk to our system. She said absolutely it would have created better market discipline across the system and reduced market uncertainty about who would be next, who would win, and who would lose. I think its important to create this mechanism and provide clarity so that as we approach broader regulatory reform we dont have the moral hazard of a too big to fail mentality.

Chairman Dodd, Senator Shelby and members of the Banking Committee are working in good faith on reforms that attempt to fix what is broken in our hodge-podge system of financial regulation, and this legislation is an interim measure that will patch a problem with the existing regulatory structure, Senator Warner said. While the FDIC has the authority to resolve failing banks, it does not have the authority to resolve bank holding companies, and that creates complications which places deposit holders and the deposit insurance fund at greater risk. Senator Corker and I believe that is a risk we cannot afford and should not allow to continue.

The bill does not address systemic resolution but does drive a stake in the ground for the FDIC to serve as receiver, eliminating the practice of conservatorship or propping up of failed financial institutions. Corker and Warner believe this is significant for creating market certainty.

The Resolution Reform Act of 2009 is the second piece of legislation jointly sponsored by Corker and Warner. The senators also have introduced the TARP Recipient Ownership Trust Act of 2009 designed to quickly relinquish the federal governments ownership stake in private companies such as AIG, General Motors and Citibank in a responsible, orderly manner that will protect and maximize the taxpayers investment. A copy of the Resolution Reform Act of 2009, S. 1540, is attached. ###

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111TH CONGRESS 1ST SESSION

S.

To provide for enhanced authority of the Federal Deposit Insurance Corporation to act as receiver for certain affiliates of depository institutions, and for other purposes.

IN THE SENATE OF THE UNITED STATES

Mr. CORKER (for himself and Mr. WARNER) introduced the following bill; which was read twice and referred to the Committee on

A BILL
To provide for enhanced authority of the Federal Deposit Insurance Corporation to act as receiver for certain affiliates of depository institutions, and for other purposes. 1 Be it enacted by the Senate and House of Representa-

2 tives of the United States of America in Congress assembled, 3 4

SECTION 1. SHORT TITLE.

This Act may be cited as the Resolution Reform Act

5 of 2009. 6 7 8 9
SEC. 2. PURPOSES.

The purposes of this Act are (1) to allow the Federal Deposit Insurance Corporation (in this Act referred to as the Corpora-

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2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 tion) to resolve the holding companies, affiliates, and subsidiaries of failed or failing insured depository institutions, consistent with the statutory mission of the Corporation, recognizing that depository institution holding companies serve as a source of strength for their subsidiary institutions, and that their affiliates and subsidiaries may provide critical services for such institutions; and (2) to provide a clear and cohesive set of rules to address the increasingly complex and interreliant business structures in which insured depository institutions operate in order to promote efficient and economical resolution.
SEC. 3. DEFINITIONS.

For purposes of this Act, the following definitions

16 shall apply: 17 18 19 20 21 22 23 24 25 (1) AFFILIATE.The term affiliate has the same meaning as in section 2(k) of the Bank Holding Company Act of 1956. (2) BRIDGE
DEPOSITORY INSTITUTION HOLD-

ING COMPANY.The

term bridge depository insti-

tution holding company means a new depository institution holding company organized by the Corporation pursuant to section 53(b) of the Federal Deposit Insurance Act.

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3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (3) CORPORATION.The terms Corporation and Board mean the Federal Deposit Insurance Corporation and the Board of Directors thereof, respectively. (4) COVERED
AFFILIATE OR SUBSIDIARY.The

term covered affiliate or subsidiary means any affiliate or subsidiary of a depository institution holding company, or any subsidiary of an insured depository institution that is a subsidiary of that depository institution holding company, as to which the Corporation is appointed receiver. (5) COVERED
DEPOSITORY INSTITUTION HOLD-

ING COMPANY.The

term covered depository insti-

tution holding company means a depository institution holding company with one or more affiliated or subsidiary insured depository institutions for which grounds exist to appoint a receiver pursuant to section 11(c) of the Federal Deposit Insurance Act. (6) FOREIGN.The term foreign means any country other than the United States and includes any territory, dependency, or possession of any country other than the United States. (7) INSURED
DEPOSITORY INSTITUTION.The

term insured depository institution has the same

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4 1 2 3 4 5 meaning as section 3(c)(2) of the Federal Deposit Insurance Act.

SEC. 4. HOLDING COMPANY RESOLUTION AMENDMENTS TO THE FEDERAL DEPOSIT INSURANCE ACT.

The Federal Deposit Insurance Act (12 U.S.C. 1811

6 et seq.) is amended by adding at the end the following: 7 8 9 10

SEC. 51. RESOLUTION OF COVERED DEPOSITORY INSTITUTION HOLDING COMPANIES, AFFILIATES,

AND SUBSIDIARIES.

(a) IN GENERAL.Notwithstanding any other pro-

11 vision of Federal or State law, except section 52(c), it shall 12 be the responsibility of the Corporation to resolve deposi13 tory institution holding companies of failed or failing in14 sured depository institutions and the affiliates and sub15 sidiaries of a depository institution holding company, in16 cluding any subsidiary of an insured depository institution 17 that is a subsidiary of the depository institution holding 18 company, using the powers and authorities conferred upon 19 it by this Act. 20 (b) DEFINITIONS.For purposes of this section and

21 sections 52 and 53, the following definitions shall apply: 22 23 24 (1) BRIDGE
DEPOSITORY INSTITUTION HOLD-

ING COMPANY.The

term bridge depository institu-

tion holding company means a new depository insti-

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5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 tution holding company organized by the Corporation pursuant to section 53(b). (2) COVERED
AFFILIATE OR SUBSIDIARY.

The term covered affiliate or subsidiary means any affiliate or subsidiary of a depository institution holding company, or any subsidiary of an insured depository institution that is a subsidiary of that depository institution holding company, as to which the Corporation is appointed receiver under section 52. (3) COVERED
DEPOSITORY INSTITUTION

HOLDING COMPANY.The

term covered depository

institution holding company means a depository institution holding company with one or more affiliated or subsidiary insured depository institutions for which grounds exist to appoint a receiver pursuant to section 11(c). (4) FUNCTIONALLY
OR SUBSIDIARY.The REGULATED AFFILIATE

term functionally regulated

affiliate or subsidiary means any company (A) that is not a depository institution holding company or a depository institution; and (B) that is

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6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (i) a broker or dealer that is registered under the Securities Exchange Act of 1934; (ii) a registered investment adviser, properly registered by or on behalf of either the Securities and Exchange Commission in accordance with the Investment Advisers Act of 1940, or any State, with respect to the investment advisory activities of such investment adviser and activities incidental to such investment advisory activities; (iii) an investment company that is registered under the Investment Company Act of 1940; (iv) an insurance company that is subject to supervision by a State insurance regulator, with respect to the insurance activities of the insurance company and activities incidental to such insurance activities; or (v) an entity that is subject to regulation by the Commodity Futures Trading Commission, with respect to the commod-

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7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (5) ities activities of such entity and activities incidental to such commodities activities. FUNCTIONAL
REGULATOR.The

term

functional regulator means the Federal or State regulator responsible for regulating the types of activities engaged in by the depository institution holding company, its subsidiary institutions, or other affiliates and subsidiaries. The functional regulators are (A) the Securities and Exchange Commission, if the depository institution holding company, any subsidiary institution, or other affiliate thereof, is a broker or dealer registered with the Commission under section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b)) in conjunction with the authorities granted to the Securities Investor Protection Corporation, as created by the Securities Investor Protection Act in resolution of brokers or dealers; (B) the Commodity Futures Trading Commission, if the depository institution holding company, its subsidiary institution, or other affiliate thereof, is a futures commission merchant or a commodity pool operator registered

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8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 with the Commodity Futures Trading Commission under the Commodity Exchange Act; and (C) a State insurance commission or other board or authority, if the depository institution holding company, or an affiliate or subsidiary thereof, is an insurance company.
SEC. 52. APPOINTMENT OF THE CORPORATION AS RECEIVER.

(a) DEPOSITORY INSTITUTION HOLDING COMPANIES.

(1) IN

GENERAL.Notwithstanding

any other

provision of Federal law, the law of any State, or the constitution of any State, and subject to subsection (c), the Corporation shall accept appointment, and shall act as the receiver of a covered depository institution holding company upon such appointment, in the manner provided in paragraph (2) or (3), if the Corporation determines, in its sole discretion, that such appointment will reduce the cost to the Deposit Insurance Fund, and that grounds specified in subsection (f) exist. If the Corporation determines that such appointment will not reduce the cost to the Deposit Insurance Fund, the Corporation may decline the appointment, as provided in subsection (c).

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9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (2) APPOINTMENT
BY THE APPROPRIATE FED-

ERAL BANKING AGENCY.Whenever

the appropriate

Federal banking agency appoints a receiver for a depository institution holding company, the Federal banking agency shall tender the appointment to the Corporation, and the Corporation shall accept such appointment, unless the Corporation declines the appointment, as provided in subsection (c). (3) APPOINTMENT
OF THE CORPORATION BY

THE CORPORATION.The

Board of Directors may

appoint the Corporation as receiver of a depository institution holding company, after consultation with the appropriate Federal banking agency, if the Board of Directors determines that, notwithstanding the existence of grounds specified in subsection (f), the appropriate Federal banking agency having supervision of a covered depository institution holding company has declined to appoint the Corporation as receiver. (4) FUNCTIONALLY
REGULATED DEPOSITORY

INSTITUTION HOLDING COMPANIES.When

the ap-

propriate Federal banking agency appoints the Corporation as receiver of a covered depository institution holding company, or the Board of Directors appoints the Corporation as receiver of a covered de-

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10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 pository institution holding company, the appropriate Federal banking agency or the Corporation shall consult with the covered depository institution holding companys functional regulator, if any. (b) AFFILIATES AND SUBSIDIARIES. (1) IN
GENERAL.Notwithstanding

any other

provision of Federal law, the law of any State, or the constitution of any State, and subject to paragraph (2) and subsection (c), in any case in which the Corporation is appointed under this section as receiver for a depository institution holding company, the Corporation may appoint itself as the receiver of any affiliate or subsidiary of the insured depository institution or depository institution holding company that is incorporated or organized under the laws of any State, if the Corporation determines that such action would facilitate the orderly resolution of the insured depository institution or depository institution holding company, and is consistent with the purposes of this Act. (2) FUNCTIONALLY
REGULATED SUBSIDI-

ARIES.The

Corporation shall consult with the ap-

propriate Federal or State functional regulator when the Corporation appoints itself as the receiver of any functionally regulated affiliate or subsidiary.

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11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
TION

(c) BANKRUPTCY OPTION.

OR

STATE INSURANCE RESOLU-

(1) BANKRUPTCY
APPOINTMENT.The

GROUNDS FOR DECLINING

Corporation may decline to ac-

cept appointment for a covered depository institution holding company, when, in its sole discretion, the Corporation determines that the resolution of that holding company would be better accomplished under title 11, of the United States Code, or under applicable State insurance law. (2) RULEMAKING
REQUIRED.The

Corpora-

tion shall, not later than 180 days after the date of enactment of this section, adopt regulations that establish criteria pursuant to which the Corporation will make the determination described in paragraph (1). (d) SEPARATE ENTITIES. (1) IN
GENERAL.Subject

to paragraph (2),

each separate legal entity for which the Corporation is appointed receiver shall constitute a separate receivership. (2) APPLICABILITY.Paragraph (1) shall not apply to any insured depository institution subsidiary for which the Corporation has appointed itself as receiver.

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12 1 (e) CORPORATION NOT SUBJECT

TO

ANY OTHER

2 AGENCY.When acting as the receiver pursuant to an ap3 pointment described in subsection (a) or (b), the Corpora4 tion shall not be subject to the direction or supervision 5 of any other agency or department of the United States 6 or any State in the exercise of its rights, powers, and privi7 leges. 8 (f) GROUNDS FOR APPOINTMENT.The grounds for

9 appointing the Corporation as receiver of a depository in10 stitution holding company, affiliate, or subsidiary are that 11 one or more grounds exist under section 11(c) to appoint 12 a receiver for one or more affiliated insured depository in13 stitutions. 14 15 (g) TERMINATION
TIONS.The AND

EXCLUSION

OF

OTHER AC-

appointment of the Corporation as receiver

16 for a depository institution holding company or an insured 17 depository institution that is an affiliate or subsidiary of 18 a depository institution holding company shall imme19 diately, and by operation of law, terminate any case com20 menced with respect to the depository institution holding 21 company or any affiliate or subsidiary under title 11, 22 United States Code, or any proceeding under any State 23 insolvency law with respect to the depository institution 24 holding company or affiliate or subsidiary. No such case 25 or proceeding may be commenced with respect to the de-

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13 1 pository institution holding company or any affiliate or 2 subsidiary of the insured depository institution at any time 3 while the Corporation acts as receiver of the depository 4 institution holding company or any affiliate or subsidiary, 5 without the written agreement of the Corporation. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (h) JUDICIAL REVIEW. (1) IN
GENERAL.If

the Corporation is ap-

pointed (including the appointment of the Corporation by itself) as receiver of a depository institution holding company under subsection (a), the depository institution holding company may, not later than 30 days thereafter, bring an action in the United States district court for the judicial district in which the home office of such depository institution holding company is located, or in the United States District Court for the District of Columbia, for an order requiring the Corporation to be removed as the receiver (regardless of how such appointment was made), and the court shall, upon the merits, dismiss such action or direct the Corporation to be removed as the receiver. (2) OTHER
APPOINTMENT.If

the Corpora-

tion appoints itself as receiver of any affiliate or subsidiary of the insured depository institution or depository institution holding company under sub-

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14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 section (b), the affiliate or subsidiary of the insured depository institution or depository institution holding company may, not later than 30 days thereafter, bring an action in the United States district court for the judicial district in which the home office of such any affiliate or subsidiary of the insured depository institution or depository institution holding company is located, or in the United States District Court for the District of Columbia, for an order requiring the Corporation to be removed as the receiver, and the court shall, upon the merits, dismiss such action or direct the Corporation to be removed as the receiver.
SEC. 53. POWERS AND DUTIES OF CORPORATION AS RECEIVER.

(a) RULEMAKING AUTHORITY

OF

CORPORATION.

17 The Corporation may prescribe such regulations as the 18 Corporation determines appropriate regarding the orderly 19 resolution and conduct of receiverships of covered deposi20 tory institution holding companies or any affiliate or sub21 sidiary, in accordance with section 52. 22 (b) RECEIVERSHIP, BACK-UP EXAMINATION,
AND

23 ENFORCEMENT POWERS.Except as provided in sub24 sections (c) and (e), the Corporation shall have the same 25 powers and rights to carry out its duties with respect to

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15 1 depository institution holding companies, or affiliates and 2 subsidiaries, as the Corporation has under sections 8(t), 3 10(b), 11, 12, 13(d), 13(e), 15, and 38, with adaptations 4 made, in the sole discretion of the Corporation, that are 5 appropriate to the differences in form and function among 6 depository institution holding companies, insured deposi7 tory institutions, and their affiliates and subsidiaries. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (c) AUTHORITY TO OBTAIN CREDIT. (1) IN
GENERAL.A

bridge depository institu-

tion holding company with respect to which the Corporation is the receiver may obtain unsecured credit and issue unsecured debt. (2) INABILITY
TO OBTAIN CREDIT.If

bridge depository institution holding company is unable to obtain unsecured credit or issue unsecured debt, the Corporation may authorize the obtaining of credit or the issuance of debt by the bridge depository holding company (A) with priority over any or all of the obligations of the bridge depository holding company; (B) secured by a lien on property of the bridge depository holding company that is not otherwise subject to a lien; or

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16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 (C) secured by a junior lien on property of the bridge depository holding company that is subject to a lien. (3) LIMITATION.The Corporation may authorize the obtaining of credit or the issuance of debt by a bridge depository holding company that is secured by a senior or equal lien on property of the bridge depository holding company that is subject to a lien, only if (A) the bridge depository holding company is unable to otherwise obtain such credit or issue such debt; and (B) there is adequate protection of the interest of the holder of the lien on the property with respect to which such senior or equal lien is proposed to be granted. (d) DISPOSITION
TUTION OF

CERTAIN DEPOSITORY INSTIAND

HOLDING COMPANIES, AFFILIATES,

SUB-

SIDIARIES.Notwithstanding

any other provision of law

20 (other than a conflicting provision of this Act), the Cor21 poration, in connection with the resolution of any insured 22 depository institution with respect to which the Corpora23 tion has been appointed as receiver, shall 24 25 (1) in the case of any depository institution holding company, or a covered affiliate or subsidiary

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17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 for which the Corporation is appointed receiver, that is a member of the Securities Investor Protection Corporation (in this section referred to as SIPC), coordinate with SIPC in the liquidation, if any, of the company, to facilitate the orderly and timely payment of claims under the Securities Investor Protection Act; and (2) in the case of any other depository institution holding company, or covered affiliate or subsidiary, that is functionally regulated, coordinate with the appropriate Federal or State functional regulator in the disposition of the company, to facilitate the orderly and timely payment of claims under applicable guaranty plans, including State insurance guaranty plans. (e) PRIORITY
OF

EXPENSES

AND

UNSECURED

17 CLAIMS. 18 19 20 21 22 23 24 25 (1) IN
GENERAL.Allowed

claims (other than

secured claims to the extent of any such security) against a covered depository institution holding company or any covered affiliate or subsidiary that are proven to the satisfaction of the receiver for such covered depository institution holding company, affiliate, or subsidiary shall have priority in the following order:

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18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (A) Administrative expenses of the receiver. (B) Any obligation of the covered depository institution holding company, or covered affiliate or subsidiary, to the Corporation. (C) Any general or senior liability of the covered depository institution holding company, or covered affiliate or subsidiary (which is not a liability described in subparagraph (D) or (E)). (D) Any obligation subordinated to general creditors which is not an obligation described in subparagraph (E). (E) Any obligation to shareholders, members, general partners, limited partners, or other persons with interests in the equity of the covered depository institution holding company, or covered affiliate or subsidiary, arising as a result of their status as shareholders, members, general partners, limited partners, or other persons with interests in the equity of the covered depository institution holding company, or covered affiliate or subsidiary. (2) CREDITORS
SIMILARLY SITUATED.All

claimants of a covered depository institution holding

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19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 company, or covered affiliate or subsidiary, that are similarly situated under paragraph (1) shall be treated in a similar manner, except that the receiver may take any action (including making payments) that does not comply with this subsection, if (A) the Corporation determines that such action is necessary to maximize the value of the assets of the covered depository institution holding company, or covered affiliate or subsidiary, to maximize the present value return from the sale or other disposition of the assets of the covered depository institution holding company, or to minimize the amount of any loss realized upon the sale or other disposition of the assets of the covered depository holding company, or covered affiliate or subsidiary; and (B) all claimants that are similarly situated under paragraph (1) receive not less than the amount provided in section 11(i)(2). (f) RULE
OF

CONSTRUCTION.Nothing in the Res-

21 olution Reform Act is intended to supersede the adminis22 tration of claims under applicable State laws governing in23 surance guaranty funds or the Securities Investor Protec24 tion Act of 1970.

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20 1 (g) RULEMAKING.The Federal Deposit Insurance

2 Corporation shall conduct a rulemaking to be completed 3 within 180 days of enactment that will lay out specific 4 guidelines and priority of all secured and unsecured claims 5 as well as where the resources to satisfy those that will 6 be satisfied will be derived.. 7 8 9 10
SEC. 5. OTHER SPECIFIC MODIFICATIONS TO FEDERAL DEPOSIT INSURANCE CORPORATION AUTHORITY.

(a) RECORDKEEPING.Section 11(e)(8)(H) of the

11 Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)(H)) 12 is amended to read as follows: 13 14 15 16 17 18 19 20 21 22 23 (b) (H) RECORDKEEPING.The Corporation, after consultation with the appropriate Federal banking agencies, may prescribe regulations requiring that any insured depository institution or depository institution holding company maintain such records with respect to qualified financial contracts (including market valuations) as the Corporation determines to be necessary or appropriate to enable it to exercise its rights and fulfill its obligations under this Act.. GOLDEN PARACHUTE PAYMENTS.Section

24 18(k)(4)(A)(ii)(III) of the Federal Deposit Insurance Act 25 (12 U.S.C. 1828(k)(4)(A)(ii)(III)) is amended

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21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) by striking institutions; (2) by inserting or covered company after insured depository institution; and (3) by inserting before the semicolon: , except that the Corporation may define and make a determination of troubled condition for any covered company that does not have an appropriate Federal banking agency.
SEC. 6. CROSS-BORDER CLAIMS.

(a) PURPOSE AND SCOPE. (1) PURPOSE.The purpose of this section is to provide effective mechanisms for dealing with cases of cross-border insolvency, with the objectives of (A) facilitating cooperation between the Corporation, acting in its capacity as receiver of a covered depository institution holding company or covered affiliate or subsidiary of an insured depository institution and the courts and other authorities of foreign countries involved in cross-border insolvency cases; and (B) facilitating the orderly resolution of insured depository institutions, covered depository institution holding companies, or covered affiliates or subsidiaries, in receivership.

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22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 (2) SCOPE.This section applies in any case in which (A) the Corporation seeks assistance from a foreign court, foreign representative, or foreign regulatory or supervisory authority in connection with the resolution of a depository institution holding company, or covered affiliate or subsidiary thereof; (B) the assistance of the Corporation is sought by a foreign court, foreign representative, or foreign regulatory or supervisory authority in connection with a foreign proceeding or with a resolution under this Act; or (C) a foreign proceeding and a case under this Act with respect to the same covered depository institution holding company, or covered affiliate or subsidiary, are pending concurrently. (b) COORDINATION
AND

COOPERATION.In regard

19 to matters of insolvency and insolvency proceedings, the 20 Corporation may 21 22 23 24 25 (1) cooperate and coordinate with foreign courts, foreign representatives, and foreign regulatory or supervisory authorities, either directly or through a designated representative, as the Corporation deems appropriate; and

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23 1 2 3 4 5 (2) communicate directly with, or to request information or assistance directly from, foreign courts, foreign representatives, and foreign regulatory or supervisory authorities. (c) CLAIMS
BY

FOREIGN REPRESENTATIVES.The

6 Corporation, in its capacity as receiver of a covered deposi7 tory institution holding company, or covered affiliate or 8 subsidiary, may allow a foreign administrator or rep9 resentative to file claims. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (d) COORDINATION OF PAYMENTS. (1) LIMITATION.Notwithstanding any other provision of Federal law, a creditor who has received payment with respect to a claim in a foreign insolvency proceeding may not receive a payment for the same claim brought in a United States insolvency proceeding under this Act against the same depository institution, depository institution holding company, or covered affiliate or subsidiary. (2) SUBROGATION.A claimant in an insolvency proceeding under this Act that has received payment on its claim shall agree to the subrogation of the Corporation, to the extent of such payment, to any claim or right of claim, arising from the same loss.

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24 1 (e) PUBLIC POLICY EXEMPTION.Nothing in this

2 section prevents the Corporation from refusing to take an 3 action governed by this section if the action would be con4 trary to the public policy of the United States or if it 5 would increase losses to the Deposit Insurance Fund. 6 7
SEC. 7. MISCELLANEOUS PROVISIONS.

(a) BANKRUPTCY CODE AMENDMENTS.Section

8 109(b)(2) of title 11, United States Code, is amended by 9 inserting before homestead association the following: 10 covered depository institution holding company and cov11 ered affiliate or subsidiary, as those terms are defined in 12 section 51(b) of the Federal Deposit Insurance Act (except 13 if the Federal Deposit Insurance Corporation exercises its 14 authority under section 52(c) of that Act),. 15 16 17 18 19 20 21 22 23 24 25 (2) and (B) by adding at the end the following: COVERED
DEPOSITORY INSTITUTION

(b) AUTHORITY TO APPOINT RECEIVER. (1) FEDERAL

RESERVE ACT.Section

11(o) of

the Federal Reserve Act (12 U.S.C. 248(o)) is amended (A) by striking The Board and inserting the following: (1) STATE
MEMBER BANKS.The

Board;

HOLDING COMPANIES.The

Board may appoint the

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25 1 2 3 4 5 6 7 8 9 10 11 12 13 Federal Deposit Insurance Corporation as receiver for a covered depository institution holding company (as those terms are defined in section 51(b) of the Federal Deposit Insurance Act) under section 52 of the Federal Deposit Insurance Act.. (2) HOME
OWNERS LOAN ACT.Section

10 of

the Home Owners Loan Act (12 U.S.C. 1467a) is amended (A) by redesignating subsection (t) as subsection (u); and (B) by inserting after subsection (s) the following: (t) APPOINTMENT
OF

FDIC

AS

RECEIVER.The

14 Director may appoint the Federal Deposit Insurance Cor15 poration as receiver for a covered depository institution 16 holding company (as those terms are defined in section 17 51(b) of the Federal Deposit Insurance Act) under section 18 52 of the Federal Deposit Insurance Act..

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FOR IMMEDIATE RELEASE: Laura Lefler Herzog (Corker) 202-224-3467 July 30, 2009 Kevin Hall (Warner) 202-224-2425

Corker, Warner Introduce Bill Giving FDIC Authority to Wind Down Bank Holding Companies
Senators say this is an important interim step toward addressing broader regulatory reform
WASHINGTON U.S. Senators Bob Corker, R-Tenn., and Mark R. Warner, D-Va., today introduced legislation giving the FDIC authority to resolve, or wind down, bank holding companies, an important interim step toward addressing broader regulatory reform. The senators, both members of the Senate Banking Committee, say the FDIC needs this additional authority to fill a glaring regulatory gap that has come to light over the last 18 months.

The Resolution Reform Act of 2009, S. 1540, would extend the FDICs authority, putting a bank holding company into the hands of the FDIC if the bank (insured depository institution) within the holding company structure needs to be resolved. The bank holding company would be moved into receivership, the pieces would be sold off, and the company would no longer exist. The FDIC has the authority to wind down a failing bank, but not a failing bank holding company, which has exacerbated the moral hazard problem weve seen over the past 18 months. Its important that we take our time with regulatory reform, but in the interim we need the ability to resolve bank holding companies in an orderly way, said Corker. At a hearing last week I asked FDIC Chairman Sheila Bair if having a resolution mechanism in place to deal with the problems with some of our too-big-to-fail financial institutions would have reduced the risk to our system. She said absolutely it would have created better market discipline across the system and reduced market uncertainty about who would be next, who would win, and who would lose. I think its important to create this mechanism and provide clarity so that as we approach broader regulatory reform we dont have the moral hazard of a too big to fail mentality. Chairman Dodd, Senator Shelby and members of the Banking Committee are working in good faith on reforms that attempt to fix what is broken in our hodge-podge system of financial regulation, and this legislation is an interim measure that will patch a problem with the existing regulatory structure, Senator Warner said. While the FDIC has the authority to resolve failing banks, it does not have the authority to resolve bank holding companies, and that creates complications which places deposit holders and the deposit insurance fund at greater risk. Senator Corker and I believe that is a risk we cannot afford and should not allow to continue. The bill does not address systemic resolution but does drive a stake in the ground for the FDIC to serve as receiver, eliminating the practice of conservatorship or propping up of failed financial institutions. Corker and Warner believe this is significant for creating market certainty. The Resolution Reform Act of 2009 is the second piece of legislation jointly sponsored by Corker and Warner. The senators also have introduced the TARP Recipient Ownership Trust Act of 2009 designed to quickly relinquish the federal governments ownership stake in private companies such as AIG, General Motors and Citibank in a responsible, orderly manner that will protect and maximize the taxpayers investment. A copy of the Resolution Reform Act of 2009, S. 1540, is attached. ###

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S.L.C.

111TH CONGRESS 1ST SESSION

S.

To provide for enhanced authority of the Federal Deposit Insurance Corporation to act as receiver for certain affiliates of depository institutions, and for other purposes.

IN THE SENATE OF THE UNITED STATES

Mr. CORKER (for himself and Mr. WARNER) introduced the following bill; which was read twice and referred to the Committee on

A BILL
To provide for enhanced authority of the Federal Deposit Insurance Corporation to act as receiver for certain affiliates of depository institutions, and for other purposes. 1 Be it enacted by the Senate and House of Representa-

2 tives of the United States of America in Congress assembled, 3 4

SECTION 1. SHORT TITLE.

This Act may be cited as the Resolution Reform Act

5 of 2009. 6 7 8 9
SEC. 2. PURPOSES.

The purposes of this Act are (1) to allow the Federal Deposit Insurance Corporation (in this Act referred to as the Corpora-

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2 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 tion) to resolve the holding companies, affiliates, and subsidiaries of failed or failing insured depository institutions, consistent with the statutory mission of the Corporation, recognizing that depository institution holding companies serve as a source of strength for their subsidiary institutions, and that their affiliates and subsidiaries may provide critical services for such institutions; and (2) to provide a clear and cohesive set of rules to address the increasingly complex and interreliant business structures in which insured depository institutions operate in order to promote efficient and economical resolution.
SEC. 3. DEFINITIONS.

For purposes of this Act, the following definitions

16 shall apply: 17 18 19 20 21 22 23 24 25 (1) AFFILIATE.The term affiliate has the same meaning as in section 2(k) of the Bank Holding Company Act of 1956. (2) BRIDGE
DEPOSITORY INSTITUTION HOLD-

ING COMPANY.The

term bridge depository insti-

tution holding company means a new depository institution holding company organized by the Corporation pursuant to section 53(b) of the Federal Deposit Insurance Act.

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3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (3) CORPORATION.The terms Corporation and Board mean the Federal Deposit Insurance Corporation and the Board of Directors thereof, respectively. (4) COVERED
AFFILIATE OR SUBSIDIARY.The

term covered affiliate or subsidiary means any affiliate or subsidiary of a depository institution holding company, or any subsidiary of an insured depository institution that is a subsidiary of that depository institution holding company, as to which the Corporation is appointed receiver. (5) COVERED
DEPOSITORY INSTITUTION HOLD-

ING COMPANY.The

term covered depository insti-

tution holding company means a depository institution holding company with one or more affiliated or subsidiary insured depository institutions for which grounds exist to appoint a receiver pursuant to section 11(c) of the Federal Deposit Insurance Act. (6) FOREIGN.The term foreign means any country other than the United States and includes any territory, dependency, or possession of any country other than the United States. (7) INSURED
DEPOSITORY INSTITUTION.The

term insured depository institution has the same

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4 1 2 3 4 5 meaning as section 3(c)(2) of the Federal Deposit Insurance Act.

SEC. 4. HOLDING COMPANY RESOLUTION AMENDMENTS TO THE FEDERAL DEPOSIT INSURANCE ACT.

The Federal Deposit Insurance Act (12 U.S.C. 1811

6 et seq.) is amended by adding at the end the following: 7 8 9 10

SEC. 51. RESOLUTION OF COVERED DEPOSITORY INSTITUTION HOLDING COMPANIES, AFFILIATES,

AND SUBSIDIARIES.

(a) IN GENERAL.Notwithstanding any other pro-

11 vision of Federal or State law, except section 52(c), it shall 12 be the responsibility of the Corporation to resolve deposi13 tory institution holding companies of failed or failing in14 sured depository institutions and the affiliates and sub15 sidiaries of a depository institution holding company, in16 cluding any subsidiary of an insured depository institution 17 that is a subsidiary of the depository institution holding 18 company, using the powers and authorities conferred upon 19 it by this Act. 20 (b) DEFINITIONS.For purposes of this section and

21 sections 52 and 53, the following definitions shall apply: 22 23 24 (1) BRIDGE
DEPOSITORY INSTITUTION HOLD-

ING COMPANY.The

term bridge depository institu-

tion holding company means a new depository insti-

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5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 tution holding company organized by the Corporation pursuant to section 53(b). (2) COVERED
AFFILIATE OR SUBSIDIARY.

The term covered affiliate or subsidiary means any affiliate or subsidiary of a depository institution holding company, or any subsidiary of an insured depository institution that is a subsidiary of that depository institution holding company, as to which the Corporation is appointed receiver under section 52. (3) COVERED
DEPOSITORY INSTITUTION

HOLDING COMPANY.The

term covered depository

institution holding company means a depository institution holding company with one or more affiliated or subsidiary insured depository institutions for which grounds exist to appoint a receiver pursuant to section 11(c). (4) FUNCTIONALLY
OR SUBSIDIARY.The REGULATED AFFILIATE

term functionally regulated

affiliate or subsidiary means any company (A) that is not a depository institution holding company or a depository institution; and (B) that is

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6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (i) a broker or dealer that is registered under the Securities Exchange Act of 1934; (ii) a registered investment adviser, properly registered by or on behalf of either the Securities and Exchange Commission in accordance with the Investment Advisers Act of 1940, or any State, with respect to the investment advisory activities of such investment adviser and activities incidental to such investment advisory activities; (iii) an investment company that is registered under the Investment Company Act of 1940; (iv) an insurance company that is subject to supervision by a State insurance regulator, with respect to the insurance activities of the insurance company and activities incidental to such insurance activities; or (v) an entity that is subject to regulation by the Commodity Futures Trading Commission, with respect to the commod-

AYO09A28

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7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (5) ities activities of such entity and activities incidental to such commodities activities. FUNCTIONAL
REGULATOR.The

term

functional regulator means the Federal or State regulator responsible for regulating the types of activities engaged in by the depository institution holding company, its subsidiary institutions, or other affiliates and subsidiaries. The functional regulators are (A) the Securities and Exchange Commission, if the depository institution holding company, any subsidiary institution, or other affiliate thereof, is a broker or dealer registered with the Commission under section 15(b) of the Securities Exchange Act of 1934 (15 U.S.C. 78o(b)) in conjunction with the authorities granted to the Securities Investor Protection Corporation, as created by the Securities Investor Protection Act in resolution of brokers or dealers; (B) the Commodity Futures Trading Commission, if the depository institution holding company, its subsidiary institution, or other affiliate thereof, is a futures commission merchant or a commodity pool operator registered

AYO09A28

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8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 with the Commodity Futures Trading Commission under the Commodity Exchange Act; and (C) a State insurance commission or other board or authority, if the depository institution holding company, or an affiliate or subsidiary thereof, is an insurance company.
SEC. 52. APPOINTMENT OF THE CORPORATION AS RECEIVER.

(a) DEPOSITORY INSTITUTION HOLDING COMPANIES.

(1) IN

GENERAL.Notwithstanding

any other

provision of Federal law, the law of any State, or the constitution of any State, and subject to subsection (c), the Corporation shall accept appointment, and shall act as the receiver of a covered depository institution holding company upon such appointment, in the manner provided in paragraph (2) or (3), if the Corporation determines, in its sole discretion, that such appointment will reduce the cost to the Deposit Insurance Fund, and that grounds specified in subsection (f) exist. If the Corporation determines that such appointment will not reduce the cost to the Deposit Insurance Fund, the Corporation may decline the appointment, as provided in subsection (c).

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9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (2) APPOINTMENT
BY THE APPROPRIATE FED-

ERAL BANKING AGENCY.Whenever

the appropriate

Federal banking agency appoints a receiver for a depository institution holding company, the Federal banking agency shall tender the appointment to the Corporation, and the Corporation shall accept such appointment, unless the Corporation declines the appointment, as provided in subsection (c). (3) APPOINTMENT
OF THE CORPORATION BY

THE CORPORATION.The

Board of Directors may

appoint the Corporation as receiver of a depository institution holding company, after consultation with the appropriate Federal banking agency, if the Board of Directors determines that, notwithstanding the existence of grounds specified in subsection (f), the appropriate Federal banking agency having supervision of a covered depository institution holding company has declined to appoint the Corporation as receiver. (4) FUNCTIONALLY
REGULATED DEPOSITORY

INSTITUTION HOLDING COMPANIES.When

the ap-

propriate Federal banking agency appoints the Corporation as receiver of a covered depository institution holding company, or the Board of Directors appoints the Corporation as receiver of a covered de-

AYO09A28

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10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 pository institution holding company, the appropriate Federal banking agency or the Corporation shall consult with the covered depository institution holding companys functional regulator, if any. (b) AFFILIATES AND SUBSIDIARIES. (1) IN
GENERAL.Notwithstanding

any other

provision of Federal law, the law of any State, or the constitution of any State, and subject to paragraph (2) and subsection (c), in any case in which the Corporation is appointed under this section as receiver for a depository institution holding company, the Corporation may appoint itself as the receiver of any affiliate or subsidiary of the insured depository institution or depository institution holding company that is incorporated or organized under the laws of any State, if the Corporation determines that such action would facilitate the orderly resolution of the insured depository institution or depository institution holding company, and is consistent with the purposes of this Act. (2) FUNCTIONALLY
REGULATED SUBSIDI-

ARIES.The

Corporation shall consult with the ap-

propriate Federal or State functional regulator when the Corporation appoints itself as the receiver of any functionally regulated affiliate or subsidiary.

AYO09A28

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11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
TION

(c) BANKRUPTCY OPTION.

OR

STATE INSURANCE RESOLU-

(1) BANKRUPTCY
APPOINTMENT.The

GROUNDS FOR DECLINING

Corporation may decline to ac-

cept appointment for a covered depository institution holding company, when, in its sole discretion, the Corporation determines that the resolution of that holding company would be better accomplished under title 11, of the United States Code, or under applicable State insurance law. (2) RULEMAKING
REQUIRED.The

Corpora-

tion shall, not later than 180 days after the date of enactment of this section, adopt regulations that establish criteria pursuant to which the Corporation will make the determination described in paragraph (1). (d) SEPARATE ENTITIES. (1) IN
GENERAL.Subject

to paragraph (2),

each separate legal entity for which the Corporation is appointed receiver shall constitute a separate receivership. (2) APPLICABILITY.Paragraph (1) shall not apply to any insured depository institution subsidiary for which the Corporation has appointed itself as receiver.

AYO09A28

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12 1 (e) CORPORATION NOT SUBJECT

TO

ANY OTHER

2 AGENCY.When acting as the receiver pursuant to an ap3 pointment described in subsection (a) or (b), the Corpora4 tion shall not be subject to the direction or supervision 5 of any other agency or department of the United States 6 or any State in the exercise of its rights, powers, and privi7 leges. 8 (f) GROUNDS FOR APPOINTMENT.The grounds for

9 appointing the Corporation as receiver of a depository in10 stitution holding company, affiliate, or subsidiary are that 11 one or more grounds exist under section 11(c) to appoint 12 a receiver for one or more affiliated insured depository in13 stitutions. 14 15 (g) TERMINATION
TIONS.The AND

EXCLUSION

OF

OTHER AC-

appointment of the Corporation as receiver

16 for a depository institution holding company or an insured 17 depository institution that is an affiliate or subsidiary of 18 a depository institution holding company shall imme19 diately, and by operation of law, terminate any case com20 menced with respect to the depository institution holding 21 company or any affiliate or subsidiary under title 11, 22 United States Code, or any proceeding under any State 23 insolvency law with respect to the depository institution 24 holding company or affiliate or subsidiary. No such case 25 or proceeding may be commenced with respect to the de-

AYO09A28

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13 1 pository institution holding company or any affiliate or 2 subsidiary of the insured depository institution at any time 3 while the Corporation acts as receiver of the depository 4 institution holding company or any affiliate or subsidiary, 5 without the written agreement of the Corporation. 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (h) JUDICIAL REVIEW. (1) IN
GENERAL.If

the Corporation is ap-

pointed (including the appointment of the Corporation by itself) as receiver of a depository institution holding company under subsection (a), the depository institution holding company may, not later than 30 days thereafter, bring an action in the United States district court for the judicial district in which the home office of such depository institution holding company is located, or in the United States District Court for the District of Columbia, for an order requiring the Corporation to be removed as the receiver (regardless of how such appointment was made), and the court shall, upon the merits, dismiss such action or direct the Corporation to be removed as the receiver. (2) OTHER
APPOINTMENT.If

the Corpora-

tion appoints itself as receiver of any affiliate or subsidiary of the insured depository institution or depository institution holding company under sub-

AYO09A28

S.L.C.

14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 section (b), the affiliate or subsidiary of the insured depository institution or depository institution holding company may, not later than 30 days thereafter, bring an action in the United States district court for the judicial district in which the home office of such any affiliate or subsidiary of the insured depository institution or depository institution holding company is located, or in the United States District Court for the District of Columbia, for an order requiring the Corporation to be removed as the receiver, and the court shall, upon the merits, dismiss such action or direct the Corporation to be removed as the receiver.
SEC. 53. POWERS AND DUTIES OF CORPORATION AS RECEIVER.

(a) RULEMAKING AUTHORITY

OF

CORPORATION.

17 The Corporation may prescribe such regulations as the 18 Corporation determines appropriate regarding the orderly 19 resolution and conduct of receiverships of covered deposi20 tory institution holding companies or any affiliate or sub21 sidiary, in accordance with section 52. 22 (b) RECEIVERSHIP, BACK-UP EXAMINATION,
AND

23 ENFORCEMENT POWERS.Except as provided in sub24 sections (c) and (e), the Corporation shall have the same 25 powers and rights to carry out its duties with respect to

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15 1 depository institution holding companies, or affiliates and 2 subsidiaries, as the Corporation has under sections 8(t), 3 10(b), 11, 12, 13(d), 13(e), 15, and 38, with adaptations 4 made, in the sole discretion of the Corporation, that are 5 appropriate to the differences in form and function among 6 depository institution holding companies, insured deposi7 tory institutions, and their affiliates and subsidiaries. 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (c) AUTHORITY TO OBTAIN CREDIT. (1) IN
GENERAL.A

bridge depository institu-

tion holding company with respect to which the Corporation is the receiver may obtain unsecured credit and issue unsecured debt. (2) INABILITY
TO OBTAIN CREDIT.If

bridge depository institution holding company is unable to obtain unsecured credit or issue unsecured debt, the Corporation may authorize the obtaining of credit or the issuance of debt by the bridge depository holding company (A) with priority over any or all of the obligations of the bridge depository holding company; (B) secured by a lien on property of the bridge depository holding company that is not otherwise subject to a lien; or

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16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 (C) secured by a junior lien on property of the bridge depository holding company that is subject to a lien. (3) LIMITATION.The Corporation may authorize the obtaining of credit or the issuance of debt by a bridge depository holding company that is secured by a senior or equal lien on property of the bridge depository holding company that is subject to a lien, only if (A) the bridge depository holding company is unable to otherwise obtain such credit or issue such debt; and (B) there is adequate protection of the interest of the holder of the lien on the property with respect to which such senior or equal lien is proposed to be granted. (d) DISPOSITION
TUTION OF

CERTAIN DEPOSITORY INSTIAND

HOLDING COMPANIES, AFFILIATES,

SUB-

SIDIARIES.Notwithstanding

any other provision of law

20 (other than a conflicting provision of this Act), the Cor21 poration, in connection with the resolution of any insured 22 depository institution with respect to which the Corpora23 tion has been appointed as receiver, shall 24 25 (1) in the case of any depository institution holding company, or a covered affiliate or subsidiary

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17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 for which the Corporation is appointed receiver, that is a member of the Securities Investor Protection Corporation (in this section referred to as SIPC), coordinate with SIPC in the liquidation, if any, of the company, to facilitate the orderly and timely payment of claims under the Securities Investor Protection Act; and (2) in the case of any other depository institution holding company, or covered affiliate or subsidiary, that is functionally regulated, coordinate with the appropriate Federal or State functional regulator in the disposition of the company, to facilitate the orderly and timely payment of claims under applicable guaranty plans, including State insurance guaranty plans. (e) PRIORITY
OF

EXPENSES

AND

UNSECURED

17 CLAIMS. 18 19 20 21 22 23 24 25 (1) IN
GENERAL.Allowed

claims (other than

secured claims to the extent of any such security) against a covered depository institution holding company or any covered affiliate or subsidiary that are proven to the satisfaction of the receiver for such covered depository institution holding company, affiliate, or subsidiary shall have priority in the following order:

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18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (A) Administrative expenses of the receiver. (B) Any obligation of the covered depository institution holding company, or covered affiliate or subsidiary, to the Corporation. (C) Any general or senior liability of the covered depository institution holding company, or covered affiliate or subsidiary (which is not a liability described in subparagraph (D) or (E)). (D) Any obligation subordinated to general creditors which is not an obligation described in subparagraph (E). (E) Any obligation to shareholders, members, general partners, limited partners, or other persons with interests in the equity of the covered depository institution holding company, or covered affiliate or subsidiary, arising as a result of their status as shareholders, members, general partners, limited partners, or other persons with interests in the equity of the covered depository institution holding company, or covered affiliate or subsidiary. (2) CREDITORS
SIMILARLY SITUATED.All

claimants of a covered depository institution holding

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19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 company, or covered affiliate or subsidiary, that are similarly situated under paragraph (1) shall be treated in a similar manner, except that the receiver may take any action (including making payments) that does not comply with this subsection, if (A) the Corporation determines that such action is necessary to maximize the value of the assets of the covered depository institution holding company, or covered affiliate or subsidiary, to maximize the present value return from the sale or other disposition of the assets of the covered depository institution holding company, or to minimize the amount of any loss realized upon the sale or other disposition of the assets of the covered depository holding company, or covered affiliate or subsidiary; and (B) all claimants that are similarly situated under paragraph (1) receive not less than the amount provided in section 11(i)(2). (f) RULE
OF

CONSTRUCTION.Nothing in the Res-

21 olution Reform Act is intended to supersede the adminis22 tration of claims under applicable State laws governing in23 surance guaranty funds or the Securities Investor Protec24 tion Act of 1970.

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20 1 (g) RULEMAKING.The Federal Deposit Insurance

2 Corporation shall conduct a rulemaking to be completed 3 within 180 days of enactment that will lay out specific 4 guidelines and priority of all secured and unsecured claims 5 as well as where the resources to satisfy those that will 6 be satisfied will be derived.. 7 8 9 10
SEC. 5. OTHER SPECIFIC MODIFICATIONS TO FEDERAL DEPOSIT INSURANCE CORPORATION AUTHORITY.

(a) RECORDKEEPING.Section 11(e)(8)(H) of the

11 Federal Deposit Insurance Act (12 U.S.C. 1821(e)(8)(H)) 12 is amended to read as follows: 13 14 15 16 17 18 19 20 21 22 23 (b) (H) RECORDKEEPING.The Corporation, after consultation with the appropriate Federal banking agencies, may prescribe regulations requiring that any insured depository institution or depository institution holding company maintain such records with respect to qualified financial contracts (including market valuations) as the Corporation determines to be necessary or appropriate to enable it to exercise its rights and fulfill its obligations under this Act.. GOLDEN PARACHUTE PAYMENTS.Section

24 18(k)(4)(A)(ii)(III) of the Federal Deposit Insurance Act 25 (12 U.S.C. 1828(k)(4)(A)(ii)(III)) is amended

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S.L.C.

21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) by striking institutions; (2) by inserting or covered company after insured depository institution; and (3) by inserting before the semicolon: , except that the Corporation may define and make a determination of troubled condition for any covered company that does not have an appropriate Federal banking agency.
SEC. 6. CROSS-BORDER CLAIMS.

(a) PURPOSE AND SCOPE. (1) PURPOSE.The purpose of this section is to provide effective mechanisms for dealing with cases of cross-border insolvency, with the objectives of (A) facilitating cooperation between the Corporation, acting in its capacity as receiver of a covered depository institution holding company or covered affiliate or subsidiary of an insured depository institution and the courts and other authorities of foreign countries involved in cross-border insolvency cases; and (B) facilitating the orderly resolution of insured depository institutions, covered depository institution holding companies, or covered affiliates or subsidiaries, in receivership.

AYO09A28

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22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 (2) SCOPE.This section applies in any case in which (A) the Corporation seeks assistance from a foreign court, foreign representative, or foreign regulatory or supervisory authority in connection with the resolution of a depository institution holding company, or covered affiliate or subsidiary thereof; (B) the assistance of the Corporation is sought by a foreign court, foreign representative, or foreign regulatory or supervisory authority in connection with a foreign proceeding or with a resolution under this Act; or (C) a foreign proceeding and a case under this Act with respect to the same covered depository institution holding company, or covered affiliate or subsidiary, are pending concurrently. (b) COORDINATION
AND

COOPERATION.In regard

19 to matters of insolvency and insolvency proceedings, the 20 Corporation may 21 22 23 24 25 (1) cooperate and coordinate with foreign courts, foreign representatives, and foreign regulatory or supervisory authorities, either directly or through a designated representative, as the Corporation deems appropriate; and

AYO09A28

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23 1 2 3 4 5 (2) communicate directly with, or to request information or assistance directly from, foreign courts, foreign representatives, and foreign regulatory or supervisory authorities. (c) CLAIMS
BY

FOREIGN REPRESENTATIVES.The

6 Corporation, in its capacity as receiver of a covered deposi7 tory institution holding company, or covered affiliate or 8 subsidiary, may allow a foreign administrator or rep9 resentative to file claims. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (d) COORDINATION OF PAYMENTS. (1) LIMITATION.Notwithstanding any other provision of Federal law, a creditor who has received payment with respect to a claim in a foreign insolvency proceeding may not receive a payment for the same claim brought in a United States insolvency proceeding under this Act against the same depository institution, depository institution holding company, or covered affiliate or subsidiary. (2) SUBROGATION.A claimant in an insolvency proceeding under this Act that has received payment on its claim shall agree to the subrogation of the Corporation, to the extent of such payment, to any claim or right of claim, arising from the same loss.

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S.L.C.

24 1 (e) PUBLIC POLICY EXEMPTION.Nothing in this

2 section prevents the Corporation from refusing to take an 3 action governed by this section if the action would be con4 trary to the public policy of the United States or if it 5 would increase losses to the Deposit Insurance Fund. 6 7
SEC. 7. MISCELLANEOUS PROVISIONS.

(a) BANKRUPTCY CODE AMENDMENTS.Section

8 109(b)(2) of title 11, United States Code, is amended by 9 inserting before homestead association the following: 10 covered depository institution holding company and cov11 ered affiliate or subsidiary, as those terms are defined in 12 section 51(b) of the Federal Deposit Insurance Act (except 13 if the Federal Deposit Insurance Corporation exercises its 14 authority under section 52(c) of that Act),. 15 16 17 18 19 20 21 22 23 24 25 (2) and (B) by adding at the end the following: COVERED
DEPOSITORY INSTITUTION

(b) AUTHORITY TO APPOINT RECEIVER. (1) FEDERAL

RESERVE ACT.Section

11(o) of

the Federal Reserve Act (12 U.S.C. 248(o)) is amended (A) by striking The Board and inserting the following: (1) STATE
MEMBER BANKS.The

Board;

HOLDING COMPANIES.The

Board may appoint the

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S.L.C.

25 1 2 3 4 5 6 7 8 9 10 11 12 13 Federal Deposit Insurance Corporation as receiver for a covered depository institution holding company (as those terms are defined in section 51(b) of the Federal Deposit Insurance Act) under section 52 of the Federal Deposit Insurance Act.. (2) HOME
OWNERS LOAN ACT.Section

10 of

the Home Owners Loan Act (12 U.S.C. 1467a) is amended (A) by redesignating subsection (t) as subsection (u); and (B) by inserting after subsection (s) the following: (t) APPOINTMENT
OF

FDIC

AS

RECEIVER.The

14 Director may appoint the Federal Deposit Insurance Cor15 poration as receiver for a covered depository institution 16 holding company (as those terms are defined in section 17 51(b) of the Federal Deposit Insurance Act) under section 18 52 of the Federal Deposit Insurance Act..

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  30

September 9, 2009

WHAT THEY ARE SAYING: Financial Regulators Oppose Separating Consumer Protection From Safety and Soundness Regulation
NOTE: Fannie and Freddie are a prime example of the consequences of bifurcating consumer mandates and safety and soundness regulation. As Former FHFA Director James Lockhart states : "A separation of such responsibilities among GSE regulators helped cause their downfall. You can't really separate that. Some of the problems we have today may have been the result of excessive requirements on affordable housing goals. With better coordination, maybe that wouldn't have happened. We have a better understanding now of the safety and soundness related to mission goals. In retrospect, I would say they were too high and they kept accelerating and that did cause some problems.

Separating consumer protection examination and supervision from other supervisory efforts could weaken both and result in weakened financial institutions. -Chairman Sheila Bair We believe that prudential supervision and consumer compliance are complementary and should not be separated. The transfer of consumer compliance staff would impact that prudential supervisors. Chairman Ben Bernanke This is a fundamental concern, because there are critical issues in bank supervision for which consumer protection and safety and soundness cannot be separated. Comptroller John Dugan Dividing the regulation of safety and soundness and consumer protection would undermine the safety and soundness of the banking system and weaken a regulators ability to formulate a complete assessment of a financial institutions risk profile. Acting Director John Bowman

FDIC Chairman Sheila Bair: Separating the examination and supervision of insured depository institution consumer protection compliance from that of safety and soundness could undermine the effectiveness of both. Examination and supervision for safety and soundness and consumer protection must be closely coordinated and reflect a comprehensive understanding of an institutions management, operations, policies, and practices. ..Separating consumer protection examination and supervision from other supervisory efforts could weaken both and result in weakened financial institutions. (8/12/2009) The FDIC has dedicated force of consumer protection compliance examiners. Consumer protection and risk supervision benefit from the synergies created by ready and timely access to expertise and critical information in both areas. For example, violations of consumer regulations by an institution frequently signal management problems related to safety and soundness issues as well. Preserving the current regulatory framework, and the ability of examiners to work together to evaluate institutions, will ensure that financial institutions will be continue to be viewed holistically. Separating the functions into two agencies inevitably would create issues. For example, it would constrain the ability of examination staff to develop a comprehensive view of the institutions they supervise. It also would be more difficult to easily coordinate, share information, and bring joint enforcement actions on consumer protection and safety and soundness issues. In addition, the flow of information would slow, thus reducing opportunities to quickly identify and resolve problems. On balance, transferring consumer protection compliance examination and enforcement to the new consumer protection agency would cause disruption to agency operations during a critical time, complicating safety and soundness function and enforcement efforts. (8/12/2009) Banking agencies' assessments of risks to consumers are closely linked with and informed by a broader understanding of other risks in financial institutions. Placing consumer protection policy-setting activities in a separate organization, apart from existing expertise and examination infrastructure, could ultimately result in less effective protections for consumers." (3/19/2009) Federal Reserve Chairman Ben Bernanke: As is apparent in the current economic crisis, there can be a strong connection between consumer protection concerns and safety and soundness. Examinations for safety and soundness and consumer protection complement each other.Management weaknesses identified in implementing consumer protections can impact assessments of other risks and should be reflected in the overall assessment of bank management. (7/28/2009) In the Reserve Banks, the consumer compliance examiners, while specially trained, often share senior management with the prudential examiners. So, at that level, it would not necessarily be a clean transfer. Additionally, the Reserve Bank examiners draw on expertise and knowledge from other areas of the organizations. Those knowledge centers would not be part of the transfer to a new agency. We believe that prudential supervision and consumer compliance are complementary and should not be separated. The transfer of consumer compliance staff would impact that prudential supervisors. For example, to appropriately assess the Risk Management and Impact components of the bank holding company evaluation rating system and the Management component of the bank performance rating system, prudential supervisors and consumer compliance supervisors must work together and share information and understand the interplay of various risks from both perspectives. Comptroller of the Currency John Dugan: Under the proposed legislation, the CFPA would consult with safety and soundness supervisors, but the agency ultimately would not be constrained (or even expressly authorized) to incorporate safety and soundness considerations into the standards it sets. This is a fundamental concern, because there are critical issues in bank supervision for which consumer protection and safety and soundness cannot be separated. For example, in the area of loan underwriting standards, the core problem of the recent subprime mortgage crisis was loans made without real regard to the borrowers ability to service the loan payments out of available income. While inadequate and sometime abusive marketing and disclosure practices contributed to the scope of the problem, transparent disclosure alone does not resolve it, just as sound underwriting alone does not ensure customers make informed choices about financial products. The legislation is apparently premised on the assumption that the CFPA (and the states) will consistently implement consumer protection rules that necessarily improve safety and soundness. However, rules can seemingly benefit consumers while at the same time they diminish safety and soundness by, for example, lowering down payments or liberalizing repayment terms. In addition, by transferring all examination and enforcement authority for consumer issues from the banking agencies to the CFPA, I believe the legislation creates a supervisory system for depository institutions that will be less effective. Safety and soundness issues in many instances cannot be separated from consumer protection. The OCC currently examines safety and soundness and consumer

protection on a coordinated basis. This evaluation method is more effective than divided analysis by two agencies and puts banking supervisors in the position to identify cross-vulnerabilities. Indeed, contrary to several recent proposals, we believe that the best way to implement consumer protection regulation of banks the best way to protect consumers is to do so through prudential supervision. (3/19/2009) OTS Acting Director John Bowman: The separation of safety and soundness and consumer protection regulation poses significant regulatory challenges and would create an unnecessary burden on financial institutions. OTS conducts one comprehensive examination of both safety and soundness and consumer protection. This comprehensive examination is designed to efficiently and effectively provide an overall assessment of an institutions risk profile. Consumer protection issues can create significant risks and can have significant impacts on an institutions safety and soundnessDividing the regulation of safety and soundness and consumer protection would undermine the safety and soundness of the banking system and weaken a regulators ability to formulate a complete assessment of a financial institutions risk profile. There is a strong connection between consumer protection problems in institutions and safety and soundness issues. The bifurcation of prudential and consumer protection regulation in separate agencies may lead to conflicts among the agencies. Moreover, neither agency may have the benefit of complete information with respect to a particular institution.The transfer of the consumer compliance examination function to a new agency would create significant supervisory challenges and may cause unnecessary burden on financial institutions. (7/23/2009)

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We are in 432 Cannon. Meredith S. Swan (b) (6)

Thanks, and have a good weekend!

-----Original Message----From: Jane.Vergel@frb.gov [mailto:Jane.Vergel@frb.gov] Sent: Friday, September 11, 2009 5:18 PM To: Swan, Meredith Subject: RE: Meeting request for Governor Tarullo Yes, let's do that. It is confirmed then, from 11:15 to 11:45. He will be accompanied by Tara Foscato, Assistant Congressional Liaison. What is your room number in Cannon.

"Swan, Meredith" <Meredith.Swan@ma il.house.gov> To <Jane.Vergel@frb.gov> 09/11/2009 05:16 cc PM

Subject RE: Meeting request for Governor Tarullo

We're actually in Cannon. time. Meredith S. Swan (b) (6)

We could start at 11:15 to give him walking

-----Original Message----From: Jane.Vergel@frb.gov [mailto:Jane.Vergel@frb.gov] Sent: Friday, September 11, 2009 5:15 PM To: Swan, Meredith Subject: RE: Meeting request for Governor Tarullo Meredith, He has a 12 noon at Rayburn, so unless this meeting runs over 25-30 minutes, I think this would work. You are also at Rayburn, correct? Jane

"Swan, Meredith" <Meredith.Swan@ma il.house.gov> To <Jane.Vergel@frb.gov> 09/11/2009 05:09 cc PM Subject

RE: Meeting request for Governor Tarullo

Hi Jane, Is Governor Tarullo available for a meeting with Congresswoman Bean on Wednesday, September 16th at 11:30am? Thanks, Meredith Meredith S. Swan (b) (6) -----Original Message----From: Jane.Vergel@frb.gov [mailto:Jane.Vergel@frb.gov] Sent: Thursday, September 10, 2009 10:17 AM To: Swan, Meredith Cc: Tara.W.Foscato@frb.gov Subject: Meeting request for Governor Tarullo Dear Ms. Swan, Governor Tarullo would like to have a meeting with Congresswoman Bean to discuss Regulatory Reform. He is available next week and the ideal dates are Tuesday, Sept. 15 and Wednesday, Sept. 16, although he has open slots for Thursday & Friday. Please let me know if Congresswoman Bean is available for a meeting with Governor Tarullo. My contact information is below. Below is Governor Tarullo's official bio. http://www.federalreserve.gov/aboutthefed/bios/board/tarullo.htm Jane Vergel Executive Assistant to Governor Daniel K. Tarullo Board of Governors of the Federal Reserve System 20th & C Streets, NW, Washington, DC 20551 (b) (6) Email: jane.vergel@frb.gov

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Brian; thanks so much for calling me back so soon about our request for Mr. Tarullos testimony before th the Committee on October 14 . As I believe I mentioned, I havent yet confirmed the availability of our other witness (Kenneth Feinberg) but Im working on it. Professor William Black has tentatively agreed to th testify on October 14 . I look forward to hearing from you once you determine Mr. Tarullos availability. Thanks again and have a pleasant weekend, Joanne

Joanne Royce Senior Counsel U.S. House of Representatives Committee on Oversight and Government Reform 2157 Rayburn House Office Building Washington, D.C. 20515
NOTICE: This communication may contain privileged or other confidential information. If you are not the intended recipient, or believe that you have received this communication in error, please do not print, copy, retransmit, disseminate, or otherwise use the information. Also, please indicate to the sender that you have received this communication in error, and delete the copy you received.

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Friday is bad for Pat, our key person. Very sorry this is so difficult. Thoughts? From: "Chon, Julie (Banking)" [Julie_Chon@banking.senate.gov] Sent: 09/21/2009 10:40 AM AST To: Tara Foscato Subject: RE: Derivatives

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Could we do it early that day? From: "Chon, Julie (Banking)" [Julie_Chon@banking.senate.gov] Sent: 09/21/2009 10:21 AM AST To: Tara Foscato Subject: Re: Derivatives We have the tarp hrg that morning and a subcom hrg on reg reform in the afternoon

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"Chon, Julie (Banking)" <Julie_Chon@banking.senate.gov> 09/21/2009 09:51 AM

To"'Tara.W.Foscato@frb.gov'" <Tara.W.Foscato@frb.gov> cc SubjectRE: Derivatives

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Sent from Blackberry

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"Chon, Julie (Banking)" <Julie_Chon@banking.senate.gov> 09/18/2009 08:49 AM To"'Tara.W.Foscato@frb.gov'" <Tara.W.Foscato@frb.gov> cc SubjectRe: Derivatives

Does today (afternoon) or Monday work? We have an all Committee LA's briefing for our tarp hrg late Tue afternoon.

Sent from Blackberry

)URP 7DUD:)RVFDWR#IUEJRY 7DUD:)RVFDWR#IUEJRY! 7R &KRQ -XOLH %DQNLQJ 6HQW )UL 6HS    6XEMHFW 'HULYDWLYHV It looks like we are going to shoot for separate briefings. What days work for you all? We could try for 3:30 on Tuesday. Give me a call if you have questions. Thanks.

Tara Wade Foscato Assistant Congressional Liaison Board of Governors Federal Reserve System Washington, D.C. 20551 (b) (6) tara.w.foscato@frb.gov

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Dear Margaret, Thank you for your email. I would be happy to line this up for October 7th, and 3:30pm would work best for us. Ellen Gwaltney will be in the meeting as well. Would you please let me know if anyone will accompany Gov. Warsh and pass along their cell number? Thanks! Best, Anna Beth Strong Executive Assistant Congressman Tom Price (GA-6) 424 Cannon Building Washington, DC 20515 (b) (6)

-----Original Message----From: Margaret.Owens@frb.gov [mailto:Margaret.Owens@frb.gov] Sent: Wednesday, September 23, 2009 4:20 PM To: Strong, Anna Beth Cc: Tara.W.Foscato@frb.gov Subject: Meeting request from Governor Kevin Warsh Hi Annabeth, Governor Warsh would like to meet with Congressman Price to discuss the Fed's general perspective on regulatory reform, with emphasis on systemic risk/bank regulation and resolution authority. Please let me know if Congressman Price is available October 7, 2009, between the hours of 3:30 p.m. - 5:00 p.m. Thank you. _____________________________________ Margaret R. Owens Executive Assistant to Kevin M. Warsh Office of Board Members Federal Reserve System (b) (6) margaret.owens@frb.gov "Living in the past paralyzes the present and bankrupts the future"

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Hi Anna Beth, Thank you for getting back to me so quickly. Yes, please reserve 3:30p on the Congressman's calendar to meet with Governor Warsh. Ms. Tara Foscato will accompany the Governor in the meeting. Ms. Foscato's cell number is (b) (6) _____________________________________ Margaret R. Owens Executive Assistant to Kevin M. Warsh Office of Board Members Federal Reserve System (b) (6) margaret.owens@frb.gov "Living in the past paralyzes the present and bankrupts the future"

"Strong, Anna Beth" <AnnaBeth.Strong@ mail.house.gov> 09/23/2009 04:24 PM

To <Margaret.Owens@frb.gov> cc <Tara.W.Foscato@frb.gov> Subject RE: Meeting request from Governor Kevin Warsh

Dear Margaret, Thank you for your email. I would be happy to line this up for October 7th, and 3:30pm would work best for us. Ellen Gwaltney will be in the meeting as well. Would you please let me know if anyone will accompany Gov. Warsh and pass along their cell number? Thanks! Best, Anna Beth Strong

Executive Assistant Congressman Tom Price (GA-6) 424 Cannon Building Washington, DC 20515 (b) (6)

-----Original Message----From: Margaret.Owens@frb.gov [mailto:Margaret.Owens@frb.gov] Sent: Wednesday, September 23, 2009 4:20 PM To: Strong, Anna Beth Cc: Tara.W.Foscato@frb.gov Subject: Meeting request from Governor Kevin Warsh Hi Annabeth, Governor Warsh would like to meet with Congressman Price to discuss the Fed's general perspective on regulatory reform, with emphasis on systemic risk/bank regulation and resolution authority. Please let me know if Congressman Price is available October 7, 2009, between the hours of 3:30 p.m. - 5:00 p.m. Thank you. _____________________________________ Margaret R. Owens Executive Assistant to Kevin M. Warsh Office of Board Members Federal Reserve System (b) (6) margaret.owens@frb.gov "Living in the past paralyzes the present and bankrupts the future"

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Wonderful - I have it on our calendar. Anna Beth Strong Executive Assistant Congressman Tom Price (GA-6) 424 Cannon Building Washington, DC 20515 (b) (6)

Thanks!

-----Original Message----From: Margaret.Owens@frb.gov [mailto:Margaret.Owens@frb.gov] Sent: Wednesday, September 23, 2009 4:38 PM To: Strong, Anna Beth Cc: Tara.W.Foscato@frb.gov Subject: RE: Meeting request from Governor Kevin Warsh Hi Anna Beth, Thank you for getting back to me so quickly. Yes, please reserve 3:30p on the Congressman's calendar to meet with Governor Warsh. Ms. Tara Foscato will accompany the Governor in the meeting. Ms. Foscato's cell number is (b) (6) _____________________________________ Margaret R. Owens Executive Assistant to Kevin M. Warsh Office of Board Members Federal Reserve System (b) (6)

"Living in the past paralyzes the present and bankrupts the future"

"Strong, Anna Beth" <AnnaBeth.Strong@ To mail.house.gov> cc 09/23/2009 04:24 <Tara.W.Foscato@frb.gov> <Margaret.Owens@frb.gov>

PM Subject RE: Meeting request from Governor Kevin Warsh

Dear Margaret, Thank you for your email. I would be happy to line this up for October 7th, and 3:30pm would work best for us. Ellen Gwaltney will be in the meeting as well. Would you please let me know if anyone will accompany Gov. Warsh and pass along their cell number? Thanks! Best, Anna Beth Strong Executive Assistant Congressman Tom Price (GA-6) 424 Cannon Building Washington, DC 20515 (b) (6)

-----Original Message----From: Margaret.Owens@frb.gov [mailto:Margaret.Owens@frb.gov] Sent: Wednesday, September 23, 2009 4:20 PM To: Strong, Anna Beth Cc: Tara.W.Foscato@frb.gov Subject: Meeting request from Governor Kevin Warsh Hi Annabeth, Governor Warsh would like to meet with Congressman Price to discuss the Fed's general perspective on regulatory reform, with emphasis on systemic risk/bank regulation and resolution authority. Please let me know if Congressman Price is available October 7, 2009, between the hours of 3:30

p.m. - 5:00 p.m.

Thank you.

_____________________________________ Margaret R. Owens Executive Assistant to Kevin M. Warsh Office of Board Members Federal Reserve System (b) (6) margaret.owens@frb.gov "Living in the past paralyzes the present and bankrupts the future"

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Good morning Margaret, I can confirm a meeting with the Congressman on October 7 at 4:30 PM in 1424 Longworth. Please confirm that date/time for me at your earliest convenience and let me know who will be in attendance. Thanks and I look forward to your reply. Regards, Michele Michele Rager Ex Asst, Scheduler, Office Manager Rep Randy Neugebauer 1424 Longworth, Washington DC 20515 (b) (6) -----Original Message----From: Margaret.Owens@frb.gov [mailto:Margaret.Owens@frb.gov] Sent: Wednesday, September 23, 2009 5:03 PM To: Rager, Michele Cc: Tara.W.Foscato@frb.gov Subject: Meeting request from Governor Kevin Warsh

Hi Michele, Governor Warsh would like to meet with Congressman Neugebauer to discuss the Fed's general perspective on regulatory reform, with emphasis on systemic risk/bank regulation and resolution authority. Please let me know if Congressman Neugebauer is available October 7, 2009, between the hours of 4:30 p.m. - 5:45 p.m. Thank you. _____________________________________ Margaret R. Owens Executive Assistant to Kevin M. Warsh Office of Board Members Federal Reserve System (b) (6) margaret.owens@frb.gov "Living in the past paralyzes the present and bankrupts the future"

Not Responsive - Internal Emails Between Federal Reserve Staff

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Hello Brian; I just wanted to give you an update on the status of the Committees proposed hearing on executive th compensation. It is still tentatively planned for October 14 ; however, we are not going to set a definite date until Kenneth Feinberg can tell us conclusively when his report will be made public (so he can testify about it). Mr. Feinberg said he would get back with me next week regarding the publication date. We would still very much like for Mr. Tarullo to testify also. Should we need to change the date from October th 14 , Ill let you know so you can check on Mr. Tarullos availability. Thanks very much, Joanne

Joanne Royce Senior Counsel U.S. House of Representatives Committee on Oversight and Government Reform 2157 Rayburn House Office Building Washington, D.C. 20515
NOTICE: This communication may contain privileged or other confidential information. If you are not the intended recipient, or believe that you have received this communication in error, please do not print, copy, retransmit, disseminate, or otherwise use the information. Also, please indicate to the sender that you have received this communication in error, and delete the copy you received.

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September 28, 2009

Financial Services Committee Schedule for the Week of September 28

Washington, DC The Financial Services Committee will hold the following hearings this week: Wednesday, September 30 Full Committee Hearing: Perspectives on the Consumer Financial Protection Agency 10:00 a.m., 2128 Rayburn House Office Building Capital Markets, Insurance, and Government Sponsored Enterprises Subcommittee Hearing: Reforming Credit Rating Agencies 2:00 p.m., 2128 Rayburn House Office Building

Thursday, October 1 Full Committee Hearing: Federal Reserve Perspectives on Financial Regulatory Reform Proposals 9:00 a.m., 2128 Rayburn House Office Building ###

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Congressman King can only meet in the morning that day. Warsh have time in the morning? Michele Ingwersen Scheduler Office of Congressman Peter King (NY-03) 339 Cannon HOB (b) (6)

Does Governor

-----Original Message----From: Margaret.Owens@frb.gov [mailto:Margaret.Owens@frb.gov] Sent: Wednesday, September 23, 2009 5:21 PM To: Ingwersen, Michele Cc: Tara.W.Foscato@frb.gov Subject: Meeting request from Governor Kevin Warsh Hi Michele, Governor Warsh would like to meet with Congressman King to discuss the Fed's general perspective on regulatory reform, with emphasis on systemic risk/bank regulation and resolution authority. Please let me know if the Congressman is available October 16, 2009, between the hours of 1:30 p.m. 4:00 p.m. Thank you. _____________________________________ Margaret R. Owens Executive Assistant to Kevin M. Warsh Office of Board Members Federal Reserve System (b) (6) margaret.owens@frb.gov "Living in the past paralyzes the present and bankrupts the future"

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We can do Oct 22 at 2:30pm.

(b) (6)

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Thanks, Selam. Confirming Thursday, October 8 at 1:30--2pm.

Regina B. Watson Executive Assistant to Elizabeth (Betsy) Duke Board of Governors of the Federal Reserve System Washington, DC 20551 (b) (6) Email: Regina.B.Watson@frb.gov

"Mulugeta, Selam" <Selam.Mulugeta@mail.house.gov> 09/29/2009 11:35 AM

To<Regina.B.Watson@frb.gov> cc"Nolan, John" <John.Nolan@mail.house.gov> SubjectRE: Request to meet on regulatory reform -- reply requested

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Good morning Selam: Gov. Duke is not available between 1:30 and 3p on Oct. 7, but is at 5pm. Alternatively, she is also available between 1:30p and 5p on Oct. 8. We'd like to request at least 45 minutes for the visit, but will take 30 minutes. Thanks!

Regina B. Watson Executive Assistant to Elizabeth (Betsy) Duke Board of Governors of the Federal Reserve System Washington, DC 20551 (b) (6) Email: Regina.B.Watson@frb.gov
"Mulugeta, Selam" <Selam.Mulugeta@mail.house.gov>

09/29/2009 09:56 AM

To<Regina.B.Watson@frb.gov> cc"Nolan, John" <John.Nolan@mail.house.gov> SubjectRE: Request to meet on regulatory reform -- reply requested

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Dear Selam: Governor Duke would like to come in to discuss regulatory reform with Congressman Ellison. Does he have any time on the schedule in the coming weeks to meet. The Governor is happy to come to your office. Please let me know at your earliest convenience. Thank you.

Regina B. Watson Executive Assistant to Elizabeth Duke Board of Governors of the Federal Reserve System Washington, DC 20551 (b) (6) Email: Regina.B.Watson@frb.gov

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  30

FOR IMMEDIATE RELEASE October 1, 2009

KANJORSKI RELEASES FINANCIAL REFORM DRAFTS ON INVESTOR PROTECTION, PRIVATE ADVISER REGISTRATION, AND FEDERAL INSURANCE OFFICE
Capital Markets Chairman Addresses Key Pieces of Financial Regulatory Reform Through Comprehensive Bills and Administration Input
WASHINGTON Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, today released discussion drafts of three pieces of legislation aimed at tackling key parts of reforming the regulatory structure of the U.S. financial services industry. The draft bills include the Investor Protection Act, the Private Fund Investment Advisers Registration Act, and the Federal Insurance Office Act. Chairman Kanjorski introduced bipartisan legislation earlier this year and in the last Congress to create a federal insurance office, which was backed by the Obama Administration and included in its proposals for financial services regulatory reform. Congresswoman Judy Biggert (R-IL), Ranking Member of the House Financial Services Subcommittee on Oversight and Investigations, joined as an original co-sponsor of the 2009 bill when it was first introduced. Chairman Kanjorski also worked to revise and significantly enhance the Investor Protection Act and the Private Fund Investment Advisers Registration Act proposed by the Obama Administration this summer. Today, we take another step forward in overhauling the regulatory structure of the financial services industry, said Chairman Kanjorski. With these three bills we will address many of the shortcomings and loopholes laid bare by the current financial crisis. The Investor Protection Act will better protect investors and increase the funding and enforcement powers of the U.S.

Securities and Exchange Commission. We must ensure that investor confidence continues to increase for the betterment of our financial system. Additionally, we need to ensure that everyone who swims in our capital markets has an annual pool pass. The Private Fund Investment Advisers Registration Act will force many more financial providers to register with the SEC. Many financial firms skirt government oversight and get away like bandits, but now the advisers to hedge funds, private equity firms, and other private pools of capital would become subject to more scrutiny by the SEC. Finally, bipartisan legislation which I first introduced in the last Congress to create a federal insurance office to fill a gap in the federal governments knowledge base on financial activities. For several years, including in this Congress, I have worked to advance bipartisan legislation to address this issue, and I am pleased that the Administration also understands the need for this office and welcome the refinements they suggested to my bill. Summaries of the three legislative discussion drafts follow: Investor Protection Act Protecting Investors and Righting Wrongs. The financial crisis exposed the perils of deregulation. The Investor Protection Act will right these wrongs by reforming the Securities and Exchange Commission (SEC) to strengthen its powers, better protect investors, and efficiently and effectively regulate our securities markets. Comprehensive Securities Review and Reorganization. The failures to detect the Madoff and Stanford Financial frauds demonstrate deep deficiencies in our existing securities regulatory structure. An expeditious, independent, comprehensive study of the entire securities industry by a high caliber body will identify reforms and force the SEC and other entities to put in place further improvements designed to ensure superior investor protection. Enhanced SEC Enforcement Powers and Funding. By doubling the authorized funding for the SEC over 5 years and providing dozens of new enforcement powers and regulatory authorities, the SEC will be able to enhance its enforcement programs and gain the tools needed to better protect investors and police todays markets. Fiduciary Duty. Every financial intermediary who provides advice will have a fiduciary duty toward their customers. Through a harmonized standard, broker-dealers and investment advisers will have to put customers interests first. Whistleblower Bounties. A whistleblower bounty program will create incentives to identify wrongdoing in our securities markets and reward individuals whose tips lead to successful enforcement actions. With a bounty program, we will effectively have more cops on the beat in our securities markets. Ending Mandatory Arbitration. Because mandatory arbitration has limited the ability of defrauded investors to seek redress, the SEC will gain the power to bar these clauses in customer contracts. Closing Loopholes and Fixing Faulty Laws. The Madoff fraud revealed that the Public Company Accounting Oversight Board lacked the powers it needed to examine the auditors of broker-dealers. The $65 billion Ponzi scheme also exposed faults in the Securities Investor Protection Act, the law that returns money to the customers of insolvent

fraudulent broker-dealers. The Investor Protection Act closes these loopholes and fixes these shortcomings. Click here to view the draft Investor Protection Act. Private Fund Investment Advisers Registration Act Everyone Registers. Sunlight is the best disinfectant. By mandating the registration of private advisers to hedge funds and other private pools of capital, regulators will better understand exactly how those entities operate and whether their actions pose a threat to the financial system as a whole. Better Regulatory Information. New recordkeeping and disclosure requirements for private advisers will give regulators the information needed to evaluate both individual firms and entire market segments that have until this time largely escaped any meaningful regulation, without posing undue burdens on those industries. Level the Playing Field. The advisers to hedge funds, private equity firms, single-family offices, and other private pools of capital will have to obey some basic ground rules in order to continue to play in our capital markets. Regulators will have authority to examine the records of these previously secretive investment advisers. Click here to view the draft Private Fund Investment Advisers Registration Act. Federal Insurance Office Act Federal Insurance Expertise. Insurance plays a vital role in the smooth and efficient functioning of our economy, but the credit crisis highlighted the lack of expertise within the federal government regarding the industry, especially during the collapse of American International Group (AIG) and last years turmoil in the bond insurance markets. A Federal Insurance Office will provide national policymakers with access to the information and resources needed to respond to crises, mitigate systemic risks, and help ensure a well functioning financial system. International Coordination. Although Americas insurance markets still operate on a state-by-state basis, todays markets are global. The Federal Insurance Office will therefore provide a unified voice on insurance matters for the United States in global deliberations. Click here to view the draft Federal Insurance Office Act ###

'DYLV  *UHJ WR XQGLVFORVHGUHFLSLHQWV

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  30

FOR IMMEDIATE RELEASE October 1, 2009

KANJORSKI RELEASES FINANCIAL REFORM DRAFTS ON INVESTOR PROTECTION, PRIVATE ADVISER REGISTRATION, AND FEDERAL INSURANCE OFFICE

Capital Markets Chairman Addresses Key Pieces of Financial Regulatory Reform Through Comprehensive Bills and Administration Input

WASHINGTON Congressman Paul E. Kanjorski (D-PA), Chairman of the House Financial Services Subcommittee on Capital Markets, Insurance, and Government Sponsored Enterprises, today released discussion drafts of three pieces of legislation aimed at tackling key parts of reforming the regulatory structure of the U.S. financial services industry. The draft bills include the Investor Protection Act, the Private Fund Investment Advisers Registration Act, and the Federal Insurance Office Act.

Chairman Kanjorski introduced bipartisan legislation earlier this year and in the last Congress to

create a federal insurance office, which was backed by the Obama Administration and included in its proposals for financial services regulatory reform. Congresswoman Judy Biggert (R-IL), Ranking Member of the House Financial Services Subcommittee on Oversight and Investigations, joined as an original co-sponsor of the 2009 bill when it was first introduced. Chairman Kanjorski also worked to revise and significantly enhance the Investor Protection Act and the Private Fund Investment Advisers Registration Act proposed by the Obama Administration this summer.

Today, we take another step forward in overhauling the regulatory structure of the financial services industry, said Chairman Kanjorski. With these three bills we will address many of the shortcomings and loopholes laid bare by the current financial crisis. The Investor Protection Act will better protect investors and increase the funding and enforcement powers of the U.S. Securities and Exchange Commission. We must ensure that investor confidence continues to increase for the betterment of our financial system.

Additionally, we need to ensure that everyone who swims in our capital markets has an annual pool pass. The Private Fund Investment Advisers Registration Act will force many more financial providers to register with the SEC. Many financial firms skirt government oversight and get away like bandits, but now the advisers to hedge funds, private equity firms, and other private pools of capital would become subject to more scrutiny by the SEC.

Finally, bipartisan legislation which I first introduced in the last Congress to create a federal insurance office to fill a gap in the federal governments knowledge base on financial activities. For several years, including in this Congress, I have worked to advance bipartisan legislation to address this issue, and I am pleased that the Administration also understands the need for this office and welcome the refinements they suggested to my bill.

Summaries of the three legislative discussion drafts follow:

Investor Protection Act Protecting Investors and Righting Wrongs. The financial crisis exposed the perils of deregulation. The Investor Protection Act will right these wrongs by reforming the Securities and Exchange Commission (SEC) to strengthen its powers, better protect investors, and efficiently and effectively regulate our securities markets. Comprehensive Securities Review and Reorganization. The failures to detect the Madoff and Stanford Financial frauds demonstrate deep deficiencies in our existing securities regulatory

structure. An expeditious, independent, comprehensive study of the entire securities industry by a high caliber body will identify reforms and force the SEC and other entities to put in place further improvements designed to ensure superior investor protection. Enhanced SEC Enforcement Powers and Funding. By doubling the authorized funding for the SEC over 5 years and providing dozens of new enforcement powers and regulatory authorities, the SEC will be able to enhance its enforcement programs and gain the tools needed to better protect investors and police todays markets. Fiduciary Duty. Every financial intermediary who provides advice will have a fiduciary duty toward their customers. Through a harmonized standard, broker-dealers and investment advisers will have to put customers interests first. Whistleblower Bounties. A whistleblower bounty program will create incentives to identify wrongdoing in our securities markets and reward individuals whose tips lead to successful enforcement actions. With a bounty program, we will effectively have more cops on the beat in our securities markets. Ending Mandatory Arbitration. Because mandatory arbitration has limited the ability of defrauded investors to seek redress, the SEC will gain the power to bar these clauses in customer contracts. Closing Loopholes and Fixing Faulty Laws. The Madoff fraud revealed that the Public Company Accounting Oversight Board lacked the powers it needed to examine the auditors of broker-dealers. The $65 billion Ponzi scheme also exposed faults in the Securities Investor Protection Act, the law that returns money to the customers of insolvent fraudulent broker-dealers. The Investor Protection Act closes these loopholes and fixes these shortcomings.

Click here to view the draft Investor Protection Act.

Private Fund Investment Advisers Registration Act Everyone Registers. Sunlight is the best disinfectant. By mandating the registration of private advisers to hedge funds and other private pools of capital, regulators will better understand exactly how those entities operate and whether their actions pose a threat to the financial system as a whole. Better Regulatory Information. New recordkeeping and disclosure requirements for private advisers will give regulators the information needed to evaluate both individual firms and entire market segments that have until this time largely escaped any meaningful regulation, without posing undue burdens on those industries. Level the Playing Field. The advisers to hedge funds, private equity firms, single-family

offices, and other private pools of capital will have to obey some basic ground rules in order to continue to play in our capital markets. Regulators will have authority to examine the records of these previously secretive investment advisers. Click here to view the draft Private Fund Investment Advisers Registration Act.

Federal Insurance Office Act Federal Insurance Expertise. Insurance plays a vital role in the smooth and efficient functioning of our economy, but the credit crisis highlighted the lack of expertise within the federal government regarding the industry, especially during the collapse of American International Group (AIG) and last years turmoil in the bond insurance markets. A Federal Insurance Office will provide national policymakers with access to the information and resources needed to respond to crises, mitigate systemic risks, and help ensure a well functioning financial system. International Coordination. Although Americas insurance markets still operate on a state-by-state basis, todays markets are global. The Federal Insurance Office will therefore provide a unified voice on insurance matters for the United Statesin global deliberations. Click here to view the draft Federal Insurance Office Act

###
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[Discussion Draft]

[DISCUSSION DRAFT]
111TH CONGRESS 1ST SESSION

H. R.

To provide the Securities and Exchange Commission with additional authorities to protect investors from violations of the securities laws, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

Mr. KANJORSKI introduced the following bill; which was referred to the Committee on

A BILL
To provide the Securities and Exchange Commission with additional authorities to protect investors from violations of the securities laws, and for other purposes. 1 Be it enacted by the Senate and House of Representa-

2 tives of the United States of America in Congress assembled, 3 4

SECTION 1. SHORT TITLE.

This Act may be cited as the Investor Protection

5 Act of 2009.. 6 7
SEC. 2. TABLE OF CONTENTS.

The table of contents for this Act is as follows:

Sec. 1. Short title. Sec. 2. Table of contents.

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2
TITLE IDISCLOSURE Sec. 101. Investor Advisory Committee established. Sec. 102. Clarification of the commissions authority to engage in consumer testing. Sec. 103. Establishment of a fiduciary duty for brokers, dealers, and investment advisers, and harmonization of regulation. Sec. 104. Clarification of commission authority to require investor disclosures before purchase of investment company shares. Sec. 105. Beneficial ownership and short-swing profit reporting. Sec. 106. Revision to recordkeeping rules. TITLE IIENFORCEMENT AND REMEDIES Sec. Sec. Sec. Sec. 201. 202. 203. 204. Authority to restrict mandatory pre-dispute arbitration. Whistleblower protection. Conforming amendments for whistleblower protection. Implementation and transition provisions for whistleblower protections. Collateral bars. Aiding and abetting authority under the Securities Act and the Investment Company Act. Authority to impose penalties for aiding and abetting violations of the Investment Advisers Act. Deadline for completing examinations, inspections and enforcement actions. Nationwide service of subpoenas. Authority to impose civil penalties in cease and desist proceedings. Formerly associated persons. Sharing privileged information with other authorities. Expanded access to grand jury material. Aiding and abetting standard of knowledge satisfied by recklessness. Extraterritorial jurisdiction of the antifraud provisions of the Federal securities laws. Fidelity bonding. Enhanced SEC authority to conduct surveillance and risk assessment. Investment company examinations. Control person liability under the Securities Exchange Act. Enhanced application of anti-fraud provisions.

Sec. 205. Sec. 206. Sec. 207. Sec. 208. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. 209. 210. 211. 212. 213. 214. 215. 216. 217. 218. 219. 220.

TITLE IIICOMMISSION FUNDING AND ORGANIZATION Sec. Sec. Sec. Sec. 301. 302. 303. 304. Authorization of appropriations. Investment adviser regulation funding. Amendments to section 31 of the Securities Exchange Act of 1934. Commission organizational study and reform. TITLE IVADDITIONAL COMMISSION REFORMS Sec. Sec. Sec. Sec. Sec. Regulation of securities lending. Lost and stolen securities. Fingerprinting. Equal treatment of self-regulatory organization rules. Clarification that section 205 of the Investment Advisers Act of 1940 does not apply to State-registered advisers. Sec. 406. Conforming amendments for the repeal of the Public Utility Holding Company Act of 1935.
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401. 402. 403. 404. 405.

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3
Sec. Sec. Sec. Sec. Sec. Sec. Sec. 407. 408. 409. 410. 411. 412. 413. Promoting transparency in financial reporting. Unlawful margin lending. Protecting confidentiality of materials submitted to the Commission. Technical corrections. Municipal securities. Interested person definition. Rulemaking authority to protect redeeming investors.

TITLE VSECURITIES INVESTOR PROTECTION ACT AMENDMENTS Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. Sec. 501. 502. 503. 504. 505. 506. 507. 508. 509. 510. 511. 512. Increasing the minimum assessment paid by SIPC members. Increasing the borrowing limit on treasury loans. Increasing the cash limit of protection. SIPC as trustee in SIPA liquidation proceedings. Insiders ineligible for SIPC advances. Eligibility for direct payment procedure. Increasing the fine for prohibited acts under SIPA. Penalty for misrepresentation of SIPC membership or protection. Limitations on customer status. Futures held in a portfolio margin securities account protection. Risk-based premiums. Budgetary treatment of Commission loans to SIPC. TITLE VISARBANES-OXLEY ACT AMENDMENTS Sec. 601. Public Company Accounting Oversight Board oversight of auditors of non-public brokers and dealers. Sec. 602. Foreign regulatory information sharing. Sec. 603. Expansion of audit information to be produced and exchanged with foreign counterparts. Sec. 604. Fair fund amendments. Sec. 605. Whistleblower protection against retaliation by a subsidiary of an issuer.

1 2 3

TITLE IDISCLOSURE
SEC. 101. INVESTOR ADVISORY COMMITTEE ESTABLISHED.

The Securities Exchange Act of 1934 (15 U.S.C. 78a

4 et seq.) is amended by adding after section 4C the fol5 lowing new section: 6 7
SEC. 4D. INVESTOR ADVISORY COMMITTEE.

(a) ESTABLISHMENT

AND

PURPOSE.There is es-

8 tablished an Investor Advisory Committee (in this section 9 referred to as the Committee) to advise and consult with 10 the Commission on
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4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 (1) regulatory priorities and issues regarding new products, trading strategies, fee structures and the effectiveness of disclosures; (2) initiatives to protect investor interest; and (3) initiatives to promote investor confidence in the integrity of the marketplace. (b) MEMBERSHIP. (1) APPOINTMENT.The Chairman of the Commission shall appoint the members of the Committee, which members shall (A) represent the interests of individual investors; (B) represent the interests of institutional investors; and (C) use a wide range of investment approaches. (2) MEMBERS
EES.Members NOT COMMISSION EMPLOY-

shall not be considered employees or

agents of the Commission solely because of membership on the Committee. (c) MEETINGS.The Committee shall meet from

22 time to time at the call of the Commission, but, at a min23 imum, shall meet at least twice each year.

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5 1 (d) COMPENSATION
AND

TRAVEL EXPENSES.

2 Members of the Committee who are not full-time employ3 ees of the United States shall 4 5 6 7 8 9 10 (1) be entitled to receive compensation at a rate fixed by the Commission while attending meetings of the Committee, including travel time; and (2) be allowed travel expenses, including transportation and subsistence, while away from their homes or regular places of business. (e) COMMITTEE FINDINGS.Nothing in this section

11 requires the Commission to accept, agree, or act upon the 12 findings or recommendations of the Committee. 13 (f) AUTHORIZATION
OF

APPROPRIATIONS.There

14 is authorized to be appropriated to the Commission such 15 sums as are necessary for the activities of the Com16 mittee.. 17 18 19
SEC. 102. CLARIFICATION OF THE COMMISSIONS AUTHORITY TO ENGAGE IN CONSUMER TESTING.

(a) AMENDMENT

TO

SECURITIES ACT

OF

1933.

20 Section 19 of the Securities Act of 1933 (15 U.S.C. 77s) 21 is amended by adding at the end the following new sub22 section: 23 (e) For the purposes of evaluating its rules and pro-

24 grams and for considering, proposing, adopting, or engag25 ing in rules or programs, the Commission is authorized

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6 1 to gather information, communicate with investors or 2 other members of the public, and engage in such tem3 porary or experimental programs as the Commission in its 4 discretion determines is in the public interest or for the 5 protection of investors. The Commission may delegate to 6 its staff some or all of the authority conferred by this sub7 section.. 8 (b) AMENDMENT
TO

SECURITIES EXCHANGE ACT

OF

9 1934.Section 23 of the Securities Exchange Act of 1934 10 (15 U.S.C. 78w) is amended by redesignating subsections 11 (b), (c), and (d) as subsections (c), (d), and (e), respec12 tively, and inserting after subsection (a) the following: 13 (b) For the purposes of evaluating its rules and pro-

14 grams and for considering proposing, adopting, or engag15 ing in rules or programs, the Commission is authorized 16 to gather information, communicate with investors or 17 other members of the public, and engage in such tem18 porary or experimental programs as the Commission in its 19 discretion determines is in the public interest or for the 20 protection of investors. The Commission may delegate to 21 its staff some or all of the authority conferred by this sub22 section.. 23 (c) AMENDMENT
TO INVESTMENT

COMPANY ACT

OF

24 1940.Section 38 of the Investment Company Act of

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7 1 1940 (15 U.S.C. 80a38) is amended by adding at the 2 end the following new subsection: 3 (d) GATHERING INFORMATION.For the purposes

4 of evaluating its rules and programs and for considering 5 proposing, adopting, or engaging in rules or programs, the 6 Commission is authorized to gather information, commu7 nicate with investors or other members of the public, and 8 engage in such temporary or experimental programs as 9 the Commission in its discretion determines is in the pub10 lic interest or for the protection of investors. The Commis11 sion may delegate to its staff some or all of the authority 12 conferred by this subsection.. 13 14 ACT (d) AMENDMENT
OF TO THE

INVESTMENT ADVISERS

1940.Section 211 of the Investment Advisers

15 Act of 1940 (15 U.S.C. 80b11) is amended by adding 16 at the end the following new subsection: 17 (e) For the purposes of evaluating its rules and pro-

18 grams and for considering proposing, adopting, or engag19 ing in rules or programs, the Commission is authorized 20 to gather information, communicate with investors or 21 other members of the public, and engage in such tem22 porary or experimental programs as the Commission in its 23 discretion determines is in the public interest or for the 24 protection of investors. The Commission may delegate to

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8 1 its staff some or all of the authority conferred by this sub2 section.. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
SEC. 103. ESTABLISHMENT OF A FIDUCIARY DUTY FOR BROKERS, DEALERS, AND INVESTMENT ADVISERS, AND HARMONIZATION OF REGULATION.

(a) IN GENERAL. (1) SECURITIES

EXCHANGE ACT OF 1934.Sec-

tion 15 of the Securities Exchange Act of 1934 (15 U.S.C. 78o) is amended (A) by redesignating the second subsection (i) as subsection (j); and (B) by adding at the end the following new subsections: (k) STANDARDS OF CONDUCT. (1) IN
GENERAL.Notwithstanding

any other

provision of this Act or the Investment Advisers Act of 1940, the Commission shall promulgate rules to provide that, with respect to a broker or dealer that is providing investment advice to a retail customer (and such other customers as the Commission may by rule provide), the standard of conduct for such broker or dealer with respect to such customer shall be the same as the standard of conduct applicable to an investment adviser under the Investment Ad-

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9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 visers Act of 1940. The receipt of compensation based on commission shall not, in and of itself, be considered a violation of such standard applied to a broker or dealer. (2) RETAIL
CUSTOMER DEFINED.For

pur-

poses of this subsection, the term retail customer means an individual, or the legal representative of such individual, who (A) receives personalized investment advice from a broker or dealer; and (B) uses such advice primarily for personal, family, or household purposes. (l) OTHER MATTERS.The Commission shall (1) facilitate the provision of simple and clear disclosures to investors regarding the terms of their relationships with brokers, dealers, and investment advisers; and (2) examine and, where appropriate, promulgate rules prohibiting sales practices, conflicts of interest, and compensation schemes for financial intermediaries (including brokers, dealers, and investment advisers) that it deems contrary to the public interest and the interests of investors.. (2) INVESTMENT
ADVISERS ACT OF 1940.Sec-

tion 211 of the Investment Advisers Act of 1940, as

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10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 amended by section 102(d), is further amended by adding at the end the following new subsection: (f) STANDARDS OF CONDUCT. (1) IN
GENERAL.Notwithstanding

any other

provision of this Act or the Securities Exchange Act of 1934, the Commission shall promulgate rules to provide that the standards of conduct for all brokers, dealers, and investment advisers, in providing investment advice to retail customers (and such other customers as the Commission may by rule provide), shall be to act in the best interest of the customer without regard to the financial or other interest of the broker, dealer, or investment adviser providing the advice. (2) RETAIL
CUSTOMER DEFINED.For

pur-

poses of this subsection, the term retail customer means an individual, or the legal representative of such individual, who (A) receives personalized investment advice from a broker, dealer, or investment adviser; and (B) uses such advice primarily for personal, family, or household purposes. (g) OTHER MATTERS.The Commission shall

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11 1 2 3 4 5 6 7 8 9 10 11 12
EDY

(1) facilitate the provision of simple and clear disclosures to investors regarding the terms of their relationships with brokers, dealers, and investment advisers; and (2) examine and, where appropriate, promulgate rules prohibiting sales practices, conflicts of interest, and compensation schemes for financial intermediaries (including brokers, dealers, and investment advisers) that it deems contrary to the public interest and the interests of investors.. (b) HARMONIZATION
OF

ENFORCEMENT

AND

REM-

REGULATIONS.Section 15 of the Securities Ex-

13 change Act of 1934, as amended by subsection (a), is fur14 ther amended by adding at the end the following new sub15 section: 16 17
EDY

(m) HARMONIZATION

OF

ENFORCEMENT

AND

REM-

REGULATIONS.The Commission shall issue regula-

18 tions to ensure, to the extent practicable, that the enforce19 ment options and remedies available for violations of the 20 standard of conduct applicable to a broker or dealer pro21 viding investment advice to a retail customer are commen22 surate with those enforcement options and remedies avail23 able for violations of the standard of conduct applicable 24 to investment advisers under the Investment Advisers Act 25 of 1940..

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12 1 2 3 4 5
SEC. 104. CLARIFICATION OF COMMISSION AUTHORITY TO REQUIRE INVESTOR DISCLOSURES BEFORE PURCHASE SHARES. OF INVESTMENT COMPANY

Section 24 of the Investment Company Act of 1940

6 (15 U.S.C. 80a24) is amended by adding at the end the 7 following new subsection: 8 (h) TIMING
OF

DISCLOSURE.Notwithstanding any

9 other provision of this Act or the Securities Act of 1933, 10 the Commission is authorized to promulgate rules desig11 nating documents or information that must precede a sale 12 to a purchaser of securities issued by a registered invest13 ment company.. 14 15 16
SEC. 105. BENEFICIAL OWNERSHIP AND SHORT-SWING PROFIT REPORTING.

(a) BENEFICIAL OWNERSHIP REPORTING.Section

17 13 of the Securities Exchange Act of 1934 (15 U.S.C. 18 78m) is amended 19 20 21 22 23 24 25 (1) in subsection (d)(1) (A) by inserting after within ten days after such acquisition the following: or within such shorter time as the Commission may establish by rule; and (B) by striking send to the issuer of the security at its principal executive office, by reg-

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13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 and (B) by striking shall be transmitted to the issuer and. (b) SHORT-SWING PROFIT REPORTING.Section istered or certified mail, send to each exchange where the security is traded, and; (2) in subsection (d)(2) (A) by striking in the statements to the issuer and the exchange, and; and (B) by striking shall be transmitted to the issuer and the exchange and; (3) in subsection (g)(1), by striking shall send to the issuer of the security and; and (4) in subsection (g)(2) (A) by striking sent to the issuer and;

16 16(a) of the Securities Exchange Act of 1934 (15 U.S.C. 17 78p(a)) is amended 18 19 20 21 22 23 (1) in paragraph (1), by striking (and, if such security is registered on a national securities exchange, also with the exchange); and (2) in paragraph (2)(B), by inserting after officer the following: , or within such shorter time as the Commission may establish by rule.

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14 1 2 3
SEC. 106. REVISION TO RECORDKEEPING RULES.

(a) INVESTMENT COMPANY ACT

MENTS.Section

OF

1940 AMEND-

31 of the Investment Company Act of

4 1940 (15 U.S.C. 80a-30) is amended 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

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(1) in subsection (a)(1), by adding at the end the following: Each person with custody or use of a registered investment companys securities, deposits, or credits shall maintain and preserve all records that relate to the persons custody or use of the registered investment companys securities, deposits, or credits for such period or periods as the Commission, by rules and regulations, may prescribe as necessary or appropriate in the public interest or for the protection of investors.; and (2) in subsection (b), by adding at the end the following new paragraph: (4) RECORDS
USE. OF PERSONS WITH CUSTODY OR

(A) IN

GENERAL.Notwithstanding

para-

graph (1), records of persons with custody or use of a registered investment companys securities, deposits, or credits, that relate to such custody or use, are subject at any time, or from time to time, to such reasonable periodic, special, or other examinations and other information and document requests by representatives
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15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 of the Commission as the Commission deems necessary or appropriate in the public interest or for the protection of investors. (B) CERTAIN
PERSONS SUBJECT TO

OTHER REGULATION.Persons

subject to regu-

lation and examination by a Federal financial institution regulatory agency (as such term is defined under section 212(c)(2) of title 18, United States Code) may satisfy any examination request, information request, or document request described under subparagraph (A), by providing the Commission with a detailed listing, in writing, of the registered investment companys securities, deposits, or credits within such persons custody or use.. (b) INVESTMENT ADVISERS ACT
MENT.Section OF

1940 AMEND-

204 of the Investment Advisers Act of

18 1940 (15 U.S.C. 80b-4) is amended by adding at the end 19 the following new subsection: 20 (d) RECORDS
OF

PERSONS WITH CUSTODY

OR

21 USE. 22 23 24 25 (1) IN
GENERAL.Records

of persons with

custody or use of a clients securities, deposits, or credits, that relate to such custody or use, are subject at any time, or from time to time, to such rea-

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16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 sonable periodic, special, or other examinations and other information and document requests by representatives of the Commission as the Commission deems necessary or appropriate in the public interest or for the protection of investors. (2) CERTAIN
PERSONS SUBJECT TO OTHER

REGULATION.Persons

subject to regulation and ex-

amination by a Federal financial institution regulatory agency (as such term is defined under section 212(c)(2) of title 18, United States Code) may satisfy any examination request, information request, or document request described under paragraph (1), by providing the Commission with a detailed listing, in writing, of the clients securities, deposits, or credits within such persons custody or use..

TITLE IIENFORCEMENT AND REMEDIES

SEC. 201. AUTHORITY TO RESTRICT MANDATORY PRE-DISPUTE ARBITRATION.

(a) AMENDMENT

TO

SECURITIES EXCHANGE ACT

OF

21 1934.Section 15 of the Securities Exchange Act of 1934 22 (15 U.S.C. 78o), as amended by section 103) is further 23 amended by adding at the end the following new sub24 section:

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17 1 (m) AUTHORITY
TO

RESTRICT MANDATORY PRE-

2 DISPUTE ARBITRATION.The Commission, by rule, may 3 prohibit, or impose conditions or limitations on the use 4 of, agreements that require customers or clients of any 5 broker, dealer, or municipal securities dealer to arbitrate 6 any future dispute between them arising under the Fed7 eral securities laws or the rules of a self-regulatory organi8 zation if it finds that such prohibition, imposition of condi9 tions, or limitations are in the public interest and for the 10 protection of investors.. 11 (b) AMENDMENT
TO INVESTMENT

ADVISERS ACT

OF

12 1940.Section 205 of the Investment Advisers Act of 13 1940 (15 U.S.C. 80b5) is amended by adding at the end 14 the following new subsection: 15 (f) AUTHORITY
TO

RESTRICT MANDATORY PRE-

16 DISPUTE ARBITRATION.The Commission, by rule, may 17 prohibit, or impose conditions or limitations on the use 18 of, agreements that require customers or clients of any 19 investment adviser to arbitrate any future dispute between 20 them arising under the Federal securities laws or the rules 21 of a self-regulatory organization if it finds that such prohi22 bition, imposition of conditions, or limitations are in the 23 public interest and for the protection of investors..

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18 1 2
SEC. 202. WHISTLEBLOWER PROTECTION.

The Securities Exchange Act of 1934 (15 U.S.C. 78a

3 et seq.) is amended by adding after section 21E the fol4 lowing new section: 5 6 7
SEC. 21F. SECURITIES WHISTLEBLOWER INCENTIVES AND PROTECTION.

(a) IN GENERAL.In any judicial or administrative

8 action brought by the Commission under the securities 9 laws that results in monetary sanctions exceeding 10 $1,000,000, the Commission, under regulations prescribed 11 by the Commission and subject to subsection (b), may pay 12 an award or awards not exceeding an amount equal to 30 13 percent, in total, of the monetary sanctions imposed in the 14 action or related actions to one or more whistleblowers 15 who voluntarily provided original information to the Com16 mission that led to the successful enforcement of the ac17 tion. Any amount payable under the preceding sentence 18 shall be paid from the fund described in subsection (f). 19 20 21 22 23 24 25 26 (b) DETERMINATION
NIAL OF OF

AMOUNT

OF

AWARD; DE-

AWARD. (1) DETERMINATION

OF AMOUNT OF

AWARD.The

determination of the amount of an

award, within the limit specified in subsection (a), shall be in the sole discretion of the Commission. The Commission may take into account the significance of the whistleblowers information to the suc(450142|9)

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19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 cess of the judicial or administrative action described in subsection (a), the degree of assistance provided by the whistleblower and any legal representative of the whistleblower in such action, the Commissions programmatic interest in deterring violations of the securities laws by making awards to whistleblowers who provide information that leads to the successful enforcement of such laws, and such additional factors as the Commission may establish by rules or regulations. (2) DENIAL
OF AWARD.No

award under

subsection (a) shall be made (A) to any whistleblower who is, or was at the time he or she acquired the original information submitted to the Commission, a member, officer, or employee of any appropriate regulatory agency, the Department of Justice, or a self-regulatory organization; (B) to any whistleblower who is convicted of a criminal violation related to the judicial or administrative action for which the whistleblower otherwise could receive an award under this section; or

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20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 (C) to any whistleblower who fails to submit information to the Commission in such form as the Commission may, by rule, require. (c) REPRESENTATION. (1) PERMITTED
REPRESENTATION.Any

whistleblower who makes a claim for an award under subsection (a) may be represented by counsel. (2) REQUIRED
REPRESENTATION.Any

whis-

tleblower who makes a claim for an award under subsection (a) must be represented by counsel if the whistleblower submits the information upon which the claim is based anonymously. Prior to the payment of an award, the whistleblower must disclose his or her identity and provide such other information as the Commission may require. (d) NO CONTRACT NECESSARY.No contract with

17 the Commission is necessary for any whistleblower to re18 ceive an award under subsection (a), unless the Commis19 sion, by rule or regulation, so requires. 20 (e) APPEALS.Any determinations under this sec-

21 tion, including whether, to whom, or in what amounts to 22 make awards, shall be in the sole discretion of the Com23 mission, and any such determinations shall be final and 24 not subject to judicial review. 25 (f) INVESTOR PROTECTION FUND.

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21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) FUND
ESTABLISHED.There

is estab-

lished in the Treasury of the United States a fund to be known as the Securities and Exchange Commission Investor Protection Fund (referred to in this section as the Fund). (2) USE
OF FUND.The

Fund shall be avail-

able to the Commission, without further appropriation or fiscal year limitation, for the following purposes: (A) Paying awards to whistleblowers as provided in subsection (a). (B) Funding investor education initiatives designed to help investors protect themselves against securities fraud or other violations of the securities laws, or the rules and regulations thereunder. (3) DEPOSITS
AND CREDITS.There

shall be

deposited into or credited to the Fund (A) any monetary sanction collected by the Commission in any judicial or administrative action brought by the Commission under the securities laws that is not added to a disgorgement fund pursuant to section 308 of the Sarbanes-Oxley Act of 2002 or other fund or otherwise distributed to victims of a violation

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22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of the securities laws, or the rules and regulations thereunder, underlying such action, unless the balance of the Fund at the time the monetary sanction is collected exceeds $100,000,000; (B) any monetary sanction added to a disgorgement fund pursuant to section 308 of the Sarbanes-Oxley Act of 2002 or other fund that is not distributed to the victims for whom the disgorgement fund was established, unless the balance of the Fund at the time the determination is made not to distribute the monetary sanction to such victims exceeds $100,000,000; and (C) all income from investments made under paragraph (4). (4) INVESTMENTS. (A) AMOUNTS
VESTED.The IN FUND MAY BE IN-

Commission may request the

Secretary of the Treasury to invest the portion of the Fund that is not, in the Commissions judgment, required to meet the current needs of the Fund. (B) ELIGIBLE
INVESTMENTS.Invest-

ments shall be made by the Secretary of the Treasury in obligations of the United States or

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23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 obligations that are guaranteed as to principal and interest by the United States, with maturities suitable to the needs of the Fund as determined by the Commission. (C) INTEREST
ITED.The AND PROCEEDS CRED-

interest on, and the proceeds from

the sale or redemption of, any obligations held in the Fund shall be credited to, and form a part of, the Fund. (5) REPORTS
TO CONGRESS.Not

later than

October 30 of each year, the Commission shall transmit to the Committee on Banking, Housing, and Urban Affairs of the Senate, and the Committee on Financial Services of the House of Representatives a report on (A) the Commissions whistleblower

award program under this section, including a description of the number of awards granted and the types of cases in which awards granted during the preceding fiscal year; (B) investor education initiatives described in paragraph (2)(B) that were funded by the Fund during the preceding fiscal year; (C) the balance of the Fund at the beginning of the preceding fiscal year;

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24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (D) the amounts deposited into or credited to the Fund during the preceding fiscal year; (E) the amount of earnings on investments of amounts in the Fund during the preceding fiscal year; (F) the amount paid from the Fund during the preceding fiscal year to whistleblowers pursuant to subsection (a); (G) the amount paid from the Fund during the preceding fiscal year for investor education initiatives described in paragraph (1)(B); (H) the balance of the Fund at the end of the preceding fiscal year; and (I) a complete set of audited financial statements, including a balance sheet, income statement, and cash flow analysis. (g) PROTECTION OF WHISTLEBLOWERS. (1) PROHIBITION (A) IN
AGAINST RETALIATION.

GENERAL.No

employer may dis-

charge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee, contractor, or agent in the terms and conditions of employment because of any lawful act done by the employee, contractor, or agent

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25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 in providing information to the Commission in accordance with subsection (a), or in assisting in any investigation or judicial or administrative action of the Commission based upon or related to such information. (B) ENFORCEMENT. (i) CAUSE
OF ACTION.An

indi-

vidual who alleges discharge or other discrimination in violation of subparagraph (A) may bring an action under this subsection in the appropriate district court of the United States for the relief provided in subparagraph (C). (i) SUBPOENAS.A subpoena requiring the attendance of a witness at a trial or hearing conducted under this section may be served at any place in the United States. (ii) STATUTE
OF LIMITATIONS.An

action under this subsection may not be brought more than 6 years after the date on which the violation of subparagraph (A) occurred, or more than 3 years after the date when facts material to the right of action are known or reasonably should have

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26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 been known by the employee alleging a violation of subparagraph (A), but in no event after 10 years after the date on which the violation occurs. (C) RELIEF.An employee, contractor, or agent prevailing in any action brought under subparagraph (B) shall be entitled to all relief necessary to make that employee, contractor, or agent whole, including reinstatement with the same seniority status that the employee, contractor, or agent would have had, but for the discrimination, 2 times the amount of back pay, with interest, and compensation for any special damages sustained as a result of the discrimination, including litigation costs, expert witness fees, and reasonable attorneys fees. (2) CONFIDENTIALITY. (A) IN
GENERAL.Except

as provided in

subparagraph (B), all information provided to the Commission by a whistleblower shall be confidential and privileged as an evidentiary matter (and shall not be subject to civil discovery or other legal process) in any proceeding in any Federal or State court or administrative agency, and shall be exempt from disclosure, in the

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27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 hands of an agency or establishment of the Federal Government, under the Freedom of Information Act (5 U.S.C. 552), or otherwise, unless and until required to be disclosed to a defendant or respondent in connection with a public proceeding instituted by the Commission or any entity described in subparagraph (B). For purposes of section 552 of title 5, United States Code, this paragraph shall be considered a statute described in subsection (b)(3)(B) of such section 552. Nothing herein is intended to limit the Attorney Generals ability to present such evidence to a grand jury or to share such evidence with potential witnesses or defendants in the course of an ongoing criminal investigation. (B) AVAILABILITY
TO GOVERNMENT

AGENCIES.Without

the loss of its status as

confidential and privileged in the hands of the Commission, all information referred to in subparagraph (A) may, in the discretion of the Commission, when determined by the Commission to be necessary to accomplish the purposes of this Act and protect investors, be made available to

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28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 (i) the Attorney General of the United States, (ii) an appropriate regulatory authority, (iii) a self-regulatory organization, (iv) State attorneys general in connection with any criminal investigation, and (v) any appropriate State regulatory authority, each of which shall maintain such information as confidential and privileged, in accordance with the requirements in subparagraph (A). (3) RIGHTS
RETAINED.Nothing

in this sec-

tion shall be deemed to diminish the rights, privileges, or remedies of any whistleblower under any Federal or State law, or under any collective bargaining agreement. (h) RULEMAKING AUTHORITY.The Commission

20 shall have the authority to issue such rules and regulations 21 as may be necessary or appropriate to implement the pro22 visions of this section. 23 (i) DEFINITIONS.For purposes of this section, the

24 following terms have the following meanings:

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29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) ORIGINAL
INFORMATION.The

term

original information means information that (A) is based on the direct and independent knowledge or analysis of a whistleblower; (B) is not known to the Commission from any other source; and (C) is not based on allegations in a judicial or administrative hearing, in a governmental report, hearing, audit, or investigation, or from the news media, unless the whistleblower is the initial source of the information that resulted in the judicial or administrative hearing, governmental report, hearing, audit, or investigation, or the news medias report on the allegations. (2) MONETARY
SANCTIONS.The

term mone-

tary sanctions, when used with respect to any judicial or administrative action, means any monies, including but not limited to penalties, disgorgement, and interest, ordered to be paid, and any monies deposited into a disgorgement fund pursuant to section 308(b) of the Sarbanes-Oxley Act of 2002 (15 U.S.C. 7246(b)), as a result of such action or any settlement of such action.

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30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16
SEC.

(3) RELATED

ACTION.The

term related ac-

tion, when used with respect to any judicial or administrative action brought by the Commission under the securities laws, means any judicial or administrative action brought by an entity described in subsection (g)(2)(B) that is based upon the same original information provided by a whistleblower pursuant to subsection (a) that led to the successful enforcement of the Commission action. (4) WHISTLEBLOWER.The term whistleblower means an individual, or two or more individuals acting jointly, who submit information to the Commission as provided in this section..
203. CONFORMING AMENDMENTS FOR WHISTLE-

BLOWER PROTECTION.

(a) IN GENERAL.Each of the following provisions

17 is amended by inserting and section 21F of the Securities 18 Exchange Act of 1934 after the Sarbanes-Oxley Act of 19 2002: 20 21 22 23 24 25 (1) Section 20(d)(3)(A) of the Securities Act of 1933 (15 U.S.C. 77t(d)(3)(A)). (2) Section 42(e)(3)(A) of the Investment Company Act of 1940 (15 U.S.C. 80a41(e)(3)(A)). (3) Section 209(e)(3)(A) of the Investment Advisers Act of 1940 (15 U.S.C. 80b9(e)(3)(A)).

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31 1 (b) SECURITIES EXCHANGE ACT.The Securities

2 Exchange Act of 1934 (15 U.S.C. 78a et seq.) is amend3 ed 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 (1) in section 21(d)(3)(C)(i) (15 U.S.C.

78u(d)(3)(C)(i)), by inserting and section 21F of this title after the Sarbanes-Oxley Act of 2002; (2) in section 21A(d)(1) (15 U.S.C. 78u 1(d)(1)) (A) by striking (subject to subsection (e)); and (B) by inserting and section 21F of this title after the Sarbanes-Oxley Act of 2002; and (3) in section 21A, by striking subsection (e) and redesignating subsections (f) and (g) as subsection (e) and (f), respectively.
SEC. 204. IMPLEMENTATION AND TRANSITION PROVISIONS FOR WHISTLEBLOWER PROTECTIONS.

(a) IMPLEMENTING RULES.The Securities and Ex-

20 change Commission shall issue final regulations imple21 menting the provisions of section 21F of the Securities 22 Exchange Act of 1934, as added by this title, no later than 23 270 days after the date of enactment of this Act. 24 (b) ORIGINAL INFORMATION.Information sub-

25 mitted to the Commission by a whistleblower in accord-

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32 1 ance with regulations implementing the provisions of sec2 tion 21F of the Securities Exchange Act of 1934, as added 3 by this title, shall not lose its status as original informa4 tion, as defined in subsection (i)(1) of such section, solely 5 because the whistleblower submitted such information 6 prior to the effective date of such regulations, provided 7 such information was submitted after the date of enact8 ment of this Act, or related to insider trading violations 9 for which a bounty could have been paid at the time such 10 information was submitted. 11 (c) AWARDS.A whistleblower may receive an award

12 pursuant to section 21F of the Securities Exchange Act 13 of 1934, as added by this title, regardless of whether any 14 violation of a provision of the securities laws, or a rule 15 or regulation thereunder, underlying the judicial or admin16 istrative action upon which the award is based occurred 17 prior to the date of enactment of this Act. 18 19 20
OF
SEC. 205. COLLATERAL BARS.

(a) SECTION 15 OF THE SECURITIES EXCHANGE ACT 1934.Section 15(b)(6)(A) of the Securities Ex-

21 change Act of 1934 (15 U.S.C. 78o(b)(6)(A)) is amended 22 by striking 12 months, or bar such person from being 23 associated with a broker or dealer, and inserting 12 24 months, or bar any such person from being associated with 25 a broker, dealer, investment adviser, municipal securities

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33 1 dealer, transfer agent, or nationally recognized statistical 2 rating organization,. 3 4 ACT (b) SECTION 15B
OF OF THE

SECURITIES EXCHANGE

1934.Section 15B(c)(4) of the Securities Ex-

5 change Act of 1934 (15 U.S.C. 78o4(c)(4)) is amended 6 by striking twelve months or bar any such person from 7 being associated with a municipal securities dealer, and 8 inserting 12 months or bar any such person from being 9 associated with a broker, dealer, investment adviser, mu10 nicipal securities dealer, transfer agent, or nationally rec11 ognized statistical rating organization,. 12 13 ACT (c) SECTION 17A
OF OF THE

SECURITIES EXCHANGE

1934.Section 17A(c)(4)(C) of the Securities

14 Exchange Act of 1934 (15 U.S.C. 78q1(c)(4)(C)) is 15 amended by striking twelve months or bar any such per16 son from being associated with the transfer agent, and 17 inserting 12 months or bar any such person from being 18 associated with any transfer agent, broker, dealer, invest19 ment adviser, municipal securities dealer, or nationally 20 recognized statistical rating organization,. 21 22 ACT (d) SECTION 203
OF OF THE

INVESTMENT ADVISERS

1940.Section 203(f) of the Investment Advisers

23 Act of 1940 (15 U.S.C. 80b3(f)) is amended by striking 24 twelve months or bar any such person from being associ25 ated with an investment adviser, and inserting 12

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34 1 months or bar any such person from being associated with 2 an investment adviser, broker, dealer, municipal securities 3 dealer, transfer agent, or nationally recognized statistical 4 rating organization,. 5 6 7 8
SEC. 206. AIDING AND ABETTING AUTHORITY UNDER THE SECURITIES ACT AND THE INVESTMENT COMPANY ACT.

(a) UNDER

THE

SECURITIES ACT

OF

1933.Section

9 15 of the Securities Act of 1933 (15 U.S.C. 77o) is 10 amended 11 12 13 14 15 (1) by striking Every person who and inserting (a) CONTROLLING PERSONS.Every person who; and (2) by adding at the end the following: (b) PROSECUTION
OF

PERSONS WHO AID

AND

16 ABET VIOLATIONS.For purposes of any action brought 17 by the Commission under subparagraph (b) or (d) of sec18 tion 20, any person that knowingly or recklessly provides 19 substantial assistance to another person in violation of a 20 provision of this Act, or of any rule or regulation issued 21 under this Act, shall be deemed to be in violation of such 22 provision to the same extent as the person to whom such 23 assistance is provided.. 24 (c) UNDER
THE

INVESTMENT COMPANY ACT

OF

25 1940.Section 48 of the Investment Company Act of

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35 1 1940 (15 U.S.C. 80a48) is amended by redesignating 2 subsection (b) as subsection (c) and inserting after sub3 section (a) the following: 4 (b) For purposes of any action brought by the Com-

5 mission under subsection (d) or (e) of section 42, any per6 son that knowingly or recklessly provides substantial as7 sistance to another person in violation of a provision of 8 this Act, or of any rule or regulation issued under this 9 Act, shall be deemed to be in violation of such provision 10 to the same extent as the person to whom such assistance 11 is provided.. 12 13 14 15
SEC. 207. AUTHORITY TO IMPOSE PENALTIES FOR AIDING AND ABETTING VIOLATIONS OF THE INVESTMENT ADVISERS ACT.

Section 209 of the Investment Advisers Act of 1940

16 (15 U.S.C. 80b9) is amended by inserting at the end the 17 following new subsection: 18 (f) AIDING
AND

ABETTING.For purposes of any

19 action brought by the Commission under subsection (e), 20 any person that knowingly or recklessly has aided, abetted, 21 counseled, commanded, induced, or procured a violation 22 of any provision of this Act, or of any rule, regulation, 23 or order hereunder, shall be deemed to be in violation of 24 such provision, rule, regulation, or order to the same ex25 tent as the person that committed such violation..

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36 1 2 3
SEC. 208. DEADLINE FOR COMPLETING EXAMINATIONS, INSPECTIONS AND ENFORCEMENT ACTIONS.

The Securities Exchange Act of 1934 (15 U.S.C. 78a

4 et seq.) is amended by inserting after section 4D (as added 5 by section 101) the following new section: 6 7 8
SEC. 4E. DEADLINE FOR COMPLETING EXAMINATIONS, INVESTIGATIONS AND ENFORCEMENT ACTIONS.

(a) IN GENERAL.The Commission shall complete

9 any examination, investigations, or enforcement action ini10 tiated by the Commission not later than 180 days after 11 the date on which such examination, inspection, or en12 forcement action is commenced. 13 14 (b) EXCEPTION
FOR

CERTAIN COMPLEX AC-

TIONS.Notwithstanding

subsection (a), if the head of

15 any division or office within the Commission determines 16 that a particular examination, investigation, or enforce17 ment action is sufficiently complex that it cannot be com18 pleted within the deadline provided under subsection (a), 19 such head may, after providing notice to the Chairman 20 of the Commission, extend such deadline by an additional 21 180 days.. 22 23
SEC. 209. NATIONWIDE SERVICE OF SUBPOENAS.

(a) SECURITIES ACT

OF

1933.Section 22(a) of the

24 Securities Act of 1933 (15 U.S.C. 77v(a)) is amended by 25 inserting after the second sentence the following: In any 26 action or proceeding instituted by the Commission under
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37 1 this title in a United States district court for any judicial 2 district, subpoenas issued by or on behalf of such court 3 to compel the attendance of witnesses or the production 4 of documents or tangible things (or both) may be served 5 in any other district. Such subpoenas may be served and 6 enforced without application to the court or a showing of 7 cause, notwithstanding the provisions of rule 45(b)(2), 8 (c)(3)(A)(ii), and (c)(3)(B)(iii) of the Federal Rules of 9 Civil Procedure.. 10 (b) SECURITIES EXCHANGE ACT
OF

1934.Section

11 27 of the Securities Exchange Act of 1934 (15 U.S.C. 12 78aa) is amended by inserting after the third sentence the 13 following: In any action or proceeding instituted by the 14 Commission under this title in a United States district 15 court for any judicial district, subpoenas issued by or on 16 behalf of such court to compel the attendance of witnesses 17 or the production of documents or tangible things (or 18 both) may be served in any other district. Such subpoenas 19 may be served and enforced without application to the 20 court or a showing of cause, notwithstanding the provi21 sions of rule 45(b)(2), (c)(3)(A)(ii), and (c)(3)(B)(iii) of 22 the Federal Rules of Civil Procedure.. 23 (c) INVESTMENT COMPANY ACT
OF

1940.Section

24 44 of the Investment Company Act of 1940 (15 U.S.C. 25 80a43) is amended by inserting after the fourth sentence

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38 1 the following: In any action or proceeding instituted by 2 the Commission under this title in a United States district 3 court for any judicial district, subpoenas issued by or on 4 behalf of such court to compel the attendance of witnesses 5 or the production of documents or tangible things (or 6 both) may be served in any other district. Such subpoenas 7 may be served and enforced without application to the 8 court or a showing of cause, notwithstanding the provi9 sions of rule 45(b)(2), (c)(3)(A)(ii), and (c)(3)(B)(iii) of 10 the Federal Rules of Civil Procedure.. 11 (d) INVESTMENT ADVISERS ACT
OF

1940.Section

12 214 of the Investment Advisers Act of 1940 (15 U.S.C. 13 80b14) is amended by inserting after the third sentence 14 the following: In any action or proceeding instituted by 15 the Commission under this title in a United States district 16 court for any judicial district, subpoenas issued by or on 17 behalf of such court to compel the attendance of witnesses 18 or the production of documents or tangible things (or 19 both) may be served in any other district. Such subpoenas 20 may be served and enforced without application to the 21 court or a showing of cause, notwithstanding the provi22 sions of rule 45(b)(2), (c)(3)(A)(ii), and (c)(3)(B)(iii) of 23 the Federal Rules of Civil Procedure..

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39 1 2 3
SEC. 210. AUTHORITY TO IMPOSE CIVIL PENALTIES IN CEASE AND DESIST PROCEEDINGS.

(a) UNDER

THE

SECURITIES ACT

OF

1933.Section

4 8A of the Securities Act of 1933 (15 U.S.C. 77h1) is 5 amended by adding at the end the following new sub6 section: 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (g) AUTHORITY TO IMPOSE MONEY PENALTIES. (1) GROUNDS
FOR IMPOSING.In

any cease-

and-desist proceeding under subsection (a), the Commission may impose a civil penalty on a person if it finds, on the record after notice and opportunity for hearing, that (A) such person (i) is violating or has violated any provision of this title, or any rule or regulation thereunder; or (ii) is or was a cause of the violation of any provision of this title, or any rule or regulation thereunder; and (B) such penalty is in the public interest. (2) MAXIMUM
AMOUNT OF PENALTY. TIER.The

(A) FIRST

maximum amount

of penalty for each act or omission described in paragraph (1) shall be $7,500 for a natural person or $75,000 for any other person.

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40 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (3)
PAY.In

(B)

SECOND

TIER.Notwithstanding

paragraph (A), the maximum amount of penalty for each such act or omission shall be $75,000 for a natural person or $375,000 for any other person if the act or omission described in paragraph (1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement. (C) THIRD
TIER.Notwithstanding

para-

graphs (A) and (B), the maximum amount of penalty for each such act or omission shall be $150,000 for a natural person or $725,000 for any other person if (i) the act or omission described in paragraph (1) involved fraud, deceit, manipulation, or deliberate or reckless disregard of a regulatory requirement; and (ii) such act or omission directly or indirectly resulted in substantial losses or created a significant risk of substantial losses to other persons or resulted in substantial pecuniary gain to the person who committed the act or omission. EVIDENCE
CONCERNING ABILITY TO

any proceeding in which the Commission

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41 1 2 3 4 5 6 7 8 9 10 11 12 may impose a penalty under this section, a respondent may present evidence of the respondents ability to pay such penalty. The Commission may, in its discretion, consider such evidence in determining whether such penalty is in the public interest. Such evidence may relate to the extent of such persons ability to continue in business and the collectability of a penalty, taking into account any other claims of the United States or third parties upon such persons assets and the amount of such persons assets.. (b) UNDER
THE

SECURITIES EXCHANGE ACT

OF

13 1934.Subsection (a) of section 21B of the Securities 14 Exchange Act of 1934 (15 U.S.C. 78u2(a)) is amend15 ed 16 17 18 19 (1) by striking (a) COMMISSION AUTHORITY TO ASSESS MONEY PENALTIES.In any proceeding and inserting the following: (a) COMMISSION AUTHORITY TO ASSESS MONEY

20 PENALTIES. 21 22 23 24 (1) IN
GENERAL.In

any proceeding;

(2) by redesignating paragraphs (1) through (4) of such subsection as subparagraphs (A) through (D), respectively, and moving such redesignated sub-

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42 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 paragraphs and the matter following such subparagraphs 2 ems to the right; and (3) by adding at the end of such subsection the following new paragraph: (2) CEASE-AND-DESIST
PROCEEDINGS.In

any proceeding instituted pursuant to section 21C of this title against any person, the Commission may impose a civil penalty if it finds, on the record after notice and opportunity for hearing, that such person (A) is violating or has violated any provision of this title, or any rule or regulation thereunder; or (B) is or was a cause of the violation of any provision of this title, or any rule or regulation thereunder.. (c) UNDER
THE

INVESTMENT COMPANY ACT

OF

18 1940.Paragraph (1) of section 9(d) of the Investment 19 Company Act of 1940 (15 U.S.C. 80a9(d)(1)) is amend20 ed 21 22 23 24 25 (1) by striking (1) AUTHORITY
SION.In OF COMMIS-

any proceeding and inserting the fol-

lowing: (1) AUTHORITY (A) IN

OF COMMISSION.

GENERAL.In

any proceeding;

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43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 (2) by redesignating subparagraphs (A) through (C) of such paragraph as clauses (i) through (iii), respectively, and by moving such redesignated clauses and the matter following such subparagraphs 2 ems to the right; and (3) by adding at the end of such paragraph the following new subparagraph: (B) CEASE-AND-DESIST
PROCEEDINGS.

In any proceeding instituted pursuant to subsection (f) against any person, the Commission may impose a civil penalty if it finds, on the record after notice and opportunity for hearing, that such person (i) is violating or has violated any provision of this title, or any rule or regulation thereunder; or (ii) is or was a cause of the violation of any provision of this title, or any rule or regulation thereunder.. (d) UNDER
THE

INVESTMENT ADVISERS ACT

OF

21 1940.Paragraph (1) of section 203(i) of the Investment 22 Advisers Act of 1940 (15 U.S.C. 80b3(i)(1)) is amend23 ed

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44 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) by striking (1) AUTHORITY

SION.In OF COMMIS-

any proceeding and inserting the fol-

lowing: (1) AUTHORITY (A) IN

OF COMMISSION.

GENERAL.In

any proceeding;

(2) by redesignating subparagraphs (A) through (D) of such paragraph as clauses (i) through (iv), respectively, and moving such redesignated clauses and the matter following such subparagraphs 2 ems to the right; and (3) by adding at the end of such paragraph the following new subparagraph: (B) CEASE-AND-DESIST
PROCEEDINGS.

In any proceeding instituted pursuant to subsection (k) against any person, the Commission may impose a civil penalty if it finds, on the record after notice and opportunity for hearing, that such person (i) is violating or has violated any provision of this title, or any rule or regulation thereunder; or (ii) is or was a cause of the violation of any provision of this title, or any rule or regulation thereunder..

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45 1 2 3
SEC. 211. FORMERLY ASSOCIATED PERSONS.

(a) MEMBER
CURITIES

OR

EMPLOYEE

OF THE

MUNICIPAL SE-

RULEMAKING BOARD.Section 15B(c)(8) of

4 the Securities Exchange Act of 1934 (15 U.S.C. 78o 5 4(c)(8)) is amended by striking any member or em6 ployee and inserting any person who is, or at the time 7 of the alleged misconduct was, a member or employee. 8 9 (b) PERSON ASSOCIATED WITH
CURITIES A

GOVERNMENT SE-

BROKER

OR

DEALER.Section 15C of the Se-

10 curities Exchange Act of 1934 (15 U.S.C. 78o5) is 11 amended 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 (1) in subsection (c)(1)(C), by striking or seeking to become associated, and inserting seeking to become associated, or, at the time of the alleged misconduct, associated or seeking to become associated; (2) in subsection (c)(2)(A), by inserting , seeking to become associated, or, at the time of the alleged misconduct, associated or seeking to become associated after any person associated; and (3) in subsection (c)(2)(B), by inserting , seeking to become associated, or, at the time of the alleged misconduct, associated or seeking to become associated after any person associated. (c) PERSON ASSOCIATED WITH
TIONAL A

MEMBER

OF A

NA-

SECURITIES EXCHANGE OR REGISTERED SECURI(450142|9)

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46 1
TIES

ASSOCIATION.Section 21(a)(1) of the Securities

2 Exchange Act of 1934 (15 U.S.C. 78u(a)(1)) is amended 3 by inserting , or, as to any act or practice, or omission 4 to act, while associated with a member, formerly associ5 ated after member or a person associated. 6 (d) PARTICIPANT
OF A

REGISTERED CLEARING

7 AGENCY.Section 21(a)(1) of the Securities Exchange 8 Act of 1934 (15 U.S.C. 78u(a)(1)) is amended by insert9 ing or, as to any act or practice, or omission to act, while 10 a participant, was a participant, after in which such 11 person is a participant,. 12 (e) OFFICER
OR

DIRECTOR

OF A

SELF-REGULATORY

13 ORGANIZATION.Section 19(h)(4) of the Securities Ex14 change Act of 1934 (15 U.S.C. 78s(h)(4)) is amended 15 16 17 18 19 20 21 (1) by striking any officer or director and inserting any person who is, or at the time of the alleged misconduct was, an officer or director; and (2) by striking such officer or director and inserting such person. (f) OFFICER OR DIRECTOR OF AN INVESTMENT COMPANY.Section

36(a) of the Investment Company Act of

22 1940 (15 U.S.C. 80a35(a)) is amended 23 24 25 (1) by striking a person serving or acting and inserting a person who is, or at the time of the alleged misconduct was, serving or acting; and

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47 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
ING

(2) by striking such person so serves or acts and inserting such person so serves or acts, or at the time of the alleged misconduct, so served or acted. (g) PERSON ASSOCIATED WITH FIRM. (1) SARBANES-OXLEY
MENT.Section ACT OF 2002 AMENDA

PUBLIC ACCOUNT-

2(a)(9) of the Sarbanes-Oxley Act

of 2002 (15 U.S.C. 7201(9)) is amended by adding at the end the following new subparagraph: (C) INVESTIGATIVE
AUTHORITY.For AND ENFORCEMENT

purposes of the provisions of

sections 3(c), 101(c), 105, and 107(c) and Board or Commission rules thereunder, except to the extent specifically excepted by such rules, the terms defined in subparagraph (A) shall include any person associated, seeking to become associated, or formerly associated with a public accounting firm, except (i) the authority to conduct an investigation of such person under section 105(b) shall apply only with respect to any act or practice, or omission to act, while such person was associated or seeking to become associated with that firm; and

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48 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 (ii) the authority to commence a disciplinary proceeding under section

105(c)(1), or impose disciplinary sanctions under section 105(c)(4), against such person shall apply only on (I) the basis of misconduct occurring while such person was associated or seeking to become associated with that firm; or (II) on a violation of section 105(b).. (2) SECURITIES
AMENDMENT.Section EXCHANGE ACT OF 1934

21(a)(1) of the Securities

Exchange Act of 1934 (15 U.S.C. 78u(a)(1)) is amended by striking or a person associated with such a firm and inserting , a person associated with such a firm, or, as to any act, practice, or omission to act, while associated with such firm, a person formerly associated with such a firm. (h) SUPERVISORY PERSONNEL
OF AN

AUDIT

21 FIRM.Section 105(c)(6) of the Sarbanes-Oxley Act of 22 2002 (15 U.S.C. 7215(c)(6)) is amended 23 24 (1) in subparagraph (A), by striking the supervisory personnel and inserting any person who

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49 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 is, or at the time of the alleged failure reasonably to supervise was, a supervisory person; (2) in subparagraph (A)(i), by inserting after failed reasonably to supervise the following: any person who is, or at the time of the alleged failure, was; (3) in subparagraph (A)(ii), by striking associated; (4) in subparagraph (B) (A) by striking No associated person and inserting No current or former supervisory person; and (B) by striking any other person and inserting any current or former associated person; and (5) in subparagraph (B)(i), by striking associated. (i) MEMBER
OF THE

PUBLIC COMPANY ACCOUNTING

19 OVERSIGHT BOARD.Section 107(d)(3) of the Sarbanes20 Oxley Act of 2002 (15 U.S.C. 7217(d)(3)) is amended by 21 striking any member and inserting any person who is, 22 or at the time of the alleged misconduct was, a member.

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50 1 2 3
SEC. 212. SHARING PRIVILEGED INFORMATION WITH

OTHER AUTHORITIES.

Section 24 of the Securities Exchange Act of 1934

4 (15 U.S.C. 78x) is amended 5 6 7 8 9 10 11 12 (1) by redesignating subsections (d) and (e) as subsections (e) and (f), respectively; (2) in subsection (e), as redesignated, by striking as provided in subsection (e) and inserting as provided in subsection (f); and (3) by inserting after subsection (c) the following new subsection (d) (d) SHARING PRIVILEGED INFORMATION WITH

13 OTHER AUTHORITIES. 14 15 16 17 18 19 20 21 22 23 24 25 (1) PRIVILEGED

INFORMATION PROVIDED BY

THE COMMISSION.The

Commission shall not be

deemed to have waived any privilege applicable to any information by transferring that information to or permitting that information to be used by (A) any agency (as defined in section 6 of title 18, United States Code); (B) any foreign securities authority; (C) any foreign law enforcement authority; or (D) any State securities or law enforcement authority.

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51 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (2) NON-DISCLOSURE
OF PRIVILEGED INFOR-

MATION PROVIDED TO THE COMMISSION.Except

as

provided in subsection (f), the Commission shall not be compelled to disclose privileged information obtained from any foreign securities authority, or foreign law enforcement authority, if the authority has in good faith determined and represented to the Commission that the information is privileged. (3) NON-WAIVER
OF PRIVILEGED INFORMA-

TION PROVIDED TO THE COMMISSION.No

Federal

agency or State securities or law enforcement authority shall be deemed to have waived any privilege applicable to any information by transferring that information to or permitting that information to be used by the Commission. (4) DEFINITIONS.For purposes of this subsection: (A) The term privilege includes any work-product privilege, attorney-client privilege, governmental privilege, or other privilege recognized under Federal, foreign, or State law. (B) The term foreign law enforcement authority means any foreign authority that is empowered under foreign law to detect, investigate or prosecute potential violations of law.

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52 1 2 3 4 5 6 7 (C) The term State securities or law enforcement authority means the authority of any State or territory that is empowered under State or territory law to detect, investigate or prosecute potential violations of law..
SEC. 213. EXPANDED ACCESS TO GRAND JURY MATERIAL.

(a) IN GENERAL.Title VI of the Sarbanes-Oxley

8 Act of 2002 is amended by adding at the end the following 9 new section: 10 11 12 13 14 15 16 17 18 19 20 21 22
SEC. 605. ACCESS TO GRAND JURY INFORMATION.

(a) DISCLOSURE. (1) IN

GENERAL.Upon

motion of an attor-

ney for the government, a court may direct disclosure of matters occurring before a grand jury during an investigation of conduct that may constitute a violation of any provision of the securities laws to the Commission for use in relation to any matter within the jurisdiction of the Commission. (2) SUBSTANTIAL
NEED REQUIRED.A

court

may issue an order under paragraph (1) only upon a finding of a substantial need in the public interest. (b) USE
OF

MATTER.A person to whom a matter

23 has been disclosed under this section shall not use such 24 matter other than for the purpose for which such disclo25 sure was authorized.

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53 1 (c) DEFINITIONS.As used in this section, the

2 terms attorney for the government and grand jury infor3 mation have the meanings given to those terms in section 4 3322 of title 18, United States Code.. 5 (b) CONFORMING AMENDMENT.The table of con-

6 tents in section 1(b) of the Sarbanes-Oxley Act of 2002 7 is amended by inserting after the item relating to section 8 604 the following:
Sec. 605. Access to grand jury information..

9 10 11

SEC. 214. AIDING AND ABETTING STANDARD OF KNOWLEDGE SATISFIED BY RECKLESSNESS.

Section 20(e) of the Securities Exchange Act of 1934

12 (15 U.S.C. 78t(e)) is amended by inserting or recklessly 13 after knowingly. 14 15 16 17

SEC. 215. EXTRATERRITORIAL JURISDICTION OF THE ANTIFRAUD PROVISIONS OF THE FEDERAL SECURITIES LAWS.

(a) UNDER

THE

SECURITIES ACT

OF

1933.Section

18 22 of the Securities Act of 1933 (15 U.S.C. 77v(a)) is 19 amended by adding at the end the following new sub20 section: 21 (c) EXTRATERRITORIAL JURISDICTION.The juris-

22 diction of the district courts of the United States and the 23 United States courts of any Territory described under 24 subsection (a) includes violations of section 17(a), and all

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54 1 suits in equity and actions at law under that section, in2 volving 3 4 5 6 7 8 9 10 11 (1) conduct within the United States that constitutes significant steps in furtherance of the violation, even if the securities transaction occurs outside the United States and involves only foreign investors; or (2) conduct occurring outside the United States that has a foreseeable substantial effect within the United States.. (b) UNDER
THE

SECURITIES EXCHANGE ACT

OF

12 1934.Section 27 of the Securities Exchange Act of 1934 13 (15 U.S.C. 78aa) is amended 14 15 16 17 18 19 (1) by striking The district and inserting the following: (a) IN GENERAL.The district; and (2) by inserting at the end the following new subsection: (b) EXTRATERRITORIAL JURISDICTION.The juris-

20 diction of the district courts of the United States and the 21 United States courts of any Territory or other place sub22 ject to the jurisdiction of the United States described 23 under subsection (a) includes violations of the antifraud 24 provisions of this title, and all suits in equity and actions 25 at law under those provisions, involving

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55 1 2 3 4 5 6 7 8 9 (1) conduct within the United States that constitutes significant steps in furtherance of the violation, even if the securities transaction occurs outside the United States and involves only foreign investors; or (2) conduct occurring outside the United States that has a foreseeable substantial effect within the United States.. (c) UNDER
THE

INVESTMENT ADVISERS ACT

OF

10 1940.Section 214 of the Investment Advisers Act of 11 1940 (15 U.S.C. 80b-14) is amended 12 13 14 15 16 17 (1) by striking The district and inserting the following: (a) IN GENERAL.The district; and (2) by inserting at the end the following new subsection: (b) EXTRATERRITORIAL JURISDICTION.The juris-

18 diction of the district courts of the United States and the 19 United States courts of any Territory or other place sub20 ject to the jurisdiction of the United States described 21 under subsection (a) includes violations of section 206, 22 and all suits in equity and actions at law under that sec23 tion, involving 24 25 (1) conduct within the United States that constitutes significant steps in furtherance of the viola-

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56 1 2 3 4 5 6 7 8 tion, even if the securities transaction occurs outside the United States and involves only foreign investors; or (2) conduct occurring outside the United States that has a foreseeable substantial effect within the United States..
SEC. 216. FIDELITY BONDING.

Section 17(g) of the Investment Company Act of

9 1940 (15 U.S.C. 80a-17(g)) is amended to read as follows: 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (g) FIDELITY BONDING. (1) IN
GENERAL.The

Commission is author-

ized to require that a registered management investment company provide and maintain a bond against loss caused by any fraudulent act or theft committed by any officer or employee of the company, either alone or in collusion with others, in such form and amount as the Commission may prescribe by rule, regulation, or order for the protection of investors. (2) DEFINITIONS.For purposes of this subsection, the term officer or employee shall include the officers and employees of the depositor, trustee, investment adviser, or any other manager of the registered investment company, and any affiliated person of any such person..

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57 1 2 3 4
SEC. 217. ENHANCED SEC AUTHORITY TO CONDUCT SURVEILLANCE AND RISK ASSESSMENT.

(a) SECURITIES EXCHANGE ACT

MENTS.Section

OF

1934 AMEND-

17(b) of the Securities Exchange Act of

5 1934 (15 U.S.C. 78q(b)) is amended by adding at the end 6 the following new paragraph: 7 8 9 10 11 12 13 14 15 16 17 18 19 (5) SURVEILLANCE
AND RISK ASSESSMENT.

All persons described in subsection (a) of this section are subject at any time, or from time to time, to such reasonable periodic, special, or other information and document requests by representatives of the Commission as the Commission by rule or order deems necessary or appropriate to conduct surveillance or risk assessments of the securities markets, persons registered with the Commission under this title, or otherwise in furtherance of the purposes of this title.. (b) INVESTMENT COMPANY ACT
MENTS.Section OF

1940 AMEND-

31(b) of the Investment Company Act

20 of 1940 (15 U.S.C. 80a-30(b)) is amended by adding at 21 the end the following new paragraph: 22 23 24 25 26 (4) SURVEILLANCE
AND RISK ASSESSMENT.

All persons described in paragraph (1) are subject at any time, or from time to time, to such reasonable periodic, special, or other information and document requests by representatives of the Commission as the
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58 1 2 3 4 5 6 7 Commission by rule or order deems necessary or appropriate to conduct surveillance or risk assessments of the securities markets, persons registered with the Commission under this title, or otherwise in furtherance of the purposes of this title.. (c) INVESTMENT ADVISERS ACT
MENTS.Section OF

1940 AMEND-

204 of the Investment Advisers Act of

8 1940 (15 U.S.C. 80b-4) is amended by adding at the end 9 the following new subsection: 10 (d) SURVEILLANCE
AND

RISK ASSESSMENT.All

11 persons described in subsection (a) are subject at any 12 time, or from time to time, to such reasonable periodic, 13 special, or other information and document requests by 14 representatives of the Commission as the Commission by 15 rule or order deems necessary or appropriate to conduct 16 surveillance or risk assessments of the securities markets, 17 persons registered with the Commission under this title, 18 or otherwise in furtherance of the purposes of this title.. 19 20
SEC. 218. INVESTMENT COMPANY EXAMINATIONS.

Section 31(b)(1) of the Investment Company Act of

21 1940 (15 U.S.C. 80a-30) is amended to read as follows: 22 23 24 25 (1) IN

GENERAL.All

records of each reg-

istered investment company, and each underwriter, broker, dealer, or investment adviser that is a majority-owned subsidiary of such a company, shall be

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59 1 2 3 4 5 6 7 8 subject at any time, or from time to time, to such reasonable periodic, special, or other examinations by representatives of the Commission as the Commission deems necessary or appropriate in the public interest or for the protection of investors..
SEC. 219. CONTROL PERSON LIABILITY UNDER THE SECURITIES EXCHANGE ACT.

Section 20(a) of the Securities Exchange Act of 1934

9 (15 U.S.C. 78t(a)) is amended by inserting after con10 trolled person is liable the following: including to the 11 Commission in any action brought under paragraph (1) 12 or (3) of section 21(d),. 13 14 15
SEC. 220. ENHANCED APPLICATION OF ANTI-FRAUD PROVISIONS.

The Securities Exchange Act of 1934 (15 U.S.C. 78a

16 et seq.) is amended 17 18 19 20 21 22 23 (1) in section 9 (A) by striking registered on a national securities exchange each place it appears and inserting other than a government security; (B) in subsection (b), by striking by use of any facility of a national securities exchange,; and

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60 1 2 3 4 5 6 7 8 9 10 11 12 13 14 (C) in subsection (c), by inserting after unlawful for any the following: broker, dealer, or; (2) in section 10(a)(1), by striking registered on a national securities exchange each place it appears and inserting other than a government security; and (3) in section 15(c)(1)(A), by striking otherwise than on a national securities exchange of which it is a member.

TITLE IIICOMMISSION FUNDING AND ORGANIZATION

SEC. 301. AUTHORIZATION OF APPROPRIATIONS.

Section 35 of the Securities Exchange Act of 1934

15 (15 U.S.C. 78kk) is amended to read as follows: 16 17

SEC. 35. AUTHORIZATION OF APPROPRIATIONS.

In addition to any other funds authorized to be ap-

18 propriated to the Commission, there are authorized to be 19 appropriated to carry out the functions, powers, and du20 ties of the Commission 21 22 23 24 25 (1) for fiscal year 2010, $1,115,000,000; (2) for fiscal year 2011, $1,300,000,000; (3) for fiscal year 2012, $1,500,000,000; (4) for fiscal year 2013, $1,750,000,000; (5) for fiscal year 2014, $2,000,000,000; and

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61 1 2 3 (6) for fiscal year 2015, $2,250,000,000..

SEC. 302. INVESTMENT ADVISER REGULATION FUNDING.

Section 203 of the Investment Advisers Act of 1940

4 (15 U.S.C. 80b3) is amended by adding at the end the 5 following new subsection: 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (l) ANNUAL ASSESSMENT. (1) IN
GENERAL.The

Commission shall, in

accordance with this subsection, collect from investment advisers required to register with the Commission under this title, fees designed to help recover the cost of inspections and examinations of registered investment advisers conducted by the Commission pursuant to this title. (2) FEE
PAYMENT REQUIRED.An

investment

adviser shall, at the time of registration with the Commission, and each fiscal year thereafter during which such adviser is so registered, pay to the Commission a fair and reasonable fee determined by the Commission. In determining such fee, the Commission shall consider (A) the investment advisers size; (B) the risk profile of the investment adviser; (C) the types of clients of the investment adviser; and

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62 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (D) such other relevant factors as the Commission determines to be appropriate. (3) AMOUNT
AND USE OF FEES. AGGREGATE AMOUNT.

(A) MINIMUM

The aggregate amount of fees determined by the Commission under this subsection for any fiscal year shall be greater than the amount the Commission spent on inspections and examinations of registered investment advisers during the 2009 fiscal year. (B) EXCESS
FEES.The

Commission

may retain any excess fees collected under this subsection during a fiscal year for application towards the costs of inspections and examinations of investment advisers in future fiscal years. (4) REVIEW
AND ADJUSTMENT OF FEES.

The Commission may review fee rates established pursuant to this section before the end of any fiscal year and make any appropriate adjustments prior to collecting any such fee in the following fiscal year. (5) PENALTY
FEE.The

Commission shall

prescribe by rule or regulation an additional fee to be assessed as a penalty for late payment of fees required by this subsection.

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63 1 2 3 4 5 6 (6) JUDICIAL
REVIEW.Increases

or decreases

in fees made pursuant to this section shall not be subject to judicial review..
SEC. 303. AMENDMENTS TO SECTION 31 OF THE SECURITIES EXCHANGE ACT OF 1934.

Section 31 of the Securities Exchange Act of 1934

7 (15 U.S.C. 78ee) is amended 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) in subsection (e)(2), by striking September 30 and inserting September 25; (2) in subsection (g), by striking April 30 and inserting August 31; and (3) in subsection (j) (A) by striking 5 months and inserting 4 months; and (B) by striking (including fees collected during such 5-month period and assessments collected under subsection (d) of this section) and inserting (including fees estimated to be collected under subsections (b) and (c) prior to the effective date of the uniform adjusted rate and assessments estimated to be collected under subsection (d)).
SEC. 304. COMMISSION ORGANIZATIONAL STUDY AND REFORM.

(a) STUDY REQUIRED.

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64 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) IN
GENERAL.Not

later than the end of

the 60-day period beginning on the date of the enactment of this Act, the Securities and Exchange Commission (hereinafter in this section referred to as the SEC) shall hire an independent consultant of high caliber and with expertise in organizational restructuring to examine the internal operations, structure, funding, and need for comprehensive reform of the SEC, self-regulatory organizations, and other entities relevant to the regulation of securities and the protection of securities investors. (2) SPECIFIC
AREAS FOR STUDY.The

study

required under paragraph (1) shall, at a minimum, include the study of (A) the possible elimination of unnecessary or redundant units at the SEC; (B) improving communications between SEC offices and divisions; (C) the need to put in place a clear chain of command structure, particularly for enforcement examinations and compliance inspections; (D) the SECs hiring policies and personal practices, including (i) whether there is a need to further streamline hiring authorities for those who

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65 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 are not lawyers, accountants, compliance examiners, or economists; (ii) whether there is a need for further pay reforms; (iii) the experiential mix of SEC employees and whether such mix efficiently and effectively permits the SEC to protect investors; and (iv) the application of civil service laws by the SEC; and (E) the present self-regulatory organizational structure and a determination of whether the present reliance on self-regulatory organizations promotes efficient and effective governance for the securities markets. (b) CONSULTANT REPORT.Not later than the end

17 of the 180-day period beginning on the date of the enact18 ment of this Act, the independent consultant hired pursu19 ant to subsection (a)(1) shall issue a report to the SEC 20 and the Congress containing 21 22 23 24 25 (1) a detailed description of any findings and conclusions made while carrying out the study required under subsection (a)(1); (2) recommendations for legislative, regulatory, or administrative action that the consultant deter-

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66 1 2 3 4 mines appropriate to enable the SEC and other entities on which it reports to perform their statutorily or otherwise mandated missions. (c) SEC REPORT.Not later than the end of the 6-

5 month period beginning on the date the consultant issues 6 the report under subsection (b), and every 6-months there7 after during the 2-year period following the date on which 8 the consultant issues such report, the SEC shall issue a 9 report to the Committee on Financial Services of the 10 House of Representatives and the Committee on Banking, 11 Housing, and Urban Affairs of the Senate describing the 12 SECs implementation of the regulatory and administra13 tive recommendations contained in the consultants report. 14 15 16 17

TITLE IVADDITIONAL COMMISSION REFORMS

SEC. 401. REGULATION OF SECURITIES LENDING.

Section 10 of the Securities Exchange Act of 1934

18 (15 U.S.C. 78j) is amended by adding at the end the fol19 lowing new subsection: 20 (c) To effect or accept a transaction involving the

21 loan or borrowing of securities in contravention of such 22 rules and regulations as the Commission may prescribe as 23 necessary or appropriate in the public interest or for the 24 protection of investors..

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67 1 2
SEC. 402. LOST AND STOLEN SECURITIES.

Section 17(f)(1) of the Securities Exchange Act of

3 1934 (15 U.S.C. 78q(f)(1)) is amended 4 5 6 7 8 9 10 11 12 13 14 (1) in subparagraph (A), by striking missing, lost, counterfeit, or stolen securities and inserting securities that are missing, lost, counterfeit, stolen, cancelled, or any other category of securities as the Commission, by rule, may prescribe; and (2) in subparagraph (B), by striking or stolen and inserting stolen, cancelled, or reported in such other manner as the Commission, by rule, may prescribe.
SEC. 403. FINGERPRINTING.

Section 17(f)(2) of the Securities Exchange Act of

15 1934 (15 U.S.C. 78q(f)(2)) is amended 16 17 18 19 20 21 22 23 24 (1) by striking and registered clearing agency, and inserting registered clearing agency, registered securities information processor, national securities exchange, and national securities association; and (2) by striking or clearing agency, and inserting clearing agency, securities information processor, national securities exchange, or national securities association,.

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68 1 2 3
SEC. 404. EQUAL TREATMENT OF SELF-REGULATORY ORGANIZATION RULES.

Section 29(a) of the Securities Exchange Act of 1934

4 (15 U.S.C. 78cc(a)) is amended by striking an exchange 5 required thereby and inserting a self-regulatory organi6 zation,. 7 8 9 10
SEC. 405. CLARIFICATION THAT SECTION 205 OF THE INVESTMENT ADVISERS ACT OF 1940 DOES NOT APPLY TO STATE-REGISTERED ADVISERS.

Section 205(a) of the Investment Advisers Act of

11 1940 (15 U.S.C. 80b5(a)) is amended 12 13 14 15 16 17 18 19 20 21 22 23 (1) by striking , unless exempt from registration pursuant to section 203(b), and inserting registered or required to be registered with the Commission; (2) by striking make use of the mails or any means or instrumentality of interstate commerce, directly or indirectly, to; and (3) by striking to after in any way.
SEC. 406. CONFORMING AMENDMENTS FOR THE REPEAL OF THE PUBLIC UTILITY HOLDING COMPANY ACT OF 1935.

(a) SECURITIES EXCHANGE ACT

OF

1934.The Se-

24 curities Exchange Act of 1934 (15 U.S.C. 78 et seq.) is 25 amended

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69 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) in section 3(a)(47) (15 U.S.C. 78c(a)(47)), by striking the Public Utility Holding Company Act of 1935 (15 U.S.C. 79a et seq.),; and (2) in section 12(k) (15 U.S.C. 78l(k)), by amending paragraph (7) to read as follows: (7) DEFINITION.For purposes of this subsection, the term emergency means (A) a major market disturbance characterized by or constituting (i) sudden and excessive fluctuations of securities prices generally, or a substantial threat thereof, that threaten fair and orderly markets; or (ii) a substantial disruption of the safe or efficient operation of the national system for clearance and settlement of transactions in securities, or a substantial threat thereof; or (B) a major disturbance that substantially disrupts, or threatens to substantially disrupt (i) the functioning of securities markets, investment companies, or any other significant portion or segment of the securities markets; or

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70 1 2 3 4 5 6 (ii) the transmission or processing of securities transactions.. (3) in section 21(h)(2) (15 U.S.C. 78u(h)(2)), by striking section 18(c) of the Public Utility Holding Company Act of 1935,. (b) TRUST INDENTURE ACT
OF

1939.The Trust

7 Indenture Act of 1939 (15 U.S.C. 77aaa et seq.) is 8 amended 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) in section 303 (15 U.S.C. 77ccc), by amending paragraph (17) to read as follows: (17) The terms Securities Act of 1933 and Securities Exchange Act of 1934 shall be deemed to refer, respectively, to such Acts, as amended, whether amended prior to or after the enactment of this title.; (2) in section 308 (15 U.S.C. 77hhh), by striking Securities Act of 1933, the Securities Exchange Act of 1934, or the Public Utility Holding Company Act of 1935 each place it appears and inserting Securities Act of 1933 or the Securities Exchange Act of 1934; (3) in section 310 (15 U.S.C. 77jjj), by striking subsection (c) (including the preceding heading); (4) in section 311 (15 U.S.C. 77kkk) by striking subsection (c);

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71 1 2 3 4 5 6 7 8 9 10 11 12 13 (5) in section 323(b) (15 U.S.C. 77www(b)), by striking Securities Act of 1933, or the Securities Exchange Act of 1934, or the Public Utility Holding Company Act of 1935 and inserting Securities Act of 1933 or the Securities Exchange Act of 1934; and (6) in section 326 (15 U.S.C. 77zzz), by striking Securities Act of 1933, or the Securities Exchange Act of 1934, or the Public Utility Holding Company Act of 1935, and inserting Securities Act of 1933 or the Securities Exchange Act of 1934. (c) INVESTMENT COMPANY ACT
OF

1940.The In-

14 vestment Company Act of 1940 (15 U.S.C. 80a1 et seq.) 15 is amended 16 17 18 19 20 21 22 23 24 (1) in section 2(a)(44) (15 U.S.C. 80a 2(a)(44)), by striking Public Utility Holding Company Act of 1935,; (2) in section 3(c) (15 U.S.C. 80a3(c)), by amending paragraph (8) to read as follows: (8) [Repealed]; (3) in section 38(b) (15 U.S.C. 80a37(b)), by striking the Public Utility Holding Company Act of 1935,; and

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72 1 2 3 4 (4) in section 50 (15 U.S.C. 80a49), by striking the Public Utility Holding Company Act of 1935,. (d) INVESTMENT ADVISERS ACT
OF

1940.Section

5 202(a)(21) of the Investment Advisers Act of 1940 (15 6 U.S.C. 80b2(a)(21)) is amended by striking Public 7 Utility Holding Company Act of 1935,. 8 9 10 11 12 13 14 15 16 17 18 19 20 21
SEC. 407. PROMOTING TRANSPARENCY IN FINANCIAL REPORTING.

(a) FINDINGS.Congress finds the following: (1) Transparent and clear financial reporting is integral to the continued growth and strength of our capital markets and the confidence of investors. (2) The increasing detail and volume of accounting, auditing, and reporting guidance pose a major challenge. (3) The complexity of accounting and auditing standards in the United States has added to the costs and effort involved in financial reporting. (b) TESTIMONY REQUIRED
PLEXITY IN ON

REDUCING COM-

FINANCIAL REPORTING.The Securities and

22 Exchange Commission, the Financial Accounting Stand23 ards Board, and the Public Company Accounting Over24 sight Board shall annually provide oral testimony by their 25 respective Chairpersons or a designee of the Chairperson,

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73 1 beginning in 2010, and for 5 years thereafter, to the Com2 mittee on Financial Services of the House of Representa3 tives on their efforts to reduce the complexity in financial 4 reporting to provide more accurate and clear financial in5 formation to investors, including 6 7 8 9 10 11 12 13 14 15 16 17 (1) reassessing complex and outdated accounting standards; (2) improving the understandability, consistency, and overall usability of the existing accounting and auditing literature; (3) standards; (4) encouraging the use and acceptance of interactive data; and (5) promoting disclosures in plain English.
SEC. 408. UNLAWFUL MARGIN LENDING.

developing

principles-based

accounting

Section 7(c)(1)(A) of the Securities Exchange Act of

18 1934 (15 U.S.C. 78g(c)(1)(A)) is amended by striking ; 19 and and inserting ; or. 20 21 22
SEC. 409. PROTECTING CONFIDENTIALITY OF MATERIALS SUBMITTED TO THE COMMISSION.

(a) SECURITIES EXCHANGE ACT

OF

1934.Section

23 17(j) of the Securities Exchange Act of 1934 (15 U.S.C. 24 78q(j)) is amended to read as follows:

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74 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (j) AUTHORITY TO LIMIT DISCLOSURE

MATION. OF

INFOR-

(1) IN

GENERAL.Notwithstanding

any other

provision of law, the Commission shall not be compelled to disclose any information, documents, records, or reports that relate to an examination of a person subject to or described in this section, including subsection (i)(5)(A), or the financial or operational condition of such persons, or any information supplied to the Commission by any domestic or foreign regulatory agency that relates to the financial or operational condition of such persons, of any associated person of such persons, or any affiliate of an investment bank holding company. (2) CERTAIN
EXCEPTIONS.Nothing

in this

subsection shall authorize the Commission to withhold information from the Congress, prevent the Commission from complying with a request for information from any other Federal department or agency or any self-regulatory organization requesting the information for purposes within the scope of its jurisdiction, or prevent the Commission from complying with an order of a court of the United States in an action brought by the United States or the Commission against a person subject to or described

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75 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 in this section to produce information, documents, records, or reports relating directly to the examination of that person or the financial or operational condition of that person or an associated or affiliated person of that person. (3) TREATMENT
UNDER SECTION 552 OF

TITLE 5, UNITED STATES CODE.For

purposes of

section 552 of title 5, United States Code, this subsection shall be considered a statute described in subsection (b)(3)(B) of that section. (4) CERTAIN
TIAL.In INFORMATION TO BE CONFIDEN-

prescribing regulations to carry out the

requirements of this subsection, the Commission shall designate information described in or obtained pursuant to subparagraphs (A), (B), and (C) of subsection (i)(3) as confidential information for purposes of section 24(b)(2) of this title.. (b) INVESTMENT COMPANY ACT
OF

1940.Section

19 31(b) of the Investment Company Act of 1940 (15 U.S.C. 20 80a30(b)) is amended by adding at the end the following 21 new paragraph: 22 23 24 25 (4) CONFIDENTIALITY. (A) IN
GENERAL.Notwithstanding

any

other provision of law, the Commission shall not be compelled to disclose any information, docu-

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76 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 ments, records, or reports that relate to an examination of a person subject to or described in this section. (B) CERTAIN
EXCEPTIONS.Nothing

in

this subsection shall authorize the Commission to withhold information from the Congress, prevent the Commission from complying with a request for information from any other Federal department or agency requesting the information for purposes within the scope of its jurisdiction, or prevent the Commission from complying with an order of a court of the United States in an action brought by the United States or the Commission against a person subject to or described in this section to produce information, documents, records, or reports relating directly to the examination of that person or the financial or operational condition of that person or an associated or affiliated person of that person. (C) TREATMENT
UNDER SECTION 552 OF

TITLE 5, UNITED STATES CODE.

For purposes

of section 552 of title 5, United States Code, this subsection shall be considered a statute de-

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77 1 2 3 scribed in subsection (b)(3)(B) of that section.. (c) INVESTMENT ADVISERS ACT

OF

1940.Section

4 204 of the Investment Advisers Act of 1940 (15 U.S.C. 5 80b4) is amended by adding at the end the following new 6 subsection: 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (d) CONFIDENTIALITY. (1) IN
GENERAL.Notwithstanding

any other

provision of law, the Commission shall not be compelled to disclose any information, documents, records, or reports that relate to an examination of a person subject to or described in this section. (2) CERTAIN
EXCEPTIONS.Nothing

in this

subsection shall authorize the Commission to withhold information from Congress, prevent the Commission from complying with a request for information from any other Federal department or agency requesting the information for purposes within the scope of its jurisdiction, or prevent the Commission from complying with an order of a court of the United States in an action brought by the United States or the Commission against a person subject to or described in this section to produce information, documents, records, or reports relating directly to the examination of that person or the financial or

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78 1 2 3 4 5 6 7 8 9 operational condition of that person or an associated or affiliated person of that person. (3) TREATMENT
UNDER SECTION 552 OF

TITLE 5, UNITED STATES CODE.For

purposes of

section 552 of title 5, United States Code, this subsection shall be considered a statute described in subsection (b)(3)(B) of that section..
SEC. 410. TECHNICAL CORRECTIONS.

(a) SECURITIES ACT

OF

1933.The Securities Act

10 of 1933 (15 U.S.C. 77a et seq.) is amended 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) in section 3(a)(4) (15 U.S.C. 77c(a)(4)), by striking individual; and inserting individual,; (2) in section 18(b)(1)(C) (15 U.S.C.

77r(b)(1)(C)), by striking is a security and inserting a security; (3) in section 18(c)(2)(B)(i) (15 U.S.C.

77r(c)(2)(B)(i)), by striking State, or and inserting State or; (4) in section 19(d)(6)(A) (15 U.S.C.

77s(d)(6)(A)), by striking in paragraph (1) of (3) and inserting in paragraph (1) or (3); and (5) in section 27A(c)(1)(B)(ii) (15 U.S.C. 77z 2(c)(1)(B)(ii)), by striking business entity; and inserting business entity,.

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79 1 (b) SECURITIES EXCHANGE ACT

OF

1934.The Se-

2 curities Exchange Act of 1934 (15 U.S.C. 78 et seq.) is 3 amended 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) in section 2(1)(a) (15 U.S.C. 78b(1)(a)), by striking affected and inserting effected; (2) in section 3(a)(55)(A) (15 U.S.C.

78c(a)(55)(A)), by striking section 3(a)(12) of the Securities Exchange Act of 1934 and inserting section 3(a)(12) of this Act; (3) in section 3(g) (15 U.S.C. 78c(g)), by striking company, account person, or entity and inserting company, account, person, or entity; (4) in section 10A(i)(1)(B)(i) (15 U.S.C. 78j 1(i)(1)(B)(i)), by striking nonaudit and inserting non-audit; (5) in section 13(b)(1) (15 U.S.C. 78m(b)(1)), by striking earning statement and inserting earnings statement; (6) in section 15(b)(1) (15 U.S.C. 78o(b)(1)) (A) by striking the sentence beginning The order granting and ending from such membership. in subparagraph (B); and (B) by inserting such sentence in the matter following such subparagraph after are satisfied.;

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80 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (7) in section 15 (15 U.S.C. 78o), by redesignating subsection (i), as added by section 303(f) of the Commodity Futures Modernization Act of 2000 (114 Stat. 2763A455), as subsection (j); (8) in section 15C(a)(2) (15 U.S.C. 78o 5(a)(2)) (A) by redesignating clauses (i) and (ii) as subparagraphs (A) and (B), respectively; (B) by striking the sentence beginning The order granting and ending from such membership. in such subparagraph (B), as redesignated; and (C) by inserting such sentence in the matter following such redesignated subparagraph after are satisfied.; (9) in section 16(a)(2)(C) (15 U.S.C.

78p(a)(2)(C)), by striking section 206(b) and inserting section 206B; (10) in section 17(b)(1)(B) (15 U.S.C.

78q(b)(1)(B)), by striking 15A(k) gives and inserting 15A(k), give; and (11) in section 21C(c)(2) (15 U.S.C. 78u 3(c)(2)), by striking paragraph (1) subsection and inserting Paragraph (1).

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81 1 (c) TRUST INDENTURE ACT

OF

1939.The Trust

2 Indenture Act of 1939 (15 U.S.C. 77aaa et seq.) is 3 amended 4 5 6 7 8 9 10 11 12 (1) in section 304(b) (15 U.S.C. 77ddd(b)), by striking section 2 of such Act and inserting section 2(a) of such Act; (2) in section 313(a)(4) (15 U.S.C.

77mmm(a)(4)) by striking subsection 311 and inserting section 311(b); and (3) in section 317(a)(1) (15 U.S.C.

77qqq(a)(1)), by striking (1), and inserting (1). (d) INVESTMENT COMPANY ACT
OF

1940.The In-

13 vestment Company Act of 1940 (15 U.S.C. 80a1 et seq.) 14 is amended 15 16 17 18 19 20 21 22 23 24 25 (1) in section 2(a)(19) (15 U.S.C. 80a 2(a)(19)) by striking clause (vi) both places it appears in the last two sentences and inserting clause (vii); (2) in section 9(b)(4)(B) (15 U.S.C. 80a 9(b)(4)(B)), by inserting or after the semicolon at the end; (3) in section 12(d)(1)(J) (15 U.S.C. 80a 12(d)(1)(J)), by striking any provision of this subsection and inserting any provision of this paragraph;

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82 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 (4) in section 13(a)(3) (15 U.S.C. 80a 13(a)(3)), by inserting or after the semicolon at the end; (5) in section 17(f)(4) (15 U.S.C. 80a 17(f)(4)), by striking No such member and inserting No member of a national securities exchange; (6) in section 17(f)(6) (15 U.S.C. 80a 17(f)(6)), by striking company may serve and inserting company, may serve; and (7) in section 61(a)(3)(B)(iii) (15 U.S.C. 80a 60(a)(3)(B)(iii)) (A) by striking paragraph (1) of section 205 and inserting section 205(a)(1); and (B) by striking clause (A) or (B) of that section and inserting section 205(b)(1) or (2). (e) INVESTMENT ADVISERS ACT
OF

1940.The In-

18 vestment Advisers Act of 1940 (15 U.S.C. 80b1 et seq.) 19 is amended 20 21 22 23 24 25 (1) in each of the following sections, by striking principal business office or principal place of business (whichever and wherever it appears) and inserting principal office and place of business: sections 203(c)(1)(A), 203(k)(4)(B), 213(a), 222(b), and 222(c) (15 U.S.C. 80b3(c)(1)(A), 80b

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83 1 2 3 4 5 6 3(k)(4)(B), 18a(c)); and (2) in section 206(3) (15 U.S.C. 80b6(3)), by inserting or after the semicolon at the end.
SEC. 411. MUNICIPAL SECURITIES.

80b13(a),

80b18a(b),

and

80b

Section 15B(b) of the Securities Exchange Act of

7 1934 (15 U.S.C. 78o-4(b)) is amended 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) by amending paragraph (1) to read as follows: (1) COMPOSITION
OF THE MUNICIPAL SECURI-

TIES RULEMAKING BOARD.Not

later than the end

of the 120-day period beginning on the date of the enactment of this paragraph, the Municipal Securities Rulemaking Board (hereinafter in this section referred to as the Board), shall be composed of members which shall perform the duties set forth in this section and shall consist of (A) a majority of public representatives, at least one of whom shall be representative of investors in municipal securities and at least one of whom shall be representative of issuers of municipal securities (which members are hereinafter referred to as public representatives);

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84 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) at least one individual who is representative of municipal securities brokers and municipal securities dealers which are not banks or subsidiaries or departments or divisions of banks (which members are hereinafter referred to as broker-dealer representatives); and (C) at least one individual who is representative of municipal securities dealers which are banks or subsidiaries or departments or divisions of banks (which members are hereinafter referred to as bank representatives); and (2) by amending paragraph (2)(B) to read as follows: (B) Establish fair procedures for the nomination and election of members of the Board and assure fair representation in such nominations and elections. Such rules (i) shall establish requirements regarding the independence of public representatives; (ii) shall provide that the number of public representatives of the Board shall at all times exceed the total number of

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85 1 2 3 4 5 6 7 8 9 10 broker-dealer representatives and bank representatives; (iii) shall specify the term members shall serve; and (iv) may increase or decrease the number of members which shall constitute the whole Board, but in no case may such number be an even number..
SEC. 412. INTERESTED PERSON DEFINITION.

Section 2(a)(19)(A) of the Investment Company Act

11 of 1940 (15 U.S.C. 80a-2(a)(19)(A)) is amended 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) by striking clauses (v) and (vi); (2) by inserting after clause (iv) the following new clause: (v) any natural person who is a member of a class of persons who the Commission, by rule or regulation, determines are unlikely to exercise an appropriate degree of independence as a result of (I) a material business or professional relationship with such company or any affiliated person of such company; or

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86 1 2 3 4 5 6 7 8 9 10 11 and (4) in clause (vi), as redesignated, by striking two completed fiscal years and inserting five completed fiscal years.
SEC. 413. RULEMAKING AUTHORITY TO PROTECT REDEEMING INVESTORS.

(II) a close familial relationship with any natural person who is an affiliated person of such company;; (3) by redesignating clause (vii) as clause (vi);

Section 22(e) of the Investment Company Act of

12 1940 (15 U.S.C. 80a-22(e)) is amended by adding at the 13 end the following: The Commission may, by rules and 14 regulations, limit the extent to which a registered open15 end investment company may own, hold, or invest in il16 liquid securities or other illiquid property. 17 18 19 20 21

TITLE VSECURITIES INVESTOR PROTECTION ACT AMENDMENTS

SEC. 501. INCREASING THE MINIMUM ASSESSMENT PAID BY SIPC MEMBERS.

Section 4(d)(1)(C) of the Securities Investor Protec-

22 tion Act of 1970 (15 U.S.C. 78ddd(d)(1)(C)) is amended 23 by striking $150 per annum and inserting the following: 24 0.02 percent of the gross revenues of such member of 25 SIPC.

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87 1 2 3
SEC. 502. INCREASING THE BORROWING LIMIT ON TREASURY LOANS.

Section 4(h) of the Securities Investor Protection Act

4 of 1970 (15 U.S.C. 78ddd(h)) is amended by striking of 5 not to exceed $1,000,000,000 and inserting not to ex6 ceed $2,500,000,000. 7 8
SEC. 503. INCREASING THE CASH LIMIT OF PROTECTION.

Section 9 of the Securities Investor Protection Act

9 of 1970 (15 U.S.C. 78fff-3) is amended 10 11 12 13 14 15 16 (1) in subsection (a)(1), by striking $100,000 for each such customer and inserting the standard maximum cash advance amount for each such customer, as determined in accordance with subsection (d); and (2) by adding the following new subsections: (d) STANDARD MAXIMUM CASH ADVANCE AMOUNT

17 DEFINED.For purposes of this section, the term stand18 ard maximum cash advance amount means $250,000, as 19 such amount may be adjusted after March 31, 2010, as 20 provided under subsection (e). 21 22 23 24 25 26 (e) INFLATION ADJUSTMENT. (1) IN
GENERAL.No

later than April 1,

2010, and every 5 years thereafter, and subject to the approval of the Commission as provided under section 3(e)(2), the Board of Directors of SIPC shall determine whether an inflation adjustment to the
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88 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 standard maximum cash advance amount is appropriate. If the Board of Directors of SIPC determines such an adjustment is appropriate, then the standard maximum cash advance amount shall be an amount equal to (A) $250,000 multiplied by, (B) the ratio of the annual value of the Personal Consumption Expenditures ChainType Price Index (or any successor index thereto), published by the Department of Commerce, for the calendar year preceding the year in which such determination is made, to the published annual value of such index for the calendar year preceding the year in which this subsection was enacted. The index values used in calculations under this paragraph shall be, as of the date of the calculation, the values most recently published by the Department of Commerce. (2) ROUNDING.If the standard maximum cash advance amount determined under paragraph (1) for any period is not a multiple of $10,000, the amount so determined shall be rounded down to the nearest $10,000.

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89 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (3) PUBLICATION
GRESS.Not AND REPORT TO THE CON-

later than April 5 of any calendar year

in which a determination is required to be made under paragraph (1) (A) the Commission shall publish in the Federal Register the standard maximum cash advance amount; and (B) the Board of Directors of SIPC shall submit a report to the Congress containing stating the standard maximum cash advance amount. (4) IMPLEMENTATION
PERIOD.Any

adjust-

ment to the standard maximum cash advance amount shall take effect on January 1 of the year immediately succeeding the calendar year in which such adjustment is made. (5) INFLATION
ADJUSTMENT CONSIDER-

ATIONS.In

making any determination under para-

graph (1) to increase the standard maximum cash advance amount, the Board of Directors of SIPC shall consider (A) the overall state of the fund and the economic SIPC; conditions affecting members of

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90 1 2 3 4 5 6 7 8 (B) the potential problems affecting members of SIPC; and (C) such other factors as the Board of Directors of SIPC may determine appropriate..
SEC. 504. SIPC AS TRUSTEE IN SIPA LIQUIDATION PROCEEDINGS.

Section 5(b)(3) of the Securities Investor Protection

9 Act of 1970 (15 U.S.C. 78eee(b)(3)) is amended 10 11 12 13 14 15 16 17 (1) by striking SIPC has determined that the liabilities of the debtor to unsecured general creditors and to subordinated lenders appear to aggregate less than $750,000 and that; and (2) by striking five hundred and inserting five thousand.
SEC. 505. INSIDERS INELIGIBLE FOR SIPC ADVANCES.

Section 9(a)(4) of the Securities Investor Protection

18 Act of 1970 (15 U.S.C. 78fff-3(a)(4)) is amended by in19 serting an insider (as such term is defined under section 20 101(31) of title 11, United States Code), after or net 21 profits of the debtor,. 22 23
SEC. 506. ELIGIBILITY FOR DIRECT PAYMENT PROCEDURE.

Section 10(a)(4) of the Securities Investor Protection

24 Act of 1970 (15 U.S.C. 78fff-4(a)(4)) is amended by strik25 ing $250,000 and inserting $850,000.

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91 1 2 3
SEC. 507. INCREASING THE FINE FOR PROHIBITED ACTS UNDER SIPA.

Section 14(c) of the Securities Investor Protection

4 Act of 1970 (15 U.S.C. 78jjj(c)) is amended 5 6 7 8 9 10 11 (1) in paragraph (1), by striking $50,000 and inserting $250,000; and (2) in paragraph (2), by striking $50,000 and inserting $250,000.
SEC. 508. PENALTY FOR MISREPRESENTATION OF SIPC MEMBERSHIP OR PROTECTION.

Section 14 of the Securities Investor Protection Act

12 of 1970 (15 U.S.C. 78jjj) is amended by adding at the 13 end the following new subsection: 14 15 16 17 18 19 20 21 22 23 24 25
OR

(d) MISREPRESENTATION PROTECTION. (1) IN

OF

SIPC MEMBERSHIP

GENERAL.Any

person who falsely

represents by any means (including, without limitation, through the Internet or any other medium of mass communication), with actual knowledge of the falsity of the representation and with an intent to deceive or cause injury to another, that such person, or another person, is a member of SIPC or that any person or account is protected or is eligible for protection under this Act or by SIPC, shall be liable for any damages caused thereby and shall be fined not

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92 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 more than $250,000 or imprisoned for not more than five years. (2) INTERNET
SERVICE PROVIDERS.Any

Internet service provider that, on or through a system or network controlled or operated by the Internet service provider, transmits, routes, provides connections for, or stores any material containing any misrepresentation of the kind prohibited in paragraph (1) shall be liable for any damages caused thereby, including damages suffered by SIPC, if the Internet service provider (A) has actual knowledge that the material contains a misrepresentation of the kind prohibited in paragraph (1), or (B) in the absence of actual knowledge, is aware of facts or circumstances from which it is apparent that the material contains a misrepresentation of the kind prohibited in paragraph (1), and upon obtaining such knowledge or awareness, fails to act expeditiously to remove, or disable access to, the material. (3) INJUNCTIONS.Any court having jurisdiction of a civil action arising under this Act may grant temporary injunctions and final injunctions on

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93 1 2 3 4 5 6 7 8 9 10 11 12 13 14 such terms as the court deems reasonable to prevent or restrain any violation of paragraph (1) or (2). Any such injunction may be served anywhere in the United States on the person enjoined, shall be operative throughout the United States, and shall be enforceable, by proceedings in contempt or otherwise, by any United States court having jurisdiction over that person. The clerk of the court granting the injunction shall, when requested by any other court in which enforcement of the injunction is sought, transmit promptly to the other court a certified copy of all papers in the case on file in such clerks office..
SEC. 509. LIMITATIONS ON CUSTOMER STATUS.

Section 16(2) of the Securities Investor Protection

15 Act of 1970 (15 U.S.C. 78lll(2)) is amended 16 17 18 19 20 21 22 23 24 25 (1) in subparagraph (A), by striking or; (2) in subparagraph (B), by striking the period at the end and inserting ; or; and (3) by adding at the end the following new subparagraph: (C) any person to the extent such person has a claim for cash or securities arising out of a repurchase agreement or reverse repurchase agreement (as such terms are defined under section 47 of title 11, United States Code)..

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94 1 2 3
SEC. 510. FUTURES HELD IN A PORTFOLIO MARGIN SECURITIES ACCOUNT PROTECTION.

(a) SIPC ADVANCES.Section 9(a)(1) of the Securi-

4 ties Investor Protection Act of 1970 (15 U.S.C. 78fff 5 3(a)(1)) is amended by inserting or options on com6 modity futures contracts after claim for securities. 7 (b) DEFINITIONS.Section 16 of such Act (15

8 U.S.C. 78lll) is amended 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) by amending paragraph (2) to read as follows: (2) CUSTOMER. (A) IN
GENERAL.The

term customer

of a debtor means any person (including any person with whom the debtor deals as principal or agent) who has a claim on account of securities received, acquired, or held by the debtor in the ordinary course of its business as a broker or dealer from or for the securities accounts of such person for safekeeping, with a view to sale, to cover consummated sales, pursuant to purchases, as collateral, security, or for purposes of effecting transfer. (B) INCLUDED
PERSONS.The

term

customer includes

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95 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (i) any person who has deposited cash with the debtor for the purpose of purchasing securities; and (ii) any person who has a claim against the debtor for, or a claim against the debtor arising out of sales or conversions of, cash, securities, futures contracts, or options on futures contracts received, acquired, or held in a portfolio margining account carried as a securities account pursuant to a portfolio margining program approved by the Commission. (C) EXCLUDED
PERSONS.The

term

customer does not include (i) any person to the extent that the claim of such person arises out of transactions with a foreign subsidiary of a member of SIPC; or (ii) any person to the extent that such person has a claim for cash or securities which by contract, agreement, or understanding, or by operation of law, is part of the capital of the debtor, or is subordinated to the claims of any or all creditors of the debtor, notwithstanding that some

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96 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ground exists for declaring such contract, agreement, or understanding void or voidable in a suit between the claimant and the debtor.; (2) in paragraph (4), by inserting after the first sentence the following new sentence: In the case of portfolio margining accounts of customers that are carried as securities accounts pursuant to a portfolio margining program approved by the Commission, such term shall also include futures contracts and options on futures contracts received, acquired, or held by or for the account of a debtor from or for such accounts, and the proceeds thereof.; (3) in paragraph (9), by inserting before Such term in the matter following subparagraph (L) the following: The term includes revenues earned by a broker or dealer in connection with transactions in customers portfolio margining accounts carried as securities accounts pursuant to a portfolio margining program approved by the Commission.; and (4) in paragraph (11) (A) by amending subparagraph (A) to read as follows: (A) calculating the sum which would have been owed by the debtor to such customer if the

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97 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 debtor had liquidated, by sale or purchase on the filing date (i) all securities positions of such customer (other than customer name securities reclaimed by such customer); and (ii) all positions in futures contracts and options on futures contracts held in a portfolio margining account carried as a securities account pursuant to a portfolio margining program approved by the Commission; minus; and (B) by inserting before In determining in the matter following subparagraph (C) the following: A claim for a commodity futures contract received, acquired, or held in a portfolio margining account pursuant to a portfolio margining program approved by the Commission, or a claim for a security futures contract, shall be deemed to be a claim for the mark-tomarket (variation) payments due with respect to such contract as of the filing date, and such claim shall be treated as a claim for cash..

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98 1 2
SEC. 511. RISK-BASED PREMIUMS.

Section 4(c) of the Securities Investor Protection Act

3 of 1970 (15 U.S.C. 78ddd(c)) is amended by adding at 4 the end the following new paragraph: 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (4) RISK-BASED (A) IN
ASSESSMENT SYSTEM.

GENERAL.Assessments

made

pursuant to paragraph (2) shall made using a risk-based assessment system. (B) RISK-BASED
DEFINED.For ASSESSMENT SYSTEM

purposes of this paragraph, the

term risk-based assessment system means a system for calculating a members assessment based on (i) the probability that the fund will incur a loss with respect to the member, taking into consideration the risks attributable to (I) the size of the member; (II) the number of enforcement and compliance actions taken against such member during the previous 5year period by SIPC, the Commission, State securities regulators, and other Federal and State financial regulators;

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99 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 (III) the number of years such member has been in operation; and (IV) any other factors SIPC determines are relevant to assessing such probability; (ii) the likely amount of any such loss; and (iii) the revenue needs of the fund. (C) SEPARATE
ASSESSMENT SYSTEMS.

SIPC may establish separate risk-based assessment systems for large and small members of SIPC. (D) MODIFICATIONS
TO THE RISK-BASED

ASSESSMENT SYSTEM ALLOWED ONLY AFTER NOTICE AND COMMENT.In

revising or modi-

fying the risk-based assessment system at any time after the date of the enactment of this paragraph, SIPC may implement such revisions or modification in final form only after notice and opportunity for comment..
SEC. 512. BUDGETARY TREATMENT OF COMMISSION LOANS TO SIPC.

Section 4(g) of the Securities Investor Protection Act

24 of 1970 (15 U.S.C. 78ddd(g)) is amended by adding at 25 the end the following: Any loan made by the Commission

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100 1 to SIPC under this subsection shall not be considered to 2 result in a new direct loan obligation or a new loan guar3 antee commitment for purposes of section 504 of the Fed4 eral Credit Reform Act of 1990. 5 6 7 8 9 10

TITLE VISARBANES-OXLEY ACT AMENDMENTS

SEC. 601. PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD OVERSIGHT OF AUDITORS OF NONPUBLIC BROKERS AND DEALERS.

(a) DEFINITIONS.Title I of the Sarbanes-Oxley Act

11 of 2002 is amended by adding at the end the following 12 new section: 13 14

SEC. 110. DEFINITIONS.

For the purposes of this title, and notwithstanding

15 section 2: 16 17 18 19 20 21 22 23 24 (1) AUDIT.The term audit means an examination of the financial statements, reports, documents, or notices, of any issuer, broker, or dealer by an independent public accounting firm in accordance with the rules of the Board or the Commission (or, for the period preceding the adoption of applicable rules of the Board under section 103, in accordance with then-applicable generally accepted auditing and related standards for such purposes), for the pur-

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101 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 pose of expressing an opinion on such financial statements, reports, documents, or notices. (2) AUDIT
REPORT.The

term audit report

means a document, report, notice, or other record (A) prepared following an audit performed for purposes of compliance by an issuer, broker, or dealer with the requirements of the securities laws; and (B) in which a public accounting firm either (i) sets forth the opinion of that firm regarding a financial statement, report, notice, other document, procedures, or controls; or (ii) asserts that no such opinion can be expressed. (3) PROFESSIONAL
STANDARDS.The

term

professional standards means (A) accounting principles that are (i) established by the standard setting body described in section 19(b) of the Securities Act of 1933, as amended by this Act, or prescribed by the Commission under section 19(a) of that Act (15 U.S.C. 17a(s)) or section 13(b) of the Securities

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102 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Exchange Act of 1934 (15 U.S.C. 78a(m)); and (ii) relevant to audit reports for particular issuers, brokers, or dealers, or dealt with in the quality control system of a particular registered public accounting firm; and (B) auditing standards, standards for attestation engagements, quality control policies and procedures, ethical and competency standards, and independence standards (including rules implementing title II) that the Board or the Commission determines (i) relate to the preparation or issuance of audit reports for issuers, brokers, or dealers; and (ii) are established or adopted by the Board under section 103(a), or are promulgated as rules of the Commission. (4) BROKER.The term broker means a broker (as such term is defined in section 3(a)(4) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(4))) that is required to file a balance sheet, income statement, or other financial statement under section 17(e)(1)(A) of such Act (15 U.S.C.

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103 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 78q(e)(1)(A)), where such balance sheet, income statement, or financial statement is required to be certified by a registered public accounting firm. (5) DEALER.The term dealer means a dealer (as such term is defined in section 3(a)(5) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(5))) that is required to file a balance sheet, income statement, or other financial statement under section 17(e)(1)(A) of such Act (15 U.S.C. 78q(e)(1)(A)), where such balance sheet, income statement, or financial statement is required to be certified by a registered public accounting firm. (6) SELF-REGULATORY
ORGANIZATION.The

term self-regulatory organization has the same meaning as in section 3(a)(26) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(26)).. (b) ESTABLISHMENT
AND

ADMINISTRATION

OF THE

18 PUBLIC COMPANY ACCOUNTING OVERSIGHT BOARD. 19 Section 101 of such Act is amended 20 21 22 23 (1) by striking issuers each place it appears and inserting issuers, brokers, and dealers; (2) in subsection (a), by striking public companies and inserting companies; and

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104 1 2 3 4 (3) in subsection (a), by striking for companies the securities of which are sold to, and held by and for, public investors. (c) REGISTRATION WITH
THE

BOARD.Section 102

5 of such Act is amended 6 7 8 9 10 11 12 13 14 (1) by striking Beginning 180 days after the date of the determination of the Commission under section 101(d), it and inserting It; (2) in subsections (a) and (b)(2)(G), by striking issuer each place it appears and inserting issuer, broker, or dealer; and (3) by striking issuers and inserting issuers, brokers, and dealers. (d) AUDITING
AND INDEPENDENCE.Section

103(a)

15 of such Act is amended 16 17 18 19 20 21 22 23 24 (1) in paragraph (1), by striking and such ethics standards and inserting such ethics standards, and such independence standards; (2) in paragraph (2)(A)(iii), by striking describe in each audit report and inserting in each audit report for an issuer, describe; and (3) in paragraph (2)(B)(i), by striking

issuers and inserting issuers, brokers, and dealers.

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105 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23
ING

(e) INSPECTIONS OF REGISTERED PUBLIC ACCOUNTFIRMS.Section 104 of such Act is amended (1) in subsection (a), by striking issuers and inserting issuers, brokers, and dealers; (2) in subsection (b)(1)(A) (A) by striking audit reports and inserting audit reports on annual financial statements; and (B) by striking and; (3) in subsection (b)(1)(B) (A) by striking audit reports and inserting audit reports on annual financial statements; and (B) by striking the period on the end and inserting ; and; and (4) by adding at the end of subsection (b)(1) the following new subparagraph: (C) with respect to each registered public accounting firm that regularly provides audit reports and is not described under subparagraph (A) or (B), on a basis to be determined by the Board, by rule, consistent with the public interest and protection of investors..

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106 1 2 (f) INVESTIGATIONS

AND

DISCIPLINARY

PRO-

CEEDINGS.Section

105(c)(7)(B) of such Act is amend-

3 ed 4 5 6 7 8 9 10 (1) by striking any issuer each place it appears and inserting any issuer, broker, or dealer; and (2) by striking an issuer under this subsection and inserting a registered public accounting firm under this subsection. (g) FOREIGN PUBLIC ACCOUNTING FIRMS.Section

11 106 of such Act is amended 12 13 14 15 16 17 ed 18 19 20 21 22 23 24 (1) in subsection (c)(2), by striking subsection (i) and inserting subsection (j); (2) in subsection (d)(2), by striking allowing for differentiation among classes of issuers, as appropriate and inserting and among brokers and dealers that are not issuers, in accordance with subsection (h), and allowing for differentiation among (1) by striking issuer and inserting issuer, broker, or dealer; and (2) by striking issuers and inserting issuers, brokers, or dealers. (h) FUNDING.Section 109 of such Act is amend-

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107 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 classes of issuers and brokers and dealers, as appropriate; (3) in subsection (d), by inserting at the end the following new paragraph: (3) BROKERS
AND DEALERS.The

rules of

the Board under paragraph (1) shall provide that the allocation, assessment, and collection by the Board (or an agent appointed by the Board) of the fee established under paragraph (1) with respect to brokers and dealers shall not begin until the first day of the first full fiscal year beginning after the date of the enactment of this paragraph.; (4) by redesignating subsections (h), (i), and (j) as subsections (i), (j), and (k), respectively; and (5) by inserting after subsection (g) the following new subsection: (h) ALLOCATION
OF

ACCOUNTING SUPPORT FEES

18 AMONG BROKERS AND DEALERS. 19 20 21 22 23 24 25 (1) IN

GENERAL.Any

amount due from bro-

kers and dealers that are not issuers (or a particular class of such brokers and dealers) under this section to fund the budget of the Board shall be allocated among and payable by such brokers and dealers (or such brokers and dealers in a particular class, as applicable). A broker or dealers allocation shall be in

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108 1 2 3 4 5 6 7 8 9 10 proportion to the broker or dealers net capital compared to the total net capital of all brokers and dealers that are not issuers, in accordance with the rules of the Board. (2) OBLIGATION
TO PAY.Every

broker or

dealer shall pay the share of a reasonable annual accounting support fee or fees allocated to such broker or dealer under this section.. (i) REFERRAL OF INVESTIGATIONS TO A SELF-REGULATORY

ORGANIZATION.Section 105(b)(4)(B) of the

11 Sarbanes-Oxley Act of 2002 is amended 12 13 14 15 16 17 18 19 20 21 22 (j) USE

TION OR

(1) by redesignating clauses (ii) and (iii) as clauses (iii) and (iv), respectively; and (2) by inserting after clause (i) the following new clause: (ii) to a self-regulatory organization, in the case of an investigation that concerns an audit report for a broker or dealer that is subject to the jurisdiction of such self-regulatory organization;.
OF

DOCUMENTS RELATED

TO AN

INSPEC-

INVESTIGATION.Section 105(b)(5)(B)(ii) of

23 such Act is amended 24 (1) in subclause (III), by striking and;

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109 1 2 3 4 5 6 7 8 9 10 11 (2) in subclause (IV), by striking the comma and inserting ; and; and (3) by inserting after subclause (IV) the following new subclause: (V) a self-regulatory organization, with respect to an audit report for a broker or dealer that is subject to the jurisdiction of such self-regulatory organization,.
SEC. 602. FOREIGN REGULATORY INFORMATION SHARING.

(a) DEFINITION.Section 2(a) of the Sarbanes-

12 Oxley Act of 2002 (15 U.S.C. 7201(a)) is amended by 13 inserting after paragraph (16) the following: 14 15 16 17 18 19 20 21 (17) FOREIGN
ITY.The AUDITOR OVERSIGHT AUTHOR-

term foreign auditor oversight authority

means any governmental body or other entity empowered by a foreign government to conduct inspections of public accounting firms or otherwise to administer or enforce laws related to the regulation of public accounting firms.. (b) AVAILABILITY TO SHARE INFORMATION.Sec-

22 tion 105(b)(5) of the Sarbanes-Oxley Act of 2002 (15 23 U.S.C. 7215(b)(5)) is amended by adding at the end the 24 following:

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110 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 (c) (C) AVAILABILITY

SIGHT TO FOREIGN OVER-

AUTHORITIES.When

in the Boards

discretion it is necessary to accomplish the purposes of this Act or to protect investors, and without the loss of its status as confidential and privileged in the hands of the Board, all information referred to in subparagraph (A) that relates to a public accounting firm within the inspection authority, or other regulatory or law enforcement jurisdiction, of a foreign auditor oversight authority may be made available to the foreign auditor oversight authority if the foreign auditor oversight authority provides such assurances of confidentiality as the Board determines appropriate.. CONFORMING AMENDMENT.Section

17 105(b)(5)(A) of the Sarbanes-Oxley Act of 2002 (15 18 U.S.C. 7215(b)(5)(A)) is amended by striking subpara19 graph (B) and inserting subparagraphs (B) and (C). 20 21 22 23
SEC. 603. EXPANSION OF AUDIT INFORMATION TO BE PRODUCED AND EXCHANGED WITH FOREIGN

COUNTERPARTS.

Section 106 of the Sarbanes-Oxley Act of 2002 (15

24 U.S.C. 7216) is amended

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111 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) by amending subsection (b) to read as follows: (b) PRODUCTION OF DOCUMENTS. (1) PRODUCTION
BY FOREIGN FIRMS.If

foreign public accounting firm issues an audit report, performs audit work, conducts interim reviews, or performs material services, with respect to any issuer or its subsidiaries, the foreign public accounting firm shall produce its audit documentation and all other documents related to any such audit work or interim review to the Commission or the Board when requested by the Commission or the Board in connection with any investigation and the foreign public accounting firm shall be subject to the jurisdiction of the courts of the United States for purposes of enforcement of any request of such documents. (2) OTHER
PRODUCTION.Any

registered

public accounting firm that relies, in whole or in part, on the work of a foreign public accounting firm in issuing an audit report, performing audit work, conducting an interim review, or performing material services, with respect to any issuer or its subsidiaries, shall

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112 1 2 3 4 5 6 7 8 9 10 11 12 13 14 (A) produce the foreign public accounting firms audit documentation and all other documents related to any such work in response to a request for production by the Commission or the Board; and (B) secure the agreement of any foreign public accounting firm to such production, as a condition of its reliance on the work of that foreign public accounting firm.; (2) by redesignating subsection (d) as subsection (f); and (3) by inserting after subsection (c) the following new subsections: (d) SERVICE
OF

REQUESTS

OR

PROCESS.Any for-

15 eign public accounting firm that performs work for a do16 mestic registered public accounting firm shall furnish to 17 the domestic firm a written irrevocable consent and power 18 of attorney that designates the domestic firm as an agent 19 upon whom may be served any process, pleadings, or other 20 papers in any action brought to enforce this section. Any 21 foreign firm that issues an audit report, performs audit 22 work, performs interim reviews, or performs material serv23 ices, shall designate to the Commission or the Board an 24 agent in the United States upon whom may be served any 25 process, pleading, or other papers in any action brought

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113 1 to enforce this section or any request by the Commission 2 or the Board under this section. 3 (e) SANCTIONS.A willful refusal to comply, in

4 whole in or in part, with any request by the Commission 5 or the Board under this section, shall be a violation of 6 this Act.. 7 8
SEC. 604. FAIR FUND AMENDMENTS.

Section 308 of the Sarbanes-Oxley Act of 2002 (15

9 U.S.C. 7246(a)) is amended 10 11 12 13 (1) by amending subsection (a) to read as follows: (a) CIVIL PENALTIES
LIEF OF TO

BE USED

FOR THE

RE-

VICTIMS.If in any judicial or administrative ac-

14 tion brought by the Commission under the securities laws 15 (as such term is defined in section 3(a)(47) of the Securi16 ties Exchange Act of 1934 (15 U.S.C. 78c(a)(47)), the 17 Commission obtains a civil penalty against any person for 18 a violation of such laws or the rules and regulations there19 under, the amount of such civil penalty shall, on the mo20 tion or at the direction of the Commission, be added to 21 and become part of a disgorgement fund or other fund 22 established for the benefit of the victims of such viola23 tion.; 24 (2) in subsection (b), by

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114 1 2 3 4 5 6 7 8 9 10 (A) striking for a disgorgement fund described in subsection (a) and inserting for a disgorgement fund or other fund described in subsection (a); and (B) striking in the disgorgement fund and inserting in such fund; and (3) by striking subsection (e).
SEC. 605. WHISTLEBLOWER PROTECTION AGAINST RETALIATION BY A SUBSIDIARY OF AN ISSUER.

Section 1514A of title 18, United States Code, is

11 amended by inserting including any subsidiary or affil12 iate whose financial information is included in the consoli13 dated financial statements of such company, after (15 14 U.S.C. 78o(d)),.

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[Discussion Draft]
AMENDMENT
IN THE TO

NATURE

OF A

SUBSTITUTE

H.R. 2609
OF

OFFERED

BY

MR. KANJORSKI

PENNSYLVANIA

Strike all after the enacting clause and insert the following: 1 2
SECTION 1. SHORT TITLE.

This Act may be cited as the Federal Insurance Of-

3 fice Act of 2009. 4 5

SEC. 2. FEDERAL INSURANCE OFFICE ESTABLISHED.

(a) ESTABLISHMENT

OF

OFFICE.Subchapter I of

6 chapter 3 of title 31, United States Code, is amended 7 8 9 10 11 12 13 14 15 (1) by transferring and inserting section 312 after section 313; (2) by redesignating sections 313 and 312 (as so transferred) as sections 312 and 315, respectively; and (3) by inserting after section 312 (as so redesignated) the following new sections:
SEC. 313. FEDERAL INSURANCE OFFICE.

(a) ESTABLISHMENT

OF

OFFICE.There is estab-

16 lished the Federal Insurance Office as an office in the De17 partment of the Treasury.
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2 1 (b) LEADERSHIP.The Office shall be headed by a

2 Director, who shall be appointed by the Secretary of the 3 Treasury. The position of such Director shall be a career 4 reserved position in the Senior Executive Service. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (c) FUNCTIONS. (1) AUTHORITY
SECRETARY.The PURSUANT TO DIRECTION OF

Office shall have the authority,

pursuant to the direction of the Secretary, as follows: (A) To monitor all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the United States financial system. (B) To recommend to the Board of Governors of the Federal Reserve System that it designate an insurer, including its affiliates, as an entity subject to regulation as a Tier 1 financial holding company under Section 6 of the Bank Holding Company Act of 1956 (12 U.S.C. 1845). (C) To assist the Secretary in administering the Terrorism Insurance Program established in the Department of the Treasury

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3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 under the Terrorism Risk Insurance Act of 2002 (15 U.S.C. 6701 note). (D) To coordinate Federal efforts and establish Federal policy on prudential aspects of international insurance matters, including representing the United States as appropriate in the International Association of Insurance Supervisors and assisting the Secretary in negotiating International Insurance Agreements on Prudential Measures. (E) To determine, in accordance with subsection (f), whether State insurance measures are preempted by International Insurance Agreements on Prudential Measures. (F) To consult with the States regarding insurance matters of national importance and prudential insurance matters of international importance. (G) To perform such other related duties and authorities as may be assigned to it by the Secretary. (2) ADVISORY
FUNCTIONS.The

Office shall

advise the Secretary on major domestic and prudential international insurance policy issues.

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4 1 (d) SCOPE.The authority of the Office shall ex-

2 tend to all lines of insurance except health insurance, as 3 determined by the Secretary based on section 2791 of the 4 Public Health Service Act (42 U.S.C. 300gg-91). 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (e) GATHERING OF INFORMATION. (1) GENERAL.In carrying out its functions under subsection (c), the Office may receive and collect data and information on and from the insurance industry and insurers, enter into information-sharing agreements, analyze and disseminate data and information, and issue reports regarding all lines of insurance except health insurance. (2) COLLECTION
OF INFORMATION FROM IN-

SURERS AND AFFILIATES.Except

as provided in

paragraph (3), the Office may require an insurer, or affiliate of an insurer, to submit such data or information that the Office may reasonably require in carrying out its functions under subsection (c). (3) EXCEPTION
FOR SMALL INSURERS.Para-

graph (2) shall not apply with respect to any insurer or affiliate thereof that meets a minimum size threshold that may be established by the Office by order or rule. (4) ADVANCE
COORDINATION.Before

col-

lecting any data or information under paragraph (2)

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5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 from an insurer, or affiliate of an insurer, the Office shall coordinate with each relevant State insurance regulator (or other relevant Federal or State regulatory agency, if any, in the case of an affiliate of an insurer) to determine if the information to be collected is available from, or may be obtained in a timely manner by, such State insurance regulator or other regulatory agency. Notwithstanding any other provision of law, each such relevant State insurance regulator or other Federal or State regulatory agency is authorized to provide to the Office such data or information. (5) CONFIDENTIALITY. (A) The submission of any non-publicly available data and information to the Office under this subsection shall not constitute a waiver of, or otherwise affect, any privilege arising under Federal or State law (including the rules of any Federal or State Court) to which the data or information is otherwise subject. (B) Any requirement under Federal or State law to the extent otherwise applicable, or any requirement pursuant to a written agreement in effect between the original source of any non-publicly available data or information

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6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and the source of such data or information to the Office, regarding the privacy or confidentiality of any data or information in the possession of the source to the Office, shall continue to apply to such data or information after the data or information has been provided pursuant to this subsection to the Office. (C) Any data or information submitted by an insurer, or affiliate of an insurer, contained in or related to examination, operating, or condition reports prepared by, or on behalf of, or for the use of a State insurance regulator or other Federal or State regulatory agency responsible for the insurer or affiliates regulation or supervision shall be considered to be subject to 5 U.S.C. 552(b)(8). (f) PREEMPTION
URES. OF

STATE INSURANCE MEAS-

(1) STANDARD.A State insurance measure shall be preempted if, and only to the extent that the Director determines, in accordance with this subsection, that the measure (A) directly or indirectly treats a nonUnited States insurer domiciled in a foreign jurisdiction that is subject to an International In-

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7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 surance Agreement on Prudential Measures less favorably than it treats a United States insurer domiciled, licensed, admitted, or otherwise authorized in that State; and (B) is inconsistent with an International Insurance Agreement on Prudential Measures. (2) DETERMINATION. (A) NOTICE
ENCY.Before OF POTENTIAL INCONSIST-

making any determination of in-

consistency, the Director shall (i) cause to be published in the Federal Register notice of the issue regarding the potential inconsistency or preemption, including a description of each State insurance measure at issue and any applicable International Insurance Agreement on

Prudential Measures; (ii) provide interested parties a reasonable opportunity to submit written comments to the Office; and (iii) consider any comments received. (B) NOTICE
OF DETERMINATION OF IN-

CONSISTENCY.Upon

making any determina-

tion of inconsistency, the Director shall

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8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 (i) notify the appropriate State of the determination; and (ii) establish a reasonable period of time before the determination shall become effective. (3) NOTICE
OF EFFECTIVENESS.Upon

the

conclusion of the period referred to in paragraph (2)(B)(ii), if the basis for the determination of inconsistency still exists, the determination shall become effective and the Director shall (A) cause to be published notice in the Federal Register that the preemption has become effective, as well as the effective date; and (B) notify the appropriate State. (4) LIMITATION.No State may enforce a State insurance measure to the extent that it has been preempted under this subsection. (g) REGULATIONS, POLICIES,
AND

PROCEDURES.

19 The Secretary may issue orders, regulations, policies and 20 procedures to implement this section. 21 (h) CONSULTATION.The Director shall consult

22 with State insurance regulators, to the extent the Director 23 determines appropriate, in carrying out the functions of 24 the Office.

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9 1 (i) SAVINGS PROVISIONS.Nothing in this section

2 shall 3 4 5 6 7 8 9 10 11 12 13 14 (1) preempt any State insurance measure that governs any insurers rates, premiums, underwriting or sales practices, or State coverage requirements for insurance, or to the application of the antitrust laws of any State to the business of insurance; (2) be construed to alter, amend, or limit any provision of the Consumer Financial Protection Agency Act of 2009; or (3) affect the preemption of any State insurance measure otherwise inconsistent with and preempted by Federal law. (j) ANNUAL REPORT
TO

CONGRESS.Beginning

15 September 30, 2011, the Director shall submit a report 16 on or before September 30 of each calendar year to the 17 President and to the Committee on Financial Services of 18 the House of Representatives and the Committee on 19 Banking, Housing, and Urban Affairs of the Senate on 20 the insurance industry, any actions taken by the office 21 pursuant to subsection (f) (regarding preemption of incon22 sistent State insurance measures), and any other informa23 tion as deemed relevant by the Director or as requested 24 by such Committees.

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10 1 (k) USE
OF

EXISTING RESOURCES.To carry out

2 this section, the Office may employ personnel, facilities, 3 and other Department of the Treasury resources available 4 to the Secretary. 5 (l) DEFINITIONS.For purposes of this section and

6 section 314, the following definitions shall apply: 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

ON

(1) AFFILIATE.The term affiliate means, with respect to an insurer, any person that controls, is controlled by, or is under common control with the insurer. (2) DETERMINATION
OF INCONSISTENCY.

The term determination of inconsistency means a determination that a State insurance measure is preempted under subsection (f). (3) INSURER.The term insurer means any person engaged in the business of insurance, including reinsurance. (4) INTERNATIONAL
PRUDENTIAL INSURANCE AGREEMENT

MEASURES.The

term Inter-

national Insurance Agreement on Prudential Measures means a written bilateral or multilateral agreement entered into between the United States and a foreign government, authority, or regulatory entity regarding prudential measures applicable to the business of insurance or reinsurance.

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11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (5) NON-UNITED
STATES INSURER.The

term

non-United States insurer means an insurer that is organized under the laws of a jurisdiction other than a State, but does not include any United States branch of such an insurer. (6) OFFICE.The term Office means the Federal Insurance Office established by this section. (7) SECRETARY.The term Secretary means the Secretary of the Treasury. (8) STATE.The term State means any State, commonwealth, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, or the United States Virgin Islands. (9) STATE
INSURANCE MEASURE.The

term

State insurance measure means any State law, regulation, administrative ruling, bulletin, guideline, or practice relating to or affecting prudential measures applicable to insurance or reinsurance. (10) STATE
INSURANCE REGULATOR.The

term State insurance regulator means any State regulatory authority responsible for the supervision of insurers.

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12 1 2 3 4 5 6 7 (11) UNITED
STATES INSURER.The

term

United States insurer means (A) an insurer that is organized under the laws of a State; or (B) a United States branch of a nonUnited States insurer. (m) AUTHORIZATION
OF

APPROPRIATIONS.There

8 are authorized to be appropriated for the Office such sums 9 as may be necessary for each fiscal year. 10 11 12
SEC. 314. INTERNATIONAL INSURANCE AGREEMENTS ON PRUDENTIAL MEASURES.

(a) PURPOSE.It is the sense of the Congress that

13 the insurance marketplace increasingly operates globally 14 with many significant foreign participants. There is in15 creasing tension in the current regulatory systems as the 16 result of an absence of clear and settled means for govern17 ments to enter into agreements on prudential measures 18 with respect to the business of insurance or reinsurance. 19 This impairs the ability of domestic and foreign-based 20 companies to participate fully in each others markets. 21 (b) AUTHORITY.The Secretary is authorized to

22 negotiate and enter into International Insurance Agree23 ments on Prudential Measures on behalf of the United 24 States..

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13 1 (b) DUTIES
OF

SECRETARY.Section 321(a) of title

2 31, United States Code, is amended 3 4 5 6 7 8 9 10 11 12 13 end; (2) in paragraph (8)(C), by striking the period at the end and inserting ; and; and (3) by adding at the end the following new paragraph: (9) advise the President on major domestic and international prudential policy issues in connection with all lines of insurance except health insurance.. (c) CLERICAL AMENDMENT.The table of sections (1) in paragraph (7), by striking and at the

14 for subchapter I of chapter 3 of title 31, United States 15 Code, is amended by striking the item relating to section 16 312 and inserting the following new items:
Sec. Sec. Sec. Sec. 312. 313. 314. 315. Terrorism and Financial Intelligence. Federal Insurance Office. International Insurance Agreements on Prudential Measures. Continuing in office..

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[DISCUSSION DRAFT]
111TH CONGRESS 1ST SESSION

H. R.

To amend the Investment Advisers Act of 1940 to require advisers of certain unregistered investment companies to register with and provide information to the Securities and Exchange Commission, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

Mr. KANJORSKI introduced the following bill; which was referred to the Committee on

A BILL
To amend the Investment Advisers Act of 1940 to require advisers of certain unregistered investment companies to register with and provide information to the Securities and Exchange Commission, and for other purposes. 1 Be it enacted by the Senate and House of Representa-

2 tives of the United States of America in Congress assembled, 3 4

SECTION 1. SHORT TITLE.

This Act may be cited as the Private Fund Invest-

5 ment Advisers Registration Act of 2009.

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2 1 2
SEC. 2. DEFINITIONS.

Section 202(a) of the Investment Advisers Act of

3 1934 (15 U.S.C. 80b-2(a)) is amended by adding at the 4 end the following new paragraphs: 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
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(29) PRIVATE

FUND.The

term private fund

means an investment fund that (A) would be an investment company under section 3(a) of the Investment Company Act of 1940 (15 U.S.C. 80a-3(a)) but for the exception provided from that definition by either section 3(c)(1) or section 3(c)(7) of such Act; and (B) either (i) is organized or otherwise created under the laws of the United States or of a State; or (ii) has 10 percent or more of its outstanding securities by value owned by United States persons. (30) FOREIGN
PRIVATE FUND ADVISER.The

term foreign private fund adviser means an investment adviser who (A) has no place of business in the United States; (B) during the preceding 12 months has had
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3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 (i) fewer than 15 clients in the United States; and (ii) assets under management attributable to clients in the United States of less than $25,000,000, or such higher amount as the Commission may, by rule, deem appropriate in the public interest or for the protection of investors; and (C) neither holds itself out generally to the public in the United States as an investment adviser, nor acts as an investment adviser to any investment company registered under the Investment Company Act of 1940, or a company which has elected to be a business development company pursuant to section 54 of the Investment Company Act of 1940 (15 U.S.C. 80a-53) and has not withdrawn such election..
SEC. 3. ELIMINATION OF PRIVATE ADVISER EXEMPTION; LIMITED EXEMPTION FOR FOREIGN PRIVATE FUND ADVISERS; LIMITED INTRASTATE EXEMPTION.

Section 203(b) of the Investment Advisers Act of

23 1940 (15 U.S.C. 80b-3(b)) is amended 24 25 (1) in paragraph (1), by inserting , except an investment adviser who acts as an investment ad-

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4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 end; (4) in paragraph (6) (A) in subparagraph (A), by striking or; (B) in subparagraph (B), by striking the period at the end and adding ; or; and (C) by adding at the end the following new subparagraph: (C) a private fund..
SEC. 4. COLLECTION OF SYSTEMIC RISK DATA.

viser to any private fund, after any investment adviser; (2) by amending paragraph (3) to read as follows: (3) any investment adviser that is a foreign private fund adviser;; and (3) in paragraph (5), by striking or at the

Section 204 of the Investment Advisers Act of 1940

18 (15 U.S.C. 80b-4) is amended 19 20 21 22 23 24 25 (1) by redesignating subsections (b) and (c) as subsections (c) and (d), respectively; and (2) by inserting after subsection (a) the following new subsection: (b) RECORDS (1) IN
AND

REPORTS

OF

PRIVATE FUNDS.

GENERAL.The

Commission is author-

ized to require any investment adviser registered

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5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 under this Act to maintain such records of and file with the Commission such reports regarding private funds advised by the investment adviser as are necessary or appropriate in the public interest and for the protection of investors or for the assessment of systemic risk as the Commission determines in consultation with the Board of Governors of the Federal Reserve System. The Commission is authorized to provide or make available to the Board of Governors of the Federal Reserve System, and to any other entity that the Commission identifies as having systemic risk responsibility, those reports or records or the information contained therein. The records and reports of any private fund, to which any such investment adviser provides investment advice, maintained or filed by an investment adviser registered under this Act, shall be deemed to be the records and reports of the investment adviser. (2) REQUIRED
INFORMATION.The

records

and reports required to be maintained or filed with the Commission under this subsection shall include, for each private fund advised by the investment adviser (A) the amount of assets under management;

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6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) the use of leverage (including off-balance sheet leverage); (C) counterparty credit risk exposures; (D) trading and investment positions; (E) trading practices; and (F) such other information as the Commission, in consultation with the Board of Governors of the Federal Reserve System, determines necessary or appropriate in the public interest and for the protection of investors or for the assessment of systemic risk. (3) OPTIONAL
INFORMATION.The

Commis-

sion may require the reporting of such additional information from private fund advisers as the Commission determines necessary. In making such determination, the Commission may set different reporting requirements for different classes of private fund advisers, based on the particular types or sizes of private funds advised by such advisers. (4) MAINTENANCE
OF RECORDS.An

invest-

ment adviser registered under this Act is required to maintain and keep such records of private funds advised by the investment adviser for such period or periods as the Commission, by rule or regulation, may prescribe as necessary or appropriate in the

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7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 public interest and for the protection of investors or for the assessment of systemic risk. (5) EXAMINATION
OF RECORDS. AND SPECIAL EXAMINA-

(A) PERIODIC
TIONS.All

records of a private fund main-

tained by an investment adviser registered under this Act shall be subject at any time and from time to time to such periodic, special, and other examinations by the Commission, or any member or representative thereof, as the Commission may prescribe. (B) AVAILABILITY
OF RECORDS.An

in-

vestment adviser registered under this Act shall make available to the Commission or its representatives any copies or extracts from such records as may be prepared without undue effort, expense, or delay as the Commission or its representatives may reasonably request. (6) INFORMATION
SHARING.The

Commission

shall make available to the Board of Governors of the Federal Reserve System, and to any other entity that the Commission identifies as having systemic risk responsibility, copies of all reports, documents, records, and information filed with or provided to the Commission by an investment adviser under this

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8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 subsection as the Board, or such other entity, may consider necessary for the purpose of assessing the systemic risk of a private fund. All such reports, documents, records, and information obtained by the Board, or such other entity, from the Commission under this subsection shall be kept confidential. (7) DISCLOSURES
INFORMATION.An OF CERTAIN PRIVATE FUND

investment adviser registered

under this Act shall provide such reports, records, and other documents to investors, prospective investors, counterparties, and creditors, of any private fund advised by the investment adviser as the Commission, by rule or regulation, may prescribe as necessary or appropriate in the public interest and for the protection of investors or for the assessment of systemic risk. (8) CONFIDENTIALITY
OF REPORTS.Not-

withstanding any other provision of law, the Commission shall not be compelled to disclose any report or information contained therein required to be filed with the Commission under this subsection. Nothing in this paragraph shall authorize the Commission to withhold information from the Congress or prevent the Commission from complying with a request for information from any other Federal department or

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9 1 2 3 4 5 6 7 8 9 10 agency or any self-regulatory organization requesting the report or information for purposes within the scope of its jurisdiction, or complying with an order of a court of the United States in an action brought by the United States or the Commission. For purposes of section 552 of title 5, United States Code, this paragraph shall be considered a statute described in subsection (b)(3)(B) of such section..
SEC. 5. ELIMINATION OF DISCLOSURE PROVISION.

Section 210 of the Investment Advisers Act of 1940

11 (15 U.S.C. 80b-10) is amended by striking subsection (c). 12 13 14

SEC. 6. EXEMPTION OF AND REPORTING BY VENTURE CAPITAL FUND ADVISERS.

Section 203 of the Investment Advisers Act of 1940

15 (15 U.S.C. 80b-3) is amended by adding at the end the 16 following new subsection: 17 (l) EXEMPTION
OF AND

REPORTING

BY

VENTURE

18 CAPITAL FUND ADVISERS.The Commission shall iden19 tify and define the term venture capital fund and shall 20 provide an adviser to such a fund an exemption from the 21 registration requirements under this section. The Commis22 sion shall require such advisers to maintain such records 23 and provide to the Commission such annual or other re24 ports as the Commission determines necessary or appro-

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10 1 priate in the public interest or for the protection of inves2 tors.. 3 4

SEC. 7. CLARIFICATION OF RULEMAKING AUTHORITY.

Section 211 of the Investment Advisers Act of 1940

5 (15 U.S.C. 80b-11) is amended 6 7 8 (1) by amending subsection (a) to read as follows: (a) The Commission shall have authority from time

9 to time to make, issue, amend, and rescind such rules and 10 regulations and such orders as are necessary or appro11 priate to the exercise of the functions and powers con12 ferred upon the Commission elsewhere in this title, includ13 ing rules and regulations defining technical, trade, and 14 other terms used in this title. For the purposes of its rules 15 and regulations, the Commission may 16 17 18 19 20 21 22 23 24 25 (1) classify persons and matters within its jurisdiction based upon, but not limited to (A) size; (B) scope; (C) business model; (D) compensation scheme; or (E) potential to create or increase systemic risk; (2) prescribe different requirements for different classes of persons or matters; and

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11 1 2 3 4 5 6 7 (3) ascribe different meanings to terms (including the term client) used in different sections of this title as the Commission determines necessary to effect the purposes of this title.; and (2) by adding at the end the following new subsection: (e) The Commission and the Commodity Futures

8 Trading Commission shall, after consultation with the 9 Board of Governors of the Federal Reserve System, within 10 6 months after the date of enactment of the Private Fund 11 Investment Advisers Registration Act of 2009, jointly pro12 mulgate rules to establish the form and content of the re13 ports required to be filed with the Commission under sec14 tions 203(i) and 204(b) and with the Commodity Futures 15 Trading Commission by investment advisers that are reg16 istered both under the Investment Advisers Act of 1940 17 (15 U.S.C. 80b-1 et seq.) and the Commodity Exchange 18 Act (7 U.S.C. 1 et seq.)..

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Sure, here at 199 Russell at 10:30? -----Original Message----From: Tara.W.Foscato@frb.gov [mailto:Tara.W.Foscato@frb.gov] Sent: Friday, October 02, 2009 6:03 AM To: Katz, David (HSGAC) Subject: Re: Derivative Topics Could you do 10:30?

----- Original Message ----From: "Katz, David (HSGAC)" [David_Katz@hsgac.senate.gov] Sent: 10/01/2009 06:55 PM AST To: Tara Foscato Subject: RE: Derivative Topics

How's Thursday at 9:30 am? -----Original Message----From: Tara.W.Foscato@frb.gov [mailto:Tara.W.Foscato@frb.gov] Sent: Thursday, October 01, 2009 3:45 PM To: Katz, David (HSGAC) Subject: Re: Derivative Topics Could you do anything on Thursday?

----- Original Message ----From: "Katz, David (HSGAC)" [David_Katz@hsgac.senate.gov] Sent: 10/01/2009 02:49 PM AST To: Tara Foscato Subject: FW: Derivative Topics

Tara - Next Monday or Tuesday afternoon would be good for us. Let me know if

either day works. David -----Original Message----section 552(d)

5H )6& 27& 'HULYDWLYH 'LVFXVVLRQ 'UDIW 5H & U H 'L F D

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  30

Thanks.

From: "Roberson, Peter" [Peter.Roberson@mail house.gov] Sent: 10/02/2009 05:44 PM AST To: "Roberson, Peter" <Peter.Roberson@mail.house.gov> Subject: FSC OTC Derivative Discussion Draft

Peter Roberson Senior Policy Advisor Committee on Financial Services U.S. House of Representatives

(b) (6)

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  30

For Immediate Release: October 2, 2009

Frank Circulates Discussion Draft of Legislation to Regulate OTC Derivatives

Washington, DC House Financial Services Committee Chairman Barney Frank (D-MA) today circulated a discussion draft of legislation to regulate over-the-counter (OTC) derivatives. Chairman Frank also announced this week that the Committee will hold a hearing on Wednesday, October 7, to discuss the reform of the largely unregulated OTC derivatives market as well as the discussion draft released today. A full text of the discussion draft can be viewed here.

Lacking and lagging regulation of OTC derivatives was a major contributing factor to last years crisis, including the highly-leveraged credit default swaps at AIG that prompted government intervention. I commend the hard work of the Chairman and the Committee on this issue. This bill moves us in the right direction by reducing risk to the economy with robust and dynamic oversight of major market participants, while preserving appropriate risk-management tools for end users, said Congresswoman Melissa Bean (D-IL), Financial Services Committee member and co-chair of the New Democrat Coalitions Financial Services Task Force.

The New Democrat Coalition, applauds the work of Chairman Barney Frank and the members of the Financial Services Committee for crafting a proposal to provide greater regulation and

transparency to the over-the-counter derivatives market, said Congressman Joseph Crowley (D-NY), Chair of the New Democrat Coalition. I congratulate my fellow New Dem Members, 15 of whom serve on the Financial Services Committee, for their work with Chairman Frank to reform our financial system to provide greater protections for American consumers and businesses while ensuring continued access to valuable tools to manage risk. New Dems are dedicated to continuing our work with Chairman Frank to reform the derivatives market and our financial system as a whole.

I want to thank Chairman Frank for accepting suggestions from the New Democrat Financial Services Task Force in crafting new rules for derivatives trading, said Congressman Gary Peters (D-MI), a Member of the New Dem Financial Services Task Force and the House Financial Services Committee. These changes will provide additional clarity for industry while still maintaining tough standards that will prevent abuse.

For all those who believe we need comprehensive, thoughtful regulatory reform, Chairman Frank is exactly the leader you want to have in the fight, said Congressman Michael E. McMahon (D-NY), Member of the New Democrat Coalition. Chairman Franks draft provides a solid start to discussions about reforming the derivatives market. A year ago, many critics of derivatives were ready to eliminate the entire over-the-counter market. This reaction was unreasonable and not in the best interest of our economy. The Frank proposal addresses the systemic risk issues by mandating exchange clearing and trading for the majority of products while preserving the over the counter market for specialized contracts, in much the same way that the bill I introduced with the New Dems does. The New Dems and I have been working closely with Financial Services Committee to address a number of key concerns about protecting end-users and the transparency and integrity of the USfinancial market, and I look forward to working with Chairman Frank, Chairman Peterson and all my colleagues on this important issue.

###

 -'*BB[POSGI

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[Discussion Draft]

[DISCUSSION DRAFT]
111TH CONGRESS 1ST SESSION

H. R.

To enact the Over-the-Counter Derivatives Markets Act of 2009.

IN THE HOUSE OF REPRESENTATIVES

M . introduced the following bill; which was referred to the Committee on

A BILL
To enact the Over-the-Counter Derivatives Markets Act of 2009. 1 Be it enacted by the Senate and House of Representa-

2 tives of the United States of America in Congress assembled, 3 4 5 6 7 8

TITLE I IMPROVEMENTS TO REGULATION OF OVER-THECOUNTER DERIVATIVES MARKETS

SECTION 1 1. SHORT TITLE.

This title may be cited as the Over-the-Counter De-

9 rivatives Markets Act of 2009.

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2 1 2 3 4 5

Su tit

R u ation of S a Mar ts
TO

SEC. 111. DEFINITIONS.

(a) AMENDMENTS
MODITY

DEFINITIONS

IN THE

COM-

EXCHANGE ACT.Section 1a of the Commodity

6 Exchange Act (7 U.S.C. 1a) is amended 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

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(1) by redesignating paragraphs (9) through (34) as paragraphs (10) through (35), respectively; (2) by adding after paragraph (8) the following: (9) means (A) a contract of sale of a commodity for future delivery; or (B) a swap.; (3) by redesignating paragraph (35) (as redesignated by subsection (a)) as paragraph (36); (4) by adding after paragraph (34) (as redesignated by subsection (a)) the following: (35) SWAP. (A) IN
GENERAL.Except

DERIVATIVE.The

term

derivative

as provided in

subparagraph (B), the term swap means any agreement, contract, or transaction that (i) is a put, call, cap, floor, collar, or similar option of any kind for the purchase or sale of, or based on the value of, one or
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3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 more interest or other rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind; (ii) provides for any purchase, sale, payment, or delivery (other than a dividend on an equity security) that is dependent on the occurrence, non-occurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence; (iii) provides on an executory basis for the exchange, on a fixed or contingent basis, of one or more payments based on the value or level of one or more interest or other rates, currencies, commodities, securities, instruments of indebtedness, indices, quantitative measures, or other financial or economic interests or property of any kind, or any interest therein or based on the value thereof, and that transfers, as between the parties to the transaction, in whole or in part, the financial risk associated with a future change in any such

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4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 value or level without also conveying a current or future direct or indirect ownership interest in an asset (including any enterprise or investment pool) or liability that incorporates the financial risk so transferred, including any agreement, contract, or transaction commonly known as an interest rate swap, a rate floor, rate cap, rate collar, cross-currency rate swap, basis swap, currency swap, total return swap, equity index swap, equity swap, debt index swap, debt swap, credit spread, credit default swap, credit swap, weather swap, energy swap, metal swap, agricultural swap, emissions swap, or commodity swap; (iv) is an agreement, contract, or transaction that is, or in the future becomes, commonly known to the trade as a swap; or (v) is any combination or permutation of, or option on, any agreement, contract, or transaction described in any of clauses (i) through (iv). (B) EXCLUSIONS.The term swap does not include:

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5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (i) any contract of sale of a commodity for future delivery or security futures product traded on or subject to the rules of any board of trade designated as a contract market under section 5 or 5f; (ii) any sale of a nonfinancial commodity for deferred shipment or delivery, so long as such transaction is physically settled; (iii) any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities, including any interest therein or based on the value thereof, that is subject to the Securities Act of 1933 (15 U.S.C. 77a et seq.) and the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.); (iv) any put, call, straddle, option, or privilege relating to foreign currency entered into on a national securities exchange registered pursuant to section 6(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(a)); (v) any agreement, contract, or transaction providing for the purchase or

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6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 sale of one or more securities on a fixed basis that is subject to the Securities Act of 1933 (15 U.S.C. 77a et seq.) and the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.); (vi) any agreement, contract, or transaction providing for the purchase or sale of one or more securities on a contingent basis that is subject to the Securities Act of 1933 (15 U.S.C. 77a et seq.) and the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.), unless such agreement, contract, or transaction predicates such purchase or sale on the occurrence of a bona fide contingency that might reasonably be expected to affect or be affected by the creditworthiness of a party other than a party to the agreement, contract, or transaction; (vii) any note, bond, or evidence of indebtedness that is a security as defined in section 2(a)(1) of the Securities Act of 1933 (15 U.S.C. 77b(a)(1)); (viii) any agreement, contract, or transaction that is

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7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (I) based on a security; and (II) entered into directly or through an underwriter (as defined in section 2(a)(11) of the Securities Act of 1933) (15 U.S.C. 77b(a)(11)) by the issuer of such security for the purposes of raising capital, unless such agreement, contract, or transaction is entered into to manage a risk associated with capital raising; (ix) any foreign exchange swap; (x) any foreign exchange forward; (xi) any agreement, contract, or transaction a counterparty of which is a Federal Reserve bank or the United States Government, or an agency of the United States Government that is expressly

backed by the full faith and credit of the United States; and (xii) any security-based swap, other than a security-based swap as described in paragraph (38)(C). (C) RULE
OF CONSTRUCTION REGARDING

MASTER AGREEMENTS.The

term swap shall

be construed to include a master agreement

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8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that provides for an agreement, contract, or transaction that is a swap pursuant to subparagraph (A), together with all supplements to any such master agreement, without regard to whether the master agreement contains an agreement, contract, or transaction that is not a swap pursuant to subparagraph (A), except that the master agreement shall be considered to be a swap only with respect to each agreement, contract, or transaction under the master agreement that is a swap pursuant to subparagraph (A).; (5) in paragraph (13) (as redesignated by subsection (a)) (A) in subparagraph (A) (i) in clause (vii), and by striking inserting

$25,000,000 $50,000,000; and

(ii) in clause (xi), by striking total assets in an amount and inserting

amounts invested on a discretionary basis; and (B) in paragraph (C), by striking determines and inserting and the Securities and Exchange Commission may jointly determine;

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9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (6) in paragraph (30) (as redesignated by subsection (a)), by (A) redesignating subparagraph (E) as subparagraph (G); (B) in subparagraph (D), by striking and; and (C) inserting after subparagraph (D) the following: (E) a swap execution facility registered under section 5h; (F) a swap repository; and; (7) by adding after paragraph (36) (as redesignated by subsection (c)) the following: (37) BOARD.The term Board means the Board of Governors of the Federal Reserve System.; (8) by adding after paragraph (37) the following: (38) SECURITY-BASED (A) IN
SWAP.

GENERAL.Except

as provided in

subparagraph (B), the term security-based swap means any agreement, contract, or transaction that would be a swap under paragraph (35) (without regard to paragraph

(35)(B)(xii)), and that

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10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (i) is based on an index that is a narrow-based security index, including any interest therein or based on the value thereof; (ii) is based on a single security or loan, including any interest therein or based on the value thereof; or (iii) is based on the occurrence, nonoccurrence, or extent of the occurrence of an event relating to a single issuer of a security or the issuers of securities in a narrow-based security index, provided that such event must directly affect the financial statements, financial condition, or financial obligations of the issuer. (B) EXCLUSION.The term securitybased swap does not include any agreement, contract, or transaction that meets the definition of security-based swap only because it references or is based upon a government security. (C) MIXED
SWAP.The

term security-

based swap includes any agreement, contract, or transaction that is as described in subparagraph (A) and also is based on the value of one or more interest or other rates, currencies, com-

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11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 modities, instruments of indebtedness, indices, quantitative measures, other financial or economic interest or property of any kind (other than a single security or a narrow-based security index), or the occurrence, non-occurrence, or the extent of the occurrence of an event or contingency associated with a potential financial, economic, or commercial consequence (other than an event described in subparagraph (A)(iii)). (D) RULE
MASTER OF CONSTRUCTION REGARDING

AGREEMENTS.The

term security-

based swap shall be construed to include a master agreement that provides for an agreement, contract, or transaction that is a security-based swap pursuant to subparagraph (A), together with all supplements to any such master agreement, without regard to whether the master agreement contains an agreement, contract, or transaction that is not a security-based swap pursuant to subparagraph (A), except that the master agreement shall be considered to be a security-based swap only with respect to each agreement, contract, or transaction under

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12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the master agreement that is a security-based swap pursuant to subparagraph (A).; (9) by adding after paragraph (38) the following: (39) SWAP
DEALER. GENERAL.The

(A) IN

term swap deal-

er means any person engaged in the business of buying and selling swaps for such persons own account, through a broker or otherwise. (B) EXCEPTION.The term swap dealer does not include a person that buys or sells swaps for such persons own account, either individually or in a fiduciary capacity, but not as a part of a regular business.; (10) by adding after paragraph (39) the following: (40) MAJOR (A) IN
SWAP PARTICIPANT. GENERAL.The

term major swap

participant means any person who is not a swap dealer and who maintains a substantial net position in outstanding swaps, excluding positions held primarily for hedging (including balance sheet hedging) or risk management purposes. A person may be designated as a

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13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 major swap participant for 1 or more individual types of swaps. (B) DEFINITION
POSITION. OF

SUBSTANTIAL

NET

The Commission and the Securi-

ties and Exchange Commission shall jointly define by rule or regulation the term substantial net position at a threshold that the regulators determine prudent for the effective monitoring, management and oversight of the financial system. In the event that the regulators are unable to agree upon a level within 60 days of the commencement of such consultations, the Secretary of the Treasury shall make such determination, which shall be binding on and adopted by such regulators.; (11) by adding after paragraph (40) the following: (41) MAJOR
PANT. SECURITY-BASED SWAP PARTICI-

(A) IN

GENERAL.The

term major secu-

rity-based swap participant means any person who is not a security-based swap dealer and who maintains a substantial net position in outstanding security-based swaps, excluding positions held primarily for hedging (including bal-

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14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ance sheet hedging) or risk management purposes. A person may be designated as a major security-based swap participant for 1 or more individual types of security-based swaps. (B) DEFINITION
POSITION.The OF

SUBSTANTIAL

NET

Commission and the Securi-

ties and Exchange Commission shall jointly define by rule or regulation the term substantial net position at a threshold that the regulators determine prudent for the effective monitoring, management and oversight of the financial system. In the event that the regulators are unable to agree upon a level within 60 days of the commencement of such consultations, the Secretary of the Treasury shall make such determination, which shall be binding on and adopted by such regulators.; (12) by adding after paragraph (41) the following: (42) APPROPRIATE
CY.The FEDERAL BANKING AGEN-

term appropriate Federal banking agency

has the same meaning as in section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)).; (13) by adding after paragraph (42) the following:

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15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (43) PRUDENTIAL
REGULATOR.The

term

Prudential Regulator means (A) the Board in the case of a swap dealer, major swap participant, security-based swap dealer or major security-based swap participant that is (i) a State-chartered bank that is a member of the Federal Reserve System; or (ii) a State-chartered branch or agency of a foreign bank; (B) the Office of the Comptroller of the Currency in the case of a swap dealer, major swap participant, security-based swap dealer or major security-based swap participant that is (i) a national bank; or (ii) a federally chartered branch or agency of a foreign bank; and (C) the Federal Deposit Insurance Corporation in the case of a swap dealer, major swap participant, security-based swap dealer or major security-based swap participant that is a State-chartered bank that is not a member of the Federal Reserve System.; (14) by adding after paragraph (43) the following:

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16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (44) SECURITY-BASED (A) IN

SWAP DEALER.

GENERAL.The

term security-

based swap dealer means any person engaged in the business of buying and selling securitybased swaps for such persons own account, through a broker or otherwise. (B) EXCEPTION.The term securitybased swap dealer does not include a person that buys or sells security-based swaps for such persons own account, either individually or in a fiduciary capacity, but not as a part of a regular business.; (15) by adding after paragraph (44) the following: (45) GOVERNMENT
SECURITY.The

term

government security has the same meaning as in section 3(a)(42) of the Securities Exchange Act of 1934 (15 U.S.C. 78c(a)(42)).; (16) by adding after paragraph (45) the following: (46) FOREIGN
EXCHANGE FORWARD.The

term foreign exchange forward means a transaction that solely involves the exchange of 2 different currencies on a specific future date at a fixed rate agreed at the inception of the contract.;

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17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (17) by adding after paragraph (46) the following: (47) FOREIGN

EXCHANGE SWAP.The

term

foreign exchange swap means a transaction that solely involves the exchange of 2 different currencies on a specific date at a fixed rate agreed at the inception of the contract, and a reverse exchange of the same 2 currencies at a date further in the future and at a fixed rate agreed at the inception of the contract.; (18) by adding after paragraph (47) the following: (48) PERSON
ASSOCIATED WITH A SECURITY-

BASED SWAP DEALER OR MAJOR SECURITY-BASED SWAP PARTICIPANT.The

term person associated

with a security-based swap dealer or major securitybased swap participant or associated person of a security-based swap dealer or major security-based swap participant means any partner, officer, director, or branch manager of such security-based swap dealer or major security-based swap participant (or any person occupying a similar status or performing similar functions), any person directly or indirectly controlling, controlled by, or under common control with such security-based swap dealer or major secu-

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18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 rity-based swap participant, or any employee of such security-based swap dealer or major security-based swap participant, except that any person associated with a security-based swap dealer or major securitybased swap participant whose functions are solely clerical or ministerial shall not be included in the meaning of such term other than for purposes of section 15F(e)(2) of the Securities Exchange Act of 1934 (15 U.S.C. 78o10).; (19) by adding after paragraph (48) the following: (49) PERSON
ASSOCIATED WITH A SWAP

DEALER OR MAJOR SWAP PARTICIPANT.The

term

person associated with a swap dealer or major swap participant or associated person of a swap dealer or major swap participant means any partner, officer, director, or branch manager of such swap dealer or major swap participant (or any person occupying a similar status or performing similar functions), any person directly or indirectly controlling, controlled by, or under common control with such swap dealer or major swap participant, or any employee of such swap dealer or major swap participant, except that any person associated with a swap dealer or major swap participant whose functions are solely clerical

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19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24
OF

or ministerial shall not be included in the meaning of such term other than for purposes of section 4s(b)(6).; and (20) by adding after paragraph (49) the following: (50) SWAP
REPOSITORY.The

term swap re-

pository means an entity that collects and maintains the records of the terms and conditions of swaps or security-based swaps entered into by third parties.. (b) JOINT RULEMAKING TERMS. (1) IN
GENERAL.The ON

FURTHER DEFINITION

Commodity Futures

Trading Commission and the Securities and Exchange Commission shall jointly adopt a rule further defining the terms swap, security-based swap, swap dealer, security-based swap dealer, major swap participant,major security-based swap participant, and eligible contract participant no later than 180 days after the effective date of this Act. (2) PREVENTION
OF EVASIONS.The

Com-

modity Futures Trading Commission and the Securities and Exchange Commission may prescribe rules defining the term swap or security-based swap

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20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to include transactions that have been structured to evade this Act. (c) JOINT RULEMAKING UNDER THIS ACT. (1) UNIFORM
RULES.Rules

and regulations

prescribed jointly under this Act by the Commodity Futures Trading Commission and the Securities and Exchange Commission shall be uniform. (2) TREASURY
DEPARTMENT.In

the event

that the Commodity Futures Trading Commission and the Securities and Exchange Commission fail to jointly prescribe uniform rules and regulations under any provision of this Act in a timely manner, the Secretary of the Treasury, in consultation with the Commodity Futures Trading Commission and the Securities and Exchange Commission, shall prescribe rules and regulations under such provision. A rule prescribed by the Secretary of the Treasury shall be enforced as if prescribed jointly by the Commodity Futures Trading Commission and the Securities and Exchange Commission and shall remain in effect until the Secretary rescinds the rule or until the effective date of a corresponding rule prescribed jointly by the Commodity Futures Trading Commission and the Securities and Exchange Commission in accordance with this section, whichever is later.

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21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (3) DEADLINE.The Secretary of the Treasury shall adopt rules and regulations under paragraph (2) within 180 days of the time that the Commodity Futures Trading Commission and the Securities and Exchange Commission failed to adopt uniform rules and regulations. (4) TREATMENT
OF SIMILAR PRODUCTS.In

adopting joint rules and regulations under this Act, the Commodity Futures Trading Commission and the Securities and Exchange Commission shall prescribe requirements to treat functionally or economically similar products similarly. (5) TREATMENT
OF DISSIMILAR PRODUCTS.

Nothing in this Act shall be construed to require the Commodity Futures Trading Commission and the Securities and Exchange Commission to adopt joint rules that treat functionally or economically different products identically. (6) JOINT
INTERPRETATION.Any

interpreta-

tion of, or guidance regarding, a provision of this Act, shall be effective only if issued jointly by the Commodity Futures Trading Commission and the Securities and Exchange Commission if this Act requires the Commodity Futures Trading Commission

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22 1 2 3 and the Securities and Exchange Commission to issue joint regulations to implement the provision. (d) EXEMPTIONS.Section 4(c) of the Commodity

4 Exchange Act (7 U.S.C. 4(c)) is amended by adding at 5 the end the following: The Commission shall not have 6 the authority to grant exemptions from the swap-related 7 provisions of the Over-the-Counter Derivatives Markets 8 Act of 2009, except as expressly authorized under the pro9 visions of that Act.. 10 11
SEC. 112. URISDICTION.

(a) EXCLUSIVE JURISDICTION.The first sentence

12 of section 2(a)(1)(A) of the Commodity Exchange Act (7 13 U.S.C. 2(a)(1)(A)) is amended 14 15 16 17 18 19 20 (1) by striking (C) and (D) and inserting (C), (D), and (G); (2) by striking subsections (c) through (i) and inserting subsections (c) and (f); and (3) by striking involving contracts of sale and inserting involving swaps or contracts of sale. (b) NO LIMITATION.Section 2(a)(1) of the Com-

21 modity Exchange Act (7 U.S.C. 2(a)(1)) is amended by 22 inserting after subparagraph (F) the following: 23 24 25 (G) Nothing contained in this paragraph shall supersede or limit the jurisdiction conferred on the Securities and Exchange Commis-

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23 1 2 3 4 5 6 7 8 sion or other regulatory authority by, or otherwise restrict the authority of the Securities and Exchange Commission or other regulatory authority under, the Over-the-Counter Derivatives Markets Act of 2009, including with respect to a security-based swap as described in section 1a(38)(C) of this Act.. (c) ADDITIONS.Section 2(c)(2)(A) of the Com-

9 modity Exchange Act (7 U.S.C. 2(c)(2)(A)) is amended 10 11 12 13 14 15 16 17 18 19 20 21 22 23 and (3) by inserting after clause (i) the following: (ii) a swap; or.
SEC. 113. CLEARING.

(1) in clause (i), by striking or at the end; (2) by redesignating clause (ii) as clause (iii);

(a) CLEARING REQUIREMENT. (1) Sections 2(d), 2(e), 2(g), and 2(h) of the Commodity Exchange Act (7 U.S.C. 2(d), 2(e), 2(g), and 2(h)) are repealed. (2) Section 2 of the Commodity Exchange Act (7 U.S.C. 2) is further amended by inserting after subsection (c) the following: (d) SWAPS.Nothing in this Act (other than sub-

24 sections (a)(1)(A), (a)(1)(B), (f), and (j), sections 4a, 4b, 25 4b-1, 4c(a), 4c(b), 4o, 4r, 4s, 4t, 4u, 5b, 5c, 5h, 6(c), 6(d),

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24 1 6c, 6d, 8, 8a, 9, 12(e)(2), 12(f), 13(a), 13(b), 21, and 2 22(a)(4) and such other provisions of this Act as are appli3 cable by their terms to registered entities and Commission 4 registrants) governs or applies to a swap. 5 (e) LIMITATION
ON

PARTICIPATION.It shall be

6 unlawful for any person, other than an eligible contract 7 participant, to enter into a swap unless the swap is en8 tered into on or subject to the rules of a board of trade 9 designated as a contract market under section 5.. 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (3) Section 2 of the Commodity Exchange Act (7 U.S.C. 2) is further amended by inserting after subsection (i) the following: (j) CLEARING OF SWAPS. (1) CLEARING
REQUIREMENT.The

Commis-

sion shall monitor swap activity and transaction data and by rule or regulation identify specific swap contracts that it determines are required to be cleared consistent with the public interest, after taking into account the following factors: (A) the existence of significant outstanding notional exposures, trading liquidity and adequate pricing data; (B) the availability of one or more swap clearinghouses with the rule framework, capacity, operational expertise and resources, and

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25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 credit support infrastructure to clear the contract on terms that are consistent with the material terms and trading conventions on which the contract is then traded; (C) the impact on the mitigation of systemic risk, taking into account the size of the market for such contract and the resources of the swap clearinghouses available to clear the contract; (D) the impact on competition; and (E) the existence of reasonable legal certainty in the event of the insolvency of the relevant swap clearinghouse or one or more of its clearing members with regard to the treatment of customer and swap counterparty positions, funds, and property. (2) SCOPE
OF CLEARING FUNCTIONS.The

Commission shall by rule or regulation define the scope of the clearing functions that are necessary to satisfy the requirements of paragraph (1). (3) PREVENTION
OF EVASION.The

Commis-

sion and the Securities and Exchange Commission shall have authority to prescribe rules under this subsection, or issue interpretations of such rules, as necessary to prevent evasions of this Act provided

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26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 that any such rules or interpretations must be issued jointly to be effective. (4) REQUIRED (A) IN
REPORTING.

GENERAL.All

swap transactions

that are not accepted for clearing by any derivatives clearing organization shall be reported to either a swap repository described in section 21 or, if there is no repository that would accept the swap, to the Commission pursuant to section 4r within such time period as the Commission may by rule or regulation prescribe. (B) AUTHORITY
OF SWAP DEALER TO RE-

PORT.Counterparties

may

agree

which

counterparty will report the swap transaction. In transactions where only 1 counterparty is a swap dealer, the swap dealer will report the transaction. (5) TRANSITION
RULES.Rules

adopted by

the Commission under this section shall provide for the reporting of data, as follows: (A) Swaps that were entered into before the date of enactment of the Over-the-Counter Derivatives Markets Act of 2009 shall be reported to a registered swap repository or the Commission no later than 180 days after the

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27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 effective date of the Over-the-Counter Derivatives Markets Act of 2009. (B) Swaps that were entered into on or after the date of enactment of the Over-theCounter Derivatives Markets Act of 2009 shall be reported to a registered swap repository or the Commission no later than the later of (i) 90 days after the effective date of the Over-the-Counter Derivatives Markets Act of 2009; or (ii) such other time after entering into the swap as the Commission may prescribe by rule or regulation. (6) TRADE
EXECUTION.With

respect to

transactions involving swaps subject to the requirement of paragraph (1) and where both counterparties are either swap dealers or major swap participants, such counterparties must either: (A) Execute the transaction on a board of trade designated as a contract market under section 5 (in which event, such transaction shall be subject to regulation under this Act as a transaction in a contract of sale of a commodity for future delivery or commodity option, as applicable);

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28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) Execute the transaction on a swap execution facility registered with the Commission; (C) Execute the transaction on a foreign swap execution facility that is subject to regulation as such under the laws of a foreign jurisdiction; or (D) If the transaction is not executed on an entity listed in subparagraph (A), (B), or (C), comply with any recordkeeping and end-ofday transaction reporting requirements (i) as may be prescribed by the Commission with respect to commodity swaps subject to the requirements of paragraph (3); or (ii) as may be prescribed by the relevant foreign regulator in the case of commodity swaps subject to the requirements of paragraph (3) entered into by (I) a foreign swap dealer or a foreign swap market participant; or (II) a U.S. swap dealer or U.S. major swap participant that is entering into the commodity swap either outside of the United States, its terri-

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29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 tories and possessions or with a foreign counterparty. (7) EXCHANGE

TRADING.In

adopting rules

and regulations, the Commission shall endeavor to eliminate unnecessary impediments to the trading on boards of trade designated as contract markets under section 5 of contracts, agreements or transactions that would be security-based swaps but for the trading of such contracts, agreements or transactions on such a designated contract market. (8) EXCEPTIONS.The requirements of paragraph (1) shall not apply to a swap if (A) no derivatives clearing organization registered under this Act will accept the swap for clearing; or (B) one of the counterparties to the swap is not a swap dealer or major swap participant.. (b) DERIVATIVES CLEARING ORGANIZATIONS. (1) Subsections (a) and (b) of section 5b of the Commodity Exchange Act (7 U.S.C. 7a-1) are amended to read as follows: (a) REGISTRATION REQUIREMENT.It shall be un-

24 lawful for a derivatives clearing organization, unless reg25 istered with the Commission, directly or indirectly to make

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30 1 use of the mails or any means or instrumentality of inter2 state commerce to perform the functions of a derivatives 3 clearing organization described in section 1a(10) of this 4 Act with respect to 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) a contract of sale of a commodity for future delivery (or option on such a contract) or option on a commodity, in each case unless the contract or option is (A) excluded from this Act by section 2(a)(1)(C)(i), 2(c), or 2(f); or (B) a security futures product cleared by a clearing agency registered with the Securities and Exchange Commission under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.) ; or (2) a swap. (b) VOLUNTARY REGISTRATION. (1)
TIONS.A

DERIVATIVES

CLEARING

ORGANIZA-

person that clears agreements, contracts,

or transactions that are not required to be cleared under this Act may register with the Commission as a derivatives clearing organization. (2) CLEARING
AGENCIES.A

derivatives clear-

ing organization may clear security-based swaps that are required to be cleared by a person who is reg-

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31 1 2 3 4 5 6 istered as a clearing agency under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.).. (2) Section 5b of the Commodity Exchange Act (7 U.S.C. 7a1) is amended by adding at the end the following: (g) REQUIRED REGISTRATION
FOR

BANKS

AND

7 CLEARING AGENCIES.A person that is required to be 8 registered as a derivatives clearing organization under this 9 section shall register with the Commission regardless of 10 whether the person is also a bank or a clearing agency 11 registered with the Securities and Exchange Commission 12 under the Securities Exchange Act of 1934 (15 U.S.C. 13 78a et seq.). 14 (h) HARMONIZATION
OF

RULES.Not later than

15 180 days after the effective date of the Over-the-Counter 16 Derivatives Markets Act of 2009, the Commission and the 17 Securities and Exchange Commission shall jointly adopt 18 uniform rules governing persons that are registered as de19 rivatives clearing organizations for swaps under this sub20 section and persons that are registered as clearing agen21 cies for security-based swaps under the Securities Ex22 change Act of 1934 (15 U.S.C. 78a et seq.). 23 (i) CONSULTATION.The Commission and the Se-

24 curities and Exchange Commission shall consult with the

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32 1 appropriate Federal banking agencies prior to adopting 2 rules under this section with respect to swaps. 3 (j) EXEMPTIONS.The Commission may exempt,

4 conditionally or unconditionally, a derivatives clearing or5 ganization from registration under this section for the 6 clearing of swaps if the Commission finds that such de7 rivatives clearing organization is subject to comparable, 8 comprehensive supervision and regulation on a consoli9 dated basis by the Securities and Exchange Commission, 10 a Prudential Regulator or the appropriate governmental 11 authorities in the organizations home country. 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (k) DESIGNATION OF COMPLIANCE OFFICER. (1) IN
GENERAL.Each

derivatives clearing

organization shall designate an individual to serve as a compliance officer. (2) DUTIES.The compliance officer (A) shall report directly to the board or to the senior officer of the derivatives clearing organization; and (B) shall (i) review compliance with the core principles in section 5b(c)(2); (ii) in consultation with the board of the derivatives clearing organization, a body performing a function similar to that

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33 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of a board, or the senior officer of the derivatives clearing organization, resolve any conflicts of interest that may arise; (iii) be responsible for administering the policies and procedures required to be established pursuant to this section; and (iv) ensure compliance with commodity laws and the rules and regulations issued thereunder, including rules prescribed by the Commission pursuant to this section; and (C) shall establish procedures for remediation of noncompliance issues found during compliance office reviews, lookbacks, internal or external audit findings, self-reported errors, or through validated complaints. Procedures will establish the handling, management response, remediation, retesting, and closing of noncompliant issues. (3) ANNUAL
REPORTS REQUIRED.The

com-

pliance officer shall annually prepare and sign a report on the compliance of the derivatives clearing organization with the commodity laws and its policies and procedures, including its code of ethics and conflict of interest policies, in accordance with rules pre-

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34 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 scribed by the Commission. Such compliance report shall accompany the financial reports of the derivatives clearing organization that are required to be furnished to the Commission pursuant to this section and shall include a certification that, under penalty of law, the report is accurate and complete.. (3) Section 5b(c)(2) of the Commodity Exchange Act (7 U.S.C. 7a1(c)(2)) is amended to read as follows: (2) CORE
PRINCIPLES FOR DERIVATIVES

CLEARING ORGANIZATIONS.

(A) IN

GENERAL.To

be registered and

to maintain registration as a derivatives clearing organization, a derivatives clearing organization shall comply with the core principles specified in this paragraph, and any requirement that the Commission may impose by rule or regulation pursuant to section 8a(5). The Commission may conform the core principles to reflect evolving United States and international standards. Except where the Commission determines otherwise by rule or regulation, a derivatives clearing organization shall have reasonable discretion in establishing the manner in which it complies with the core principles.

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35 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) FINANCIAL
RESOURCES.

(i) The derivatives clearing organization shall have adequate financial, operational, and managerial resources to discharge its responsibilities. (ii) Financial resources shall at a minimum exceed the total amount that would (I) enable the derivatives clearing organization to meet its financial obligations to its members and participants notwithstanding a default by the member or participant creating the largest financial exposure for that derivatives clearing organization in extreme but plausible market conditions; and (II) enable the derivatives clearing organization to cover its operating costs for a period of one year, calculated on a rolling basis. (C) PARTICIPANT
BILITY. AND PRODUCT ELIGI-

(i) The derivatives clearing organization shall establish

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36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (I) appropriate admission and continuing eligibility standards (including sufficient financial resources and operational capacity to meet obligations arising from participation in the derivatives clearing organization) for members of and participants in the organization; and (II) appropriate standards for determining eligibility of agreements, contracts, or transactions submitted to the derivatives clearing organization for clearing. (ii) The derivatives clearing organization shall have procedures in place to verify that participation and membership requirements are met on an ongoing basis. (iii) The derivatives clearing organizations participation and membership requirements shall be objective, publicly disclosed, and permit fair and open access. (iv) The rules of the derivatives clearing organization shall provide for acceptance of a standardized swap regardless

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37 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 of the system on which the transaction was executed. (D) RISK

MANAGEMENT.

(i) The derivatives clearing organization shall have the ability to manage the risks associated with discharging the responsibilities of a derivatives clearing organization through the use of appropriate tools and procedures. (ii) The derivatives clearing organization shall measure its credit exposures to its members and participants at least once each business day and shall monitor such exposures throughout the business day. (iii) Through margin requirements and other risk control mechanisms, a derivatives clearing organization shall limit its exposures to potential losses from defaults by its members and participants so that the operations of the derivatives clearing organization would not be disrupted and nondefaulting members or participants would not be exposed to losses that they cannot anticipate or control.

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38 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (iv) Margin required from all members and participants shall be sufficient to cover potential exposures in normal market conditions. (v) The models and parameters used in setting margin requirements shall be risk-based and reviewed regularly. (E) SETTLEMENT
PROCEDURES.The

derivatives clearing organization shall (i) complete money settlements on a timely basis, and not less than once each business day; (ii) employ money settlement arrangements that eliminate or strictly limit the derivatives clearing organizations exposure to settlement bank risks, such as credit and liquidity risks from the use of banks to effect money settlements; (iii) ensure money settlements are final when effected; (iv) maintain an accurate record of the flow of funds associated with each money settlement; (v) have the ability to comply with the terms and conditions of any permitted

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39 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 netting or offset arrangements with other clearing organizations; and (vi) for physical settlements, establish rules that clearly state the derivatives clearing organizations obligations with respect to physical deliveries. The risks from these obligations shall be identified and managed. (F) TREATMENT
OF FUNDS.

(i) The derivatives clearing organization shall have standards and procedures designed to protect and ensure the safety of member and participant funds and assets. (ii) The derivatives clearing organization shall hold member and participant funds and assets in a manner whereby risk of loss or of delay in the derivatives clearing organizations access to the assets and funds is minimized. (iii) Assets and funds invested by the derivatives clearing organization shall be held in instruments with minimal credit, market, and liquidity risks.

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40 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (G)
DURES.

DEFAULT

RULES

AND

PROCE-

(i) The derivatives clearing organization shall have rules and procedures designed to allow for the efficient, fair, and safe management of events when members or participants become insolvent or otherwise default on their obligations to the derivatives clearing organization. (ii) The derivatives clearing organizations default procedures shall be clearly stated, and they shall ensure that the derivatives clearing organization can take timely action to contain losses and liquidity pressures and to continue meeting its obligations. (iii) The default procedures shall be publicly available. (H) RULE
ENFORCEMENT.The

deriva-

tives clearing organization shall (i) maintain adequate arrangements and resources for the effective monitoring and enforcement of compliance with rules of the derivatives clearing organization and for resolution of disputes; and

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41 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (ii) have the authority and ability to discipline, limit, suspend, or terminate a members or participants activities for violations of rules of the derivatives clearing organization. (I) SYSTEM
SAFEGUARDS.The

deriva-

tives clearing organization shall (i) establish and maintain a program of risk analysis and oversight to identify and minimize sources of operational risk through the development of appropriate controls and procedures, and the development of automated systems, that are reliable, secure, and have adequate scalable capacity; (ii) establish and maintain emergency procedures, backup facilities, and a plan for disaster recovery that allows for the timely recovery and resumption of operations and the fulfillment of the derivatives clearing organizations responsibilities and obligations; and (iii) periodically conduct tests to verify that backup resources are sufficient to ensure continued order processing and

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42 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 trade matching, price reporting, market surveillance, and maintenance of a comprehensive and accurate audit trail. (J) REPORTING.The derivatives clearing organization shall provide to the Commission all information necessary for the Commission to conduct oversight of the derivatives clearing organization. (K) RECORDKEEPING.The derivatives clearing organization shall maintain records of all activities related to the business of the derivatives clearing organization as a derivatives clearing organization in a form and manner acceptable to the Commission for a period of 5 years. (L) PUBLIC
INFORMATION.

(i) The derivatives clearing organization shall provide market participants with sufficient information to identify and evaluate accurately the risks and costs associated with using the derivatives clearing organizations services. (ii) The derivatives clearing organization shall make information concerning the rules and operating procedures gov-

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43 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 erning its clearing and settlement systems (including default procedures) available to market participants. (iii) The derivatives clearing organization shall disclose publicly and to the Commission information concerning (I) the terms and conditions of contracts, agreements, and trans-

actions cleared and settled by the derivatives clearing organization; (II) clearing and other fees that the derivatives clearing organization charges its members and participants; (III) the margin-setting methodology and the size and composition of the financial resource package of the derivatives clearing organization; (IV) other information relevant to participation in the settlement and clearing activities of the derivatives clearing organization; and (V) daily settlement prices, volume, and open interest for all contracts settled or cleared by it.

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44 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (M) INFORMATION-SHARING.The de-

rivatives clearing organization shall (i) enter into and abide by the terms of all appropriate and applicable domestic and international information-sharing

agreements; and (ii) use relevant information obtained from the agreements in carrying out the clearing organizations risk management program. (N) ANTITRUST
CONSIDERATIONS.Un-

less appropriate to achieve the purposes of this chapter, the derivatives clearing organization shall avoid (i) adopting any rule or taking any action that results in any unreasonable restraint of trade; or (ii) imposing any material anticompetitive burden. (O)
ARDS.

GOVERNANCE

FITNESS

STAND-

(i) The derivatives clearing organization shall establish governance arrangements that are transparent in order to fulfill public interest requirements and to

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45 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 support the objectives of owners and participants. (ii) The derivatives clearing organization shall establish and enforce appropriate fitness standards for directors, members of any disciplinary committee, and members of the derivatives clearing organization, and any other persons with direct access to the settlement or clearing activities of the derivatives clearing organization, including any parties affiliated with any of the persons described in this subparagraph. (P) CONFLICTS
OF INTEREST.The

de-

rivatives clearing organization shall establish and enforce rules to minimize conflicts of interest in the decisionmaking process of the derivatives clearing organization and establish a process for resolving such conflicts of interest. (Q) COMPOSITION
OF THE BOARDS.The

derivatives clearing organization shall ensure that the composition of the governing board or committee includes market participants. (R) LEGAL
RISK.The

derivatives clear-

ing organization shall have a well-founded,

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46 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 transparent, and enforceable legal framework for each aspect of its activities.. (4) Section 5b of the Commodity Exchange Act (7 U.S.C. 7a1) is further amended by adding after subsection (k), as added by paragraph (2), the following: (l) REPORTING. (1) IN
GENERAL.A

derivatives clearing orga-

nization that clears swaps shall provide to the Commission all information determined by the Commission to be necessary to perform its responsibilities under this Act. The Commission shall adopt data collection and maintenance requirements for swaps cleared by derivatives clearing organizations that are comparable to the corresponding requirements for swaps accepted by swap repositories and swaps traded on swap execution facilities. Subject to section 8, the Commission shall share such information, upon request, with the Board, the Securities and Exchange Commission, the appropriate Federal banking agencies, the Financial Services Oversight Council, and the Department of Justice or to other persons the Commission deems appropriate, including foreign financial supervisors (including foreign fu-

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47 1 2 3 4 5 6 7 8 9 10 11 12 13 14 tures authorities), foreign central banks, and foreign ministries. (2) PUBLIC
INFORMATION.A

derivatives

clearing organization that clears swaps shall provide to the Commission, or its designee, such information as is required by, and in a form and at a frequency to be determined by, the Commission, in order to comply with the public reporting requirements contained in section 8(j).. (5) Section 8(e) of the Commodity Exchange Act (7 U.S.C. 12(e)) is amended in the last sentence by adding central bank and ministries after department each place it appears. (c) LEGAL CERTAINTY
FOR

IDENTIFIED BANKING

15 PRODUCTS. 16 17 18 19 20 21 22 23 24 (1) REPEAL.Sections 402(d), 404, 407,

408(b), and 408(c)(2) of the Legal Certainty for Bank Products Act of 2000 (7 U.S.C. 27(d), 27b, 27e, 27f(b), and 27f(c)(2)) are repealed. (2) LEGAL
CERTAINTY.Section

403 of the

Legal Certainty for Bank Products Act of 2000 (7 U.S.C. 27a) is amended to read as follows:
SEC. 4 3. EXCLUSION OF IDENTIFIED BANKING PRODUCT.

(a) EXCLUSION.Except as provided in subsection

25 (b), no provisions of the Commodity Exchange Act (7

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48 1 U.S.C. 1 et seq.) shall apply to, and the Commodity Fu2 tures Trading Commission and the Securities and Ex3 change Commission shall not exercise regulatory authority 4 under the Commodity Exchange Act with respect to, an 5 identified banking product. 6 (b) EXCEPTION.An appropriate Federal banking

7 agency may except an identified banking product from the 8 exclusion in subsection (a) if the agency determines, in 9 consultation with the Commodity Futures Trading Com10 mission and the Securities and Exchange Commission, 11 that the product 12 13 14 15 16 17 18 19 20 21 22 23 (1) would meet the definition of swap in section 1a(35) of the Commodity Exchange Act (7 U.S.C. 1a(35)) or security-based swap in section 1a(38) of the Commodity Exchange Act (7 U.S.C. 1a(38)); and (2) has become known to the trade as a swap or security-based swap, or otherwise has been structured as an identified banking product for the purpose of evading the provisions of the Commodity Exchange Act (7 U.S.C. 1 et seq.), the Securities Act of 1933 (15 U.S.C. 77a et seq.), or the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.)..

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49 1 2
SEC. 114. PUBLIC REPORTING OF AGGREGATE S AP DATA.

Section 8 of the Commodity Exchange Act (7 U.S.C.

3 12) is amended by adding after subsection (i) the fol4 lowing: 5 (j) PUBLIC REPORTING
OF

AGGREGATE SWAP

6 DATA. 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
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(1) IN

GENERAL.The

Commission, or a per-

son designated by the Commission pursuant to paragraph (2), shall make available to the public, in a manner that does not disclose the business transactions and market positions of any person, aggregate data on swap trading volumes and positions from the sources set forth in paragraph (3). (2) DESIGNEE
OF THE COMMISSION.The

Commission may designate a derivatives clearing organization or a swap repository to carry out the public reporting described in paragraph (1). (3) SOURCES
OF INFORMATION.The

sources

of the information to be publicly reported as described in paragraph (1) are (A) derivatives clearing organizations

pursuant to section 5b(k)(2); (B) swap repositories pursuant to section 21(c)(3); and (C) reports received by the Commission pursuant to section 4r..
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50 1 2
SEC. 115. S AP REPOSITORIES.

The Commodity Exchange Act (7 U.S.C. 1 et seq.)

3 is amended by inserting after section 20 the following: 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25

SEC. 21. S AP REPOSITORIES.

(a) REGISTRATION REQUIREMENT. (1) IN

GENERAL.It

shall be unlawful for any

person, unless registered with the Commission, directly or indirectly to make use of the mails or any means or instrumentality of interstate commerce to perform the functions of a swap repository. (2) INSPECTION
AND EXAMINATION.Reg-

istered swap repositories shall be subject to inspection and examination by any representative of the Commission. (b) STANDARD SETTING. (1) DATA
IDENTIFICATION.The

Commission

shall prescribe standards that specify the data elements for each swap that shall be collected and maintained by each registered swap repository. (2) DATA
COLLECTION AND MAINTENANCE.

The Commission shall prescribe data collection and data maintenance standards for swap repositories. (3) COMPARABILITY.The standards pre-

scribed by the Commission under this subsection shall be comparable to the data standards imposed

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51 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 by the Commission on derivatives clearing organizations that clear swaps. (c) DUTIES.A swap repository shall (1) accept data prescribed by the Commission for each swap under subsection (b); (2) maintain such data in such form and manner and for such period as may be required by the Commission; (3) provide to the Commission, or its designee, such information as is required by, and in a form and at a frequency to be determined by, the Commission, in order to comply with the public reporting requirements contained in section 8(j); and (4) make available, on a confidential basis pursuant to section 8, all data obtained by the swap repository, including individual counterparty trade and position data, to the Commission, the appropriate Federal banking agencies, the Financial Services Oversight Council, the Securities and Exchange Commission, and the Department of Justice or to other persons the Commission deems appropriate, including foreign financial supervisors (including foreign futures authorities), foreign central banks, and foreign ministries.

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52 1 (d) REQUIRED REGISTRATION

FOR

SECURITY-

2 BASED SWAP REPOSITORIES.Any person that is re3 quired to be registered as a swap repository under this 4 section shall register with the Commission regardless of 5 whether that person also is registered with the Securities 6 and Exchange Commission as a security-based swap re7 pository. 8 (e) HARMONIZATION
OF

RULES.Not later than

9 180 days after the effective date of the Over-the-Counter 10 Derivatives Markets Act of 2009, the Commission and the 11 Securities and Exchange Commission shall jointly adopt 12 uniform rules governing persons that are registered under 13 this section and persons that are registered as security14 based swap repositories under the Securities Exchange 15 Act of 1934 (15 U.S.C. 78a et seq.), including uniform 16 rules that specify the data elements that shall be collected 17 and maintained by each repository. 18 (f) EXEMPTIONS.The Commission may exempt,

19 conditionally or unconditionally, a swap repository from 20 the requirements of this section if the Commission finds 21 that such swap repository is subject to comparable, com22 prehensive supervision and regulation on a consolidated 23 basis by the Securities and Exchange Commission, a Pru24 dential Regulator or the appropriate governmental au25 thorities in the organizations home country..

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53 1 2
SEC. 116. REPORTING AND RECORDKEEPING.

The Commodity Exchange Act (7 U.S.C. 1 et seq.)

3 is amended by inserting after section 4q the following: 4 5 6

SEC. 4r. REPORTING AND RECORDKEEPING FOR CERTAIN S APS.

(a) IN GENERAL.Any person who enters into a

7 swap and 8 9 10 11 12 13 (1) did not clear the swap in accordance with section 2(j)(1); and (2) did not have data regarding the swap accepted by a swap repository in accordance with rules (including time frames) adopted by the Commission under section 21,

14 shall meet the requirements in subsection (b). 15 (b) REPORTS.Any person described in subsection

16 (a) shall 17 18 19 20 21 22 23 24 25 26 (1) make such reports in such form and manner and for such period as the Commission shall prescribe by rule or regulation regarding the swaps held by the person; and (2) keep books and records pertaining to the swaps held by the person in such form and manner and for such period as may be required by the Commission, which books and records shall be open to inspection by any representative of the Commission, an appropriate Federal banking agency, the Securi(448095|23)

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54 1 2 3 4 ties and Exchange Commission, the Financial Services Oversight Council, and the Department of Justice. (c) IDENTICAL DATA.In adopting rules under this

5 section, the Commission shall require persons described in 6 subsection (a) to report the same or a more comprehensive 7 set of data than the Commission requires swap reposi8 tories to collect under section 21.. 9 10 11
SEC. 117. REGISTRATION AND REGULATION OF S AP DEALERS AND MA OR S AP PARTICIPANTS.

The Commodity Exchange Act (7 U.S.C. 1 et seq.)

12 is amended by inserting after section 4r (as added by sec13 tion 116) the following: 14 15 16 17 18 19 20 21 22 23 24
SEC. 4s. REGISTRATION AND REGULATION OF S AP DEALERS AND MA OR S AP PARTICIPANTS.

(a) REGISTRATION. (1) It shall be unlawful for any person to act as a swap dealer unless such person is registered as a swap dealer with the Commission. (2) It shall be unlawful for any person to act as a major swap participant unless such person shall have registered as a major swap participant with the Commission. (b) REQUIREMENTS.

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55 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) IN
GENERAL.A

person shall register as

a swap dealer or major swap participant by filing a registration application with the Commission. (2) CONTENTS.The application shall be made in such form and manner as prescribed by the Commission, giving any information and facts as the Commission may deem necessary concerning the business in which the applicant is or will be engaged. Such person, when registered as a swap dealer or major swap participant, shall continue to report and furnish to the Commission such information pertaining to such persons business as the Commission may require. (3) EXPIRATION.Each registration shall expire at such time as the Commission may by rule or regulation prescribe. (4) RULES.Except as provided in subsections (c), (d) and (e), the Commission may prescribe rules applicable to swap dealers and major swap participants, including rules that limit the activities of swap dealers and major swap participants. (5) TRANSITION.Rules adopted under this section shall provide for the registration of swap dealers and major swap participants no later than

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56 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 one year after the effective date of the Over-theCounter Derivatives Markets Act of 2009. (6) STATUTORY
DISQUALIFICATION.Except

to the extent otherwise specifically provided by rule, regulation, or order, it shall be unlawful for a swap dealer or a major swap participant to permit any person associated with a swap dealer or a major swap participant who is subject to a statutory disqualification to effect or be involved in effecting swaps on behalf of such swap dealer or major swap participant, if such swap dealer or major swap participant knew, or in the exercise of reasonable care should have known, of such statutory disqualification. (c) DUAL REGISTRATION. (1) SWAP
DEALER.Any

person that is re-

quired to be registered as a swap dealer under this section shall register with the Commission regardless of whether that person also is a bank or is registered with the Securities and Exchange Commission as a security-based swap dealer. (2) MAJOR
SWAP PARTICIPANT.Any

person

that is required to be registered as a major swap participant under this section shall register with the Commission regardless of whether that person also

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57 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 is a bank or is registered with the Securities and Exchange Commission as a major security-based swap participant. (d) JOINT RULES. (1) IN
GENERAL.Not

later than 180 days

after the effective date of the Over-the-Counter Derivatives Markets Act of 2009, the Commission and the Securities and Exchange Commission shall jointly adopt uniform rules for persons that are registered as swap dealers or major swap participants under this section and persons that are registered as security-based swap dealers or major security-based swap participants under the Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.). (2) EXCEPTION
MENTS.The FOR PRUDENTIAL REQUIRE-

Commission and the Securities and

Exchange Commission shall not prescribe rules imposing prudential requirements (including activity restrictions) on swap dealers, major swap participants, security-based swap dealers, or major security-based swap participants for which there is a Prudential Regulator. This provision shall not be construed as limiting the authority of the Commission and the Securities and Exchange Commission to

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58 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 prescribe appropriate business conduct, reporting, and recordkeeping requirements to protect investors. (e) CAPITAL AND MARGIN REQUIREMENTS. (1) IN
GENERAL. SWAP DEALERS AND MAJOR

(A) BANK
SWAP

PARTICIPANTS.Each

registered swap

dealer and major swap participant for which there is a Prudential Regulator shall meet such minimum capital requirements and minimum initial and variation margin requirements as the Prudential Regulators shall by rule or regulation jointly prescribe to help ensure the safety and soundness of the swap dealer or major swap participant. (B) NONBANK
SWAP DEALERS AND

MAJOR SWAP PARTICIPANTS.Each

registered

swap dealer and major swap participant for which there is not a Prudential Regulator shall meet such minimum capital requirements and minimum initial and variation margin requirements as the Commission and the Securities and Exchange Commission shall by rule or regulation jointly prescribe to help ensure the safety and soundness of the swap dealer or major swap participant.

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59 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (2) JOINT
RULES. SWAP DEALERS AND MAJOR

(A) BANK

SWAP PARTICIPANTS.Within

180 days of the

enactment of the Over-the-Counter Derivatives Markets Act of 2009, the Prudential Regulators, in consultation with the Commission and the Securities and Exchange Commission, shall jointly adopt rules imposing capital and margin requirements under this subsection for swap dealers and major swap participants. (B) NONBANK
SWAP DEALERS AND

MAJOR SWAP PARTICIPANTS.Within

180 days

of the enactment of the Over-the-Counter Derivatives Markets Act of 2009, the Commission and the Securities and Exchange Commission, in consultation with the Prudential Regulators, shall jointly adopt rules imposing capital and margin requirements under this subsection for swap dealers and major swap participants for which there is no Prudential Regulator. (3) CAPITAL. (A) BANK
SWAP SWAP DEALERS AND MAJOR

PARTICIPANTS.In

setting capital re-

quirements under this subsection, the Prudential Regulators shall impose:

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60 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (i) a capital requirement that is greater than zero for swaps that are cleared by a derivatives clearing organization; and (ii) to offset the greater risk to the swap dealer or major swap participant and to the financial system arising from the use of swaps that are not centrally cleared, higher capital requirements for swaps that are not cleared by a registered derivatives clearing organization than for swaps that are centrally cleared. (B) NONBANK
SWAP DEALERS AND

MAJOR SWAP PARTICIPANTS.Capital

require-

ments set by the Commission and the Securities and Exchange Commission under this subsection shall be as strict as or stricter than the capital requirements set by the Prudential Regulators under this subsection. (C) BANK
HOLDING COMPANIES.Capital

requirements set by the Board for swaps of bank holding companies and Tier 1 financial holding companies on a consolidated basis shall be as strict as or stricter than the capital re-

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61 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 quirements set by the Prudential Regulators under this subsection. (D) A futures commission merchant, introducing broker, broker or dealer shall maintain sufficient capital to comply with the stricter of any applicable capital requirements to which it is subject. (4) MARGIN. (A) BANK
SWAP SWAP DEALERS AND MAJOR

PARTICIPANTS.The

Prudential Regu-

lators shall impose both initial and variation margin requirements under this subsection on all swaps that are not cleared by a registered derivatives clearing organization. (B) NON-SWAP
PARTICIPANTS.The DEALERS OR MAJOR SWAP

Prudential

Regulators

may, but are not required to, impose margin requirements with respect to swaps in which one of the counterparties is neither a swap dealer, major swap participant, security-based swap dealer nor a major security-based swap participant. Margin requirements for swaps set by the Commission and the Securities and Exchange Commission shall provide for the use of noncash assets as collateral.

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62 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (C) NONBANK
SWAP DEALERS AND

MAJOR SWAP PARTICIPANTS.Margin

require-

ments for swaps set by the Commission and the Securities and Exchange Commission under this subsection shall be as strict as or stricter than margin requirements for swaps set by the Prudential Regulators. (f) REPORTING AND RECORDKEEPING. (1) IN
GENERAL.Each

registered swap deal-

er and major swap participant (A) shall make such reports as are prescribed by the Commission by rule or regulation regarding the transactions and positions and financial condition of such person; (B) for which (i) there is a Prudential Regulator shall keep books and records of all activities related to its business as a swap dealer or major swap participant in such form and manner and for such period as may be prescribed by the Commission by rule or regulation; (ii) there is no Prudential Regulator shall keep books and records in such form and manner and for such period as may be

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63 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 prescribed by the Commission by rule or regulation; (C) shall keep such books and records open to inspection and examination by any representative of the Commission; and (D) shall keep any such books and records relating to transactions in swaps based on one or more securities open to inspection and examination by the Securities and Exchange Commission. (2) RULES.Within 365 days of the enactment of the Over-the-Counter Derivatives Markets Act of 2009, the Commission and the Securities and Exchange Commission, in consultation with the appropriate Federal banking agencies, shall jointly adopt rules governing reporting and recordkeeping for swap dealers, major swap participants, securitybased swap dealers, and major security-based swap participants. (g) DAILY TRADING RECORDS. (1) IN
GENERAL.Each

registered swap deal-

er and major swap participant shall maintain daily trading records of its swaps and all related records (including related cash or forward transactions) and recorded communications including but not limited

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64 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 to electronic mail, instant messages, and recordings of telephone calls, for such period as may be prescribed by the Commission by rule or regulation. (2) INFORMATION
REQUIREMENTS.The

daily

trading records shall include such information as the Commission shall prescribe by rule or regulation. (3) CUSTOMER
RECORDS.Each

registered

swap dealer and major swap participant shall maintain daily trading records for each customer or counterparty in such manner and form as to be identifiable with each swap transaction. (4) AUDIT
TRAIL.Each

registered swap deal-

er and major swap participant shall maintain a complete audit trail for conducting comprehensive and accurate trade reconstructions. (5) RULES.Within 365 days of the enactment of the Over-the-Counter Derivatives Markets Act of 2009, the Commission and the Securities and Exchange Commission, in consultation with the appropriate Federal banking agencies, shall jointly adopt rules governing daily trading records for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants. (h) BUSINESS CONDUCT STANDARDS.

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65 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) IN
GENERAL.Each

registered swap deal-

er and major swap participant shall conform with business conduct standards as may be prescribed by the Commission by rule or regulation addressing (A) fraud, manipulation, and other abusive practices involving swaps (including swaps that are offered but not entered into); (B) diligent supervision of its business as a swap dealer; (C) adherence to all applicable position limits; and (D) such other matters as the Commission shall determine to be necessary or appropriate. (2) BUSINESS
CONDUCT REQUIREMENTS.

Business conduct requirements adopted by the Commission shall (A) establish the standard of care for a swap dealer or major swap participant to verify that any counterparty meets the eligibility standards for an eligible contract participant; (B) require disclosure by the swap dealer or major swap participant to any counterparty to the transaction (other than a swap dealer, major swap participant, security-based swap

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66 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 dealer or major security-based swap participant) of (i) information about the material risks and characteristics of the swap; (ii) the source and amount of any fees or other material remuneration that the swap dealer or major swap participant would directly or indirectly expect to receive in connection with the swap; and (iii) any other material incentives or conflicts of interest that the swap dealer or major swap participant may have in connection with the swap; and (C) establish such other standards and requirements as the Commission may determine are necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this Act. (3) RULES.The Commission and the Securities and Exchange Commission, in consultation with the appropriate Federal banking agencies, shall jointly prescribe rules under this subsection governing business conduct standards for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants

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67 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 within 365 days of the enactment of the Over-theCounter Derivatives Markets Act of 2009. (i) DOCUMENTATION
ARDS. AND

BACK OFFICE STAND-

(1) IN

GENERAL.Each

registered swap deal-

er and major swap participant shall conform with standards, as may be prescribed by the Commission by rule or regulation, addressing timely and accurate confirmation, processing, netting, documentation, and valuation of all swaps. (2) RULES.Within 365 days of the enactment of the Over-the-Counter Derivatives Markets Act of 2009, the Commission and the Securities and Exchange Commission, in consultation with the appropriate Federal banking agencies, shall adopt rules governing documentation and back office standards for swap dealers, major swap participants, securitybased swap dealers, and major security-based swap participants. (j) DEALER RESPONSIBILITIES.Each registered

21 swap dealer and major swap participant at all times shall 22 comply with the following requirements: 23 24 (1) MONITORING
OF TRADING.The

swap

dealer or major swap participant shall monitor its

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68 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 trading in swaps to prevent violations of applicable position limits. (2) DISCLOSURE

TION.The OF GENERAL INFORMA-

swap dealer or major swap participant

shall disclose to the Commission and to the Prudential Regulator for such swap dealer or major swap participant, as applicable, information concerning (A) terms and conditions of its swaps; (B) swap trading operations, mechanisms, and practices; (C) financial integrity protections relating to swaps; and (D) other information relevant to its trading in swaps. (3) ABILITY
TO OBTAIN INFORMATION.The

swap dealer or major swap participant shall (A) establish and enforce internal systems and procedures to obtain any necessary information to perform any of the functions described in this section; and (B) provide the information to the Commission and to the Prudential Regulator for such swap dealer or major swap participant, as applicable, upon request.

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69 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (4) CONFLICTS
OF INTEREST.The

swap

dealer and major swap participant shall implement conflict-of-interest systems and procedures that (A) establish structural and institutional safeguards to assure that the activities of any person within the firm relating to research or analysis of the price or market for any commodity are separated by appropriate informational partitions within the firm from the review, pressure, or oversight of those whose involvement in trading or clearing activities might potentially bias their judgment or supervision; and (B) address such other issues as the Commission determines appropriate. (5) ANTITRUST
CONSIDERATIONS.Unless

necessary or appropriate to achieve the purposes of this Act, the swap dealer or major swap participant shall avoid (A) adopting any processes or taking any actions that result in any unreasonable restraints of trade; or (B) imposing any material anticompetitive burden on trading.

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70 1 (k) RULES.The Commission, the Securities and

2 Exchange Commission, and the Prudential Regulators 3 shall consult with each other prior to adopting any rules 4 under the Over-the-Counter Derivatives Markets Act of 5 2009. 6 7 (l) RECOGNITION OF COMPARABLE NON-U.S. REGULATION.The

Commission, in consultation with the Sec-

8 retary of the Treasury, the Securities and Exchange Com9 mission and the Prudential Regulators, shall adopt rules 10 exempting from registration and the other requirements 11 of the Over-the-Counter Derivatives Market Act of 2009 12 foreign financial institutions that the Commission finds 13 are subject to comparable regulation in the financial insti14 tutions home country.. 15 16 17
SEC. 11 . SEGREGATION OF ASSETS HELD AS COLLATERAL IN S AP TRANSACTIONS.

The Commodity Exchange Act (7 U.S.C. 1 et seq.)

18 is further amended by inserting after section 4s the fol19 lowing: 20 21 22

SEC. 4t. SEGREGATION OF ASSETS HELD AS COLLATERAL IN S AP TRANSACTIONS.

(a) CLEARED SWAPS.A swap dealer, futures com-

23 mission merchant, or derivatives clearing organization by 24 or through which funds or other property are held as mar25 gin or collateral to secure the obligations of a counterparty

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71 1 under a swap to be cleared by or through a derivatives 2 clearing organization shall segregate, maintain, and use 3 the funds or other property for the benefit of the 4 counterparty, in accordance with such rules and relations 5 as the Commission or Prudential Regulator shall pre6 scribe. Any such funds or other property shall be treated 7 as customer property under this Act. 8 (b) OVER-THE-COUNTER SWAPS.At the request of

9 a swap counterparty who provides funds or other property 10 to a swap dealer as margin or collateral to secure the obli11 gations of the counterparty under a swap between the 12 counterparty and the swap dealer that is not submitted 13 for clearing to a derivatives clearing organization, the 14 swap dealer shall segregate the funds or other property 15 for the benefit of the counterparty, and maintain the funds 16 or other property in an account which is carried by a 17 third-party custodian and designated as a segregated ac18 count for the counterparty, in accordance with such rules 19 and regulations as the Commission or Prudential Regu20 lator may prescribe. This subsection shall not be inter21 preted to preclude commercial arrangements regarding the 22 investment of the segregated funds or other property and 23 the related allocation of gains and losses resulting from 24 any such investment..

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72 1 2
SEC. 11 . CONFLICTS OF INTEREST.

Section 4d of the Commodity Exchange Act (7 U.S.C.

3 6d) is amended by 4 5 6 7 (1) redesignating subsection (c) as subsection (d); and (2) inserting after subsection (b) the following: (c) CONFLICTS
OF

INTEREST.The Commission

8 shall require that futures commission merchants and in9 troducing brokers implement conflict-of-interest systems 10 and procedures that 11 12 13 14 15 16 17 18 19 20 21 22 23 (1) establish structural and institutional safeguards to assure that the activities of any person within the firm relating to research or analysis of the price or market for any commodity are separated by appropriate informational partitions within the firm from the review, pressure, or oversight of those whose involvement in trading or clearing activities might potentially bias their judgment or supervision; and (2) address such other issues as the Commission determines appropriate..
SEC. 12 . S AP EXECUTION FACILITIES.

The Commodity Exchange Act (7 U.S.C. 1 et seq.)

24 is amended by inserting after section 5g the following: 25 26

SEC. 5 . S AP EXECUTION FACILITIES.

(a) REGISTRATION.
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73 1 2 3 4 5 6 7 8 9 10 11 (1) IN
GENERAL.No

person may operate a

facility for the trading of swaps unless the facility is registered as a swap execution facility under this section. (2) DUAL
REGISTRATION.Any

person that is

required to be registered as a swap execution facility under this section shall register with the Commission regardless of whether that person also is registered with the Securities and Exchange Commission as a swap execution facility. (b) REQUIREMENTS
FOR

TRADING.A swap execu-

12 tion facility that is registered under subsection (a) may 13 trade any swap. 14 (c) TRADING
BY

CONTRACT MARKETS.A board of

15 trade that operates a contract market shall, to the extent 16 that the board of trade also operates a swap execution fa17 cility and uses the same electronic trade execution system 18 for trading on the contract market and the swap execution 19 facility, identify whether the electronic trading is taking 20 place on the contract market or the swap execution facil21 ity. 22 23 24 (d) CRITERIA FOR REGISTRATION. (1) IN
GENERAL.To

be registered as a swap

execution facility, the facility shall be required to

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74 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 demonstrate to the Commission that it meets the criteria specified herein. (2) DETERRENCE
OF ABUSES.The

swap exe-

cution facility shall establish and enforce trading and participation rules that will deter abuses and have the capacity to detect, investigate, and enforce those rules, including means to (A) obtain information necessary to perform the functions required under this section; or (B) use means to (i) provide market participants with impartial access to the market; and (ii) capture information that may be used in establishing whether rule violations have occurred. (3) TRADING
PROCEDURES.The

swap execu-

tion facility shall establish and enforce rules or terms and conditions defining, or specifications detailing, trading procedures to be used in entering and executing orders traded on or through its facilities. (4) FINANCIAL
INTEGRITY OF TRANS-

ACTIONS.The

swap execution facility shall estab-

lish and enforce rules and procedures for ensuring

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75 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the financial integrity of swaps entered on or through its facilities, including the clearance and settlement of the swaps pursuant to section 2(j)(1). (e) CORE PRINCIPLES
CILITIES. FOR

SWAP EXECUTION FA-

(1) IN

GENERAL.To

maintain its registra-

tion as a swap execution facility, the facility shall comply with the core principles specified in this subsection and any requirement that the Commission may impose by rule or regulation pursuant to section 8a(5). Except where the Commission determines otherwise by rule or regulation, the facility shall have reasonable discretion in establishing the manner in which it complies with these core principles. (2) COMPLIANCE
WITH RULES.The

swap

execution facility shall monitor and enforce compliance with any of the rules of the facility, including the terms and conditions of the swaps traded on or through the facility and any limitations on access to the facility. (3) SWAPS
NOT READILY SUSCEPTIBLE TO MA-

NIPULATION.The

swap execution facility shall per-

mit trading only in swaps that are not readily susceptible to manipulation.

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76 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (4) MONITORING
OF TRADING.The

swap

execution facility shall monitor trading in swaps to prevent manipulation, price distortion, and disruptions of the delivery or cash settlement process through surveillance, compliance, and disciplinary practices and procedures, including methods for conducting real-time monitoring of trading and comprehensive and accurate trade reconstructions. (5) ABILITY
TO OBTAIN INFORMATION.The

swap execution facility shall (A) establish and enforce rules that will allow the facility to obtain any necessary information to perform any of the functions described in this subsection; (B) provide the information to the Commission upon request; and (C) have the capacity to carry out such international information-sharing agreements as the Commission may require. (6) EMERGENCY
AUTHORITY.The

swap exe-

cution facility shall adopt rules to provide for the exercise of emergency authority, in consultation or cooperation with the Commission, where necessary and appropriate, including the authority to liquidate or

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77 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 transfer open positions in any swap or to suspend or curtail trading in a swap. (7) TIMELY
MATION.The PUBLICATION OF TRADING INFOR-

swap execution facility shall make

public timely information on price, trading volume, and other trading data on swaps to the extent prescribed by the Commission. (8) RECORDKEEPING
AND REPORTING.The

swap execution facility shall maintain records of all activities related to the business of the facility, including a complete audit trail, in a form and manner acceptable to the Commission for a period of 5 years, and report to the Commission all information determined by the Commission to be necessary or appropriate for the Commission to perform its responsibilities under this Act in a form and manner acceptable to the Commission. The Commission shall adopt data collection and reporting requirements for swap execution facilities that are comparable to corresponding requirements for derivatives clearing organizations and swap repositories. (9) ANTITRUST
CONSIDERATIONS.Unless

necessary or appropriate to achieve the purposes of this Act, the swap execution facility shall avoid

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78 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (A) adopting any rules or taking any actions that result in any unreasonable restraints of trade; or (B) imposing any material anticompetitive burden on trading on the swap execution facility. (10) CONFLICTS execution facility shall (A) establish and enforce rules to minimize conflicts of interest in its decisionmaking process; and (B) establish a process for resolving the conflicts of interest. (11) DESIGNATION
CER. OF COMPLIANCE OFFIOF INTEREST.The

swap

(A) IN

GENERAL.Each

swap execution

facility shall designate an individual to serve as a compliance officer. (B) DUTIES.The compliance officer shall (i) report directly to the board or to the senior officer of the facility; and (ii) shall (I) review compliance with the core principles in this subsection;

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79 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (II) in consultation with the board of the facility, a body performing a function similar to that of a board, or the senior officer of the facility, resolve any conflicts of interest that may arise; (III) be responsible for administering the policies and procedures required to be established pursuant to this section; and (IV) ensure compliance with commodity laws and the rules and regulations issued thereunder, including rules prescribed by the Commission pursuant to this section; and (iii) establish procedures for remediation of non-compliance issues found during compliance office reviews, lookbacks, internal or external audit findings, self-reported errors, or through validated complaints. Procedures will establish the handling, management response, remediation, re-testing, and closing of non-compliant issues.

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80 1 2 3 4 5 6 7 8 9 10 11 12 13 14 (C) ANNUAL
REPORTS REQUIRED.The

compliance officer shall annually prepare and sign a report on the compliance of the facility with the commodity laws and its policies and procedures, including its code of ethics and conflict of interest policies, in accordance with rules prescribed by the Commission. Such compliance report shall accompany the financial reports of the facility that are required to be furnished to the Commission pursuant to this section and shall include a certification that, under penalty of law, the report is accurate and complete. (f) EXEMPTIONS.The Commission may exempt,

15 conditionally or unconditionally, a swap execution facility 16 from registration under this section if the Commission 17 finds that such facility is subject to comparable, com18 prehensive supervision and regulation on a consolidated 19 basis by the Securities and Exchange Commission, a Pru20 dential Regulator or the appropriate governmental au21 thorities in the organizations home country. 22 (g) HARMONIZATION
OF

RULES.Within 180 days

23 of the enactment of the Over-the-Counter Derivatives 24 Markets Act of 2009, the Commission and the Securities 25 and Exchange Commission shall jointly prescribe rules

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81 1 governing the regulation of swap execution facilities under 2 this section and section 3B of the Securities Exchange Act 3 of 1934 (15 U.S.C. 78c2).. 4 5 6
SEC. 121. DERIVATIVES TRANSACTION EXECUTION FACILITIES AND EXEMPT BOARDS OF TRADE.

Sections 5a and 5d of the Commodity Exchange Act

7 (7 U.S.C. 7 and 7a-3) are repealed. 8 9

SEC. 122. DESIGNATED CONTRACT MARKETS.

(a) Section 5(d) of the Commodity Exchange Act (7

10 U.S.C. 7(d)) is amended by striking paragraph (9) and 11 inserting the following: 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (9) EXECUTION
OF TRANSACTIONS.

(A) The board of trade shall provide a competitive, open, and efficient market and mechanism for executing transactions that protects the price discovery process of trading in the board of trades centralized market. (B) The rules may authorize, for bona fide business purposes (i) transfer trades or office trades; (ii) an exchange of (I) futures in connection with a cash commodity transaction; (II) futures for cash commodities; or

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82 1 2 3 4 5 6 7 8 9 10 (III) futures for swaps; or (iii) a futures commission merchant, acting as principal or agent, to enter into or confirm the execution of a contract for the purchase or sale of a commodity for future delivery if the contract is reported, recorded, or cleared in accordance with the rules of the contract market or a derivatives clearing organization.. (b) Section 5(d) of the Commodity Exchange Act (7

11 U.S.C. 7(d)) is amended by adding after paragraph (18) 12 the following: 13 14 15 16 17 18 19 20 21 22 23 24 25 (19) FINANCIAL
RESOURCES.The

board of

trade shall demonstrate that it has adequate financial, operational, and managerial resources to discharge the responsibilities of a contract market. For the board of trades financial resources to be considered adequate, their value shall exceed the total amount that would enable the contract market to cover its operating costs for a period of one year, calculated on a rolling basis. (20) SYSTEM trade shall (A) establish and maintain a program of risk analysis and oversight to identify and miniSAFEGUARDS.The

board of

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83 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 mize sources of operational risk through the development of appropriate controls and procedures, and the development of automated systems, that are reliable, secure, and give adequate scalable capacity; (B) establish and maintain emergency procedures, backup facilities, and a plan for disaster recovery that allow for the timely recovery and resumption of operations and the fulfillment of the board of trades responsibilities and obligations; and (C) periodically conduct tests to verify that back-up resources are sufficient to ensure continued order processing and trade matching, price reporting, market surveillance, and maintenance of a comprehensive and accurate audit trail..
SEC. 123. MARGIN.

Section 8a of the Commodity Exchange Act (7 U.S.C.

20 12a) is amended in paragraph (7)(C), by striking , ex21 cepting the setting of levels of margin. 22 23
SEC. 124. POSITION LIMITS.

(a) Section 4a(a) of the Commodity Exchange Act (7

24 U.S.C. 6a(a)) is amended by 25 (1) inserting (1) after (a);

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84 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (2) striking on electronic trading facilities with respect to a significant price discovery contract in the first sentence and inserting swaps that perform or affect a significant price discovery function with respect to regulated markets; (3) inserting , including any group or class of traders, in the second sentence after held by any person; (4) striking on an electronic trading facility with respect to a significant price discovery contract, in the second sentence and inserting swaps that perform or affect a significant price discovery function with respect to regulated markets,; and (5) inserting at the end the following: (2) AGGREGATE
POSITION LIMITS.The

Com-

mission may, by rule or regulation, establish limits (including related hedge exemption provisions) on the aggregate number or amount of positions in contracts based upon the same underlying commodity (as defined by the Commission) that may be held by any person, including any group or class of traders, for each month across (A) contracts listed by designated contract markets;

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85 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) contracts traded on a foreign board of trade that provides members or other participants located in the United States with direct access to its electronic trading and order matching system; and (C) swap contracts that perform or affect a significant price discovery function with respect to regulated markets. (3) SIGNIFICANT
TION.In PRICE DISCOVERY FUNC-

making a determination whether a swap

performs or affects a significant price discovery function with respect to regulated markets, the Commission shall consider, as appropriate: (A) PRICE
LINKAGE.The

extent to

which the swap uses or otherwise relies on a daily or final settlement price, or other major price parameter, of another contract traded on a regulated market based upon the same underlying commodity, to value a position, transfer or convert a position, financially settle a position, or close out a position. (B) ARBITRAGE.The extent to which the price for the swap is sufficiently related to the price of another contract traded on a regulated market based upon the same underlying

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86 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 commodity so as to permit market participants to effectively arbitrage between the markets by simultaneously maintaining positions or executing trades in the swaps on a frequent and recurring basis. (C) MATERIAL
PRICE REFERENCE.The

extent to which, on a frequent and recurring basis, bids, offers, or transactions in a contract traded on a regulated market are directly based on, or are determined by referencing, the price generated by the swap. (D) MATERIAL
LIQUIDITY.The

extent

to which the volume of swaps being traded in the commodity is sufficient to have a material effect on another contract traded on a regulated market. (E) OTHER
MATERIAL FACTORS.Such

other material factors as the Commission specifies by rule or regulation as relevant to determine whether a swap serves a significant price discovery function with respect to a regulated market. (4) EXEMPTIONS.The Commission, by rule, regulation, or order, may exempt, conditionally or unconditionally, any person or class of persons, any

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87 1 2 3 4 5 swap or class of swaps, or any transaction or class of transactions from any requirement it may establish under this section with respect to position limits.. (b) Section 4a(b) of the Commodity Exchange Act

6 (7 U.S.C. 6a(b)) is amended 7 8 9 10 11 12 13 14 15 16 17 (1) in paragraph (1), by striking or derivatives transaction execution facility or facilities or electronic trading facility and inserting or swap execution facility or facilities; and (2) in paragraph (2), by striking or derivatives transaction execution facility or facilities or electronic trading facility and inserting or swap execution facility.
SEC. 125. ENHANCED AUTHORITY OVER REGISTERED ENTITIES.

(a) Section 5(d)(1) of the Commodity Exchange Act

18 (7 U.S.C. 7(d)(1)) is amended by striking The board of 19 trade shall have and inserting Except where the Com20 mission otherwise determines by rule or regulation pursu21 ant to section 8a(5), the board of trade shall have. 22 (b) Section 5b(c)(2)(A) of the Commodity Exchange

23 Act (7 U.S.C. 7a1(c)(2)(A)) is amended by striking The 24 applicant shall have and inserting Except where the

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88 1 Commission otherwise determines by rule or regulation 2 pursuant to section 8a(5), the applicant shall have. 3 (c) Section 5c(a) of the Commodity Exchange Act (7

4 U.S.C. 7a2(a)) is amended 5 6 7 8 9 (1) in paragraph (1), by striking 5a(d) and 5b(c)(2) and inserting 5b(c)(2) and 5h(e); and (2) in paragraph (2), by striking shall not and inserting may. (d) Section 5c(c)(1) of the Commodity Exchange Act

10 (7 U.S.C. 7a2(c)(1)) is amended by inserting (A) after 11 IN 12 13 14 15 16 17 18 19 20 21 22 23 24 25

GENERAL.

and adding at the end the following:

(B) Unless section 805(e) of the Payment, Clearing, and Settlement Supervision Act of 2009 applies, the new contract or instrument or clearing of the new contract or instrument, new rule, or rule amendment shall become effective, pursuant to the registered entitys certification, 10 business days after the Commissions receipt of the certification (or such shorter period determined by the Commission by rule or regulation) unless the Commission notifies the registered entity within such time that it is staying the certification because there exist novel or complex issues that require additional time to analyze, an inadequate explanation by

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89 1 2 3 4 5 6 7 8 9 10 11 the submitting registered entity, or a potential inconsistency with this Act (including regulations under this Act). (C) A notification by the Commission pursuant to subparagraph (B) shall stay the certification of the new contract or instrument or clearing of the new contract or instrument, new rule or new amendment for up to an additional 90 days from the date of such notification.. (e) Section 5c(d) of the Commodity Exchange Act (7

12 U.S.C. 7a2(d)) is repealed. 13 14

SEC. 126. FOREIGN BOARDS OF TRADE.

(a)

.Section 4(b) of the Commodity Ex-

15 change Act (7 U.S.C. 6(b)) is amended by striking No 16 rule or regulation and inserting Except as provided in 17 paragraphs (1) and (2), no rule or regulation. 18 (b) .Section 4(b) of the Commodity Ex-

19 change Act (7 U.S.C. 6(b)) is further amended by insert20 ing before The Commission the following: 21 22 23 24 25 (1) REGISTRATION.The Commission may adopt rules and regulations requiring registration with the Commission for a foreign board of trade that provides the members of the foreign board of trade or other participants located in the United

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90 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 States direct access to the electronic trading and order matching system of the foreign board of trade, including rules and regulations prescribing procedures and requirements applicable to the registration of such foreign boards of trade. For purposes of this paragraph, direct access refers to an explicit grant of authority by a foreign board of trade to an identified member or other participant located in the United States to enter trades directly into the trade matching system of the foreign board of trade. (2) LINKED
CONTRACTS.It

shall be unlawful

for a foreign board of trade to provide to the members of the foreign board of trade or other participants located in the United States direct access to the electronic trading and order-matching system of the foreign board of trade with respect to an agreement, contract, or transaction that settles against any price (including the daily or final settlement price) of 1 or more contracts listed for trading on a registered entity, unless the Commission determines that (A) the foreign board of trade makes public daily trading information regarding the agreement, contract, or transaction that is comparable to the daily trading information pub-

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91 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 lished by the registered entity for the 1 or more contracts against which the agreement, contract, or transaction traded on the foreign board of trade settles; and (B) the foreign board of trade (or the foreign futures authority that oversees the foreign board of trade) (i) adopts position limits (including related hedge exemption provisions) for the agreement, contract, or transaction that are comparable to the position limits (including related hedge exemption provisions) adopted by the registered entity for the 1 or more contracts against which the agreement, contract, or transaction traded on the foreign board of trade settles; (ii) has the authority to require or direct market participants to limit, reduce, or liquidate any position the foreign board of trade (or the foreign futures authority that oversees the foreign board of trade) determines to be necessary to prevent or reduce the threat of price manipulation, excessive speculation as described in sec-

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92 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 tion 4a, price distortion, or disruption of delivery or the cash settlement process; (iii) agrees to promptly notify the Commission, with regard to the agreement, contract, or transaction that settles against any price (including the daily or final settlement price) of 1 or more contracts listed for trading on a registered entity, of any change regarding (I) the information that the foreign board of trade will make publicly available; (II) the position limits that the foreign board of trade or foreign futures authority will adopt and enforce; (III) the position reductions required to prevent manipulation, excessive speculation as described in section 4a, price distortion, or disruption of delivery or the cash settlement process; and (IV) any other area of interest expressed by the Commission to the foreign board of trade or foreign futures authority;

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93 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (iv) provides information to the Commission regarding large trader positions in the agreement, contract, or transaction that is comparable to the large trader position information collected by the Commission for the 1 or more contracts against which the agreement, contract, or transaction traded on the foreign board of trade settles; and (v) provides the Commission with information necessary to publish reports on aggregate trader positions for the agreement, contract, or transaction traded on the foreign board of trade that are comparable to such reports on aggregate trader positions for the 1 or more contracts against which the agreement, contract, or transaction traded on the foreign board of trade settles. (3) EXISTING
FOREIGN BOARDS OF TRADE.

Paragraphs (1) and (2) shall not be effective with respect to any foreign board of trade to which the Commission has granted direct access permission before the date of the enactment of this subsection

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94 1 2 3 4 5 6 7 8 9 10 11 12 13 14
ON A

until the date that is 180 days after such date of enactment. (4) PERSONS
STATES.. LOCATED IN THE UNITED

(c) LIABILITY

OF

REGISTERED PERSONS TRADING

FOREIGN BOARD OF TRADE. (1) Section 4(a) of the Commodity Exchange Act (7. U.S.C. 6(a)) is amended by inserting or by subsection (f) after Unless exempted by the Commission pursuant to subsection (c); and (2) Section 4 of the Commodity Exchange Act (7 U.S.C. 6) is further amended by adding at the end the following: (f) A person registered with the Commission, or ex-

15 empt from registration by the Commission, under this Act 16 may not be found to have violated subsection (a) with re17 spect to a transaction in, or in connection with, a contract 18 of sale of a commodity for future delivery if the person 19 has reason to believe that the transaction and the contract 20 is made on or subject to the rules of a foreign board of 21 trade that has complied with subsections (b)(1) and 22 (b)(2).. 23 24 (d) CONTRACT ENFORCEMENT
TURES FOR

FOREIGN FU-

CONTRACTS.Section 22(a) of the Commodity Ex-

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95 1 change Act (7 U.S.C. 25(a)) is amended by adding at the 2 end the following: 3 4 5 6 7 8 9 10 11 12 13 14 15 (5) CONTRACT
ENFORCEMENT FOR FOREIGN

FUTURES CONTRACTS.A

contract of sale of a com-

modity for future delivery traded or executed on or through the facilities of a board of trade, exchange, or market located outside the United States for purposes of section 4(a) shall not be void, voidable, or unenforceable, and a party to such a contract shall not be entitled to rescind or recover any payment made with respect to the contract, based on the failure of the foreign board of trade to comply with any provision of this Act..
SEC. 127. LEGAL CERTAINTY FOR S APS.

Section 22(a)(4) of the Commodity Exchange Act (7

16 U.S.C. 25(a)(4)) is amended to read as follows: 17 18 19 20 21 22 23 24 25 (4) CONTRACT

ENFORCEMENT BETWEEN ELI-

GIBLE COUNTERPARTIES.

(A) No hybrid instrument sold to any investor shall be void, voidable, or unenforceable, and no party to such hybrid instrument shall be entitled to rescind, or recover any payment made with respect to, such a hybrid instrument under this section or any other provision of Federal or State law, based solely on the failure

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96 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 of the hybrid instrument to comply with the terms or conditions of section 2(f) or regulations of the Commission. (B) No agreement, contract, or transaction between eligible contract participants or persons reasonably believed to be eligible contract participants shall be void, voidable, or unenforceable, and no party thereto shall be entitled to rescind, or recover any payment made with respect to, such agreement, contract, or transaction under this section or any other provision of Federal or State law, based solely on the failure of the agreement, contract, or transaction to meet the definition of a swap set forth in section 1a or to be cleared pursuant to section 2(j)(1)..
SEC. 12 . MULTILATERAL CLEARING ORGANI ATIONS.

(a) Section 408(2)(C) of the Federal Deposit Insur-

19 ance Corporation Improvement Act of 1991 (12 U.S.C. 20 4421(2)(C)) is amended by striking section 2(c), 2(d), 21 2(f), or 2(g) of such Act, or exempted under section 2(h) 22 or 4(c) of such Act and inserting section 2(c) or 2(f) 23 of such Act.

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97 1 (b) Section 408 of the Federal Deposit Insurance

2 Corporation Improvement Act of 1991 (12 U.S.C. 4421) 3 is further amended by inserting at the end the following: 4 5 6 7 8 9 10 (4) The term over-the-counter derivative instrument does not include a swap or a securitybased swap as defined in sections 1a(35) and 1a(38) of the Commodity Exchange Act (7 U.S.C. 1a(35) and 1a(38))..
SEC. 12 . PRIMARY ENFORCEMENT AUTHORITY.

The Commodity Exchange Act (7 U.S.C. 1 et seq.)

11 is amended by adding the following new section after sec12 tion 4b: 13 14
SEC. 4 1. PRIMARY ENFORCEMENT AUTHORITY.

(a) CFTC.Except as provided in subsections (b),

15 (c), and (d), the Commission shall have primary authority 16 to enforce the provisions of Subtitle A of the Over-the17 Counter Derivatives Markets Act of 2009 with respect to 18 any person. 19 (b) PRUDENTIAL REGULATORS.The Prudential

20 Regulators shall have exclusive authority to enforce the 21 provisions of section 4s(e) and other prudential require22 ments of this Act with respect to banks, and branches or 23 agencies of foreign banks that are swap dealers or major 24 swap participants.

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98 1 (c) REFERRAL.If the Prudential Regulator for a

2 swap dealer or major swap participant has cause to believe 3 that such swap dealer or major swap participant may have 4 engaged in conduct that constitutes a violation of the non5 prudential requirements of section 4s or rules adopted by 6 the Commission thereunder, that Prudential Regulator 7 may recommend in writing to the Commission that the 8 Commission initiate an enforcement proceeding as author9 ized under this Act. The recommendation shall be accom10 panied by a written explanation of the concerns giving rise 11 to the recommendation. 12 (d) BACKSTOP ENFORCEMENT AUTHORITY.If the

13 Commission does not initiate an enforcement proceeding 14 before the end of the 90-day period beginning on the date 15 on which the Commission receives a recommendation 16 under subsection (c), the Prudential Regulator may ini17 tiate an enforcement proceeding as permitted under Fed18 eral law.. 19 20
SEC. 13 . ENFORCEMENT.

(a) Section 4b(a)(2) of the Commodity Exchange Act

21 (7 U.S.C. 6b(a)(2)) is amended by striking or other 22 agreement, contract, or transaction subject to paragraphs 23 (1) and (2) of section 5a(g), and inserting or swap,. 24 (b) Section 4b(b) of the Commodity Exchange Act

25 (7 U.S.C. 6b(b)) is amended by striking or other agree-

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99 1 ment, contract or transaction subject to paragraphs (1) 2 and (2) of section 5a(g), and inserting or swap,. 3 (c) Section 4c(a) of the Commodity Exchange Act (7

4 U.S.C. 6c(a)) is amended by inserting or swap before 5 if the transaction is used or may be used. 6 (d) Section 9(a)(2) of the Commodity Exchange Act

7 (7 U.S.C. 13(a)(2)) is amended by inserting or of any 8 swap, before or to corner. 9 (e) Section 9(a)(4) of the Commodity Exchange Act

10 (7 U.S.C. 13(a)(4)) is amended by inserting swap reposi11 tory, before or futures association. 12 (f) Section 9(e)(1) of the Commodity Exchange Act

13 (7 U.S.C. 13(e)(1)) is amended by inserting swap reposi14 tory, before or registered futures association and by 15 inserting , or swaps, before on the basis. 16 (g) Section 8(b) of the Federal Deposit Insurance Act

17 (12 U.S.C. 1818(b)) is amended by adding the following 18 new paragraph (6) and renumber existing paragraphs (6) 19 through (10) as (7) through (11): 20 21 22 23 24 25 (6) This section shall apply to any swap dealer, major swap participant, security-based swap dealer, major security-based swap participant, derivatives clearing organization, swap repository or swap execution facility, whether or not it is an insured depository institution, for which the Board,

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100 1 2 3 4 5 6 7 the Corporation, or the Office of the Comptroller of the Currency is the appropriate Federal banking agency or Prudential Regulator for purposes of the Over-the-Counter 2009..
SEC. 131. RETAIL COMMODITY TRANSACTIONS.

Derivatives

Markets

Act

of

Section 2(c) of the Commodity Exchange Act (7

8 U.S.C. 2(c)) is amended 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) in paragraph (1), by striking (to the extent provided in section 5a(g), 5b, 5d, or 12(e)(2)(B)) and inserting 5b, or 12(e)(2)(B)); (2) in paragraph (2), by inserting after subparagraph (C) the following: (D)
ACTIONS.

RETAIL

COMMODITY

TRANS-

(i) This subparagraph shall apply to any agreement, contract, or transaction in any commodity that is (I) entered into with, or offered to (even if not entered into with), a person that is not an eligible contract participant or eligible commercial entity; and (II) entered into, or offered (even if not entered into), on a lever-

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101 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 aged or margined basis, or financed by the offeror, the counterparty, or a person acting in concert with the offeror or counterparty on a similar basis. (ii) Clause (i) shall not apply to (I) an agreement, contract, or transaction described in paragraph (1) or subparagraphs (A), (B), or (C), including any agreement, contract, or transaction specifically excluded from subparagraph (A), (B), or (C); (II) any security; (III) a contract of sale that (aa) results in actual delivery within 28 days or such other period as the Commission may determine by rule or regulation based upon the typical commercial practice in cash or spot markets for the commodity involved; or (bb) creates an enforceable obligation to deliver between a seller and a buyer that have the

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102 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ability to deliver and accept delivery, respectively, in connection with their line of business; (IV) an agreement, contract, or transaction that is listed on a national securities exchange registered under section 6(a) of the Securities Exchange Act of 1934 (15 U.S.C. 78f(a)); or (V) an identified banking product, as defined in section 402(b) of the Legal Certainty for Bank Products Act of 2000 (7 U.S.C. 27(b)). (iii) Sections 4(a), 4(b) and 4b shall apply to any agreement, contract or transaction described in clause (i), that is not excluded from clause (i) by clause (ii), as if the agreement, contract, or transaction were a contract of sale of a commodity for future delivery. (iv) This subparagraph shall not be construed to limit any jurisdiction that the Commission may otherwise have under any other provision of this Act over an agreement, contract, or transaction that is a

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103 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 contract of sale of a commodity for future delivery. (v) This subparagraph shall not be construed to limit any jurisdiction that the Commission or the Securities and Exchange Commission may otherwise have under any other provisions of this Act with respect to security futures products and persons effecting transactions in security futures products. (vi) For the purposes of this subparagraph, an agricultural producer, packer, or handler shall be considered an eligible commercial entity for any agreement, contract, or transaction for a commodity in connection with its line of business..
SEC. 132. LARGE S AP TRADER REPORTING.

The Commodity Exchange Act (7 U.S.C. 1 et seq.)

19 is amended by adding after section 4t (as added by section 20 118) the following: 21 22
SEC. 4u. LARGE S AP TRADER REPORTING.

(a) It shall be unlawful for any person to enter into

23 any swap that performs or affects a significant price dis24 covery function with respect to regulated markets if

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104 1 2 3 4 5 6 7 8 9 (1) such person shall directly or indirectly enter into such swaps during any one day in an amount equal to or in excess of such amount as shall be fixed from time to time by the Commission; and (2) such person shall directly or indirectly have or obtain a position in such swaps equal to or in excess of such amount as shall be fixed from time to time by the Commission,

10 unless such person files or causes to be filed with the prop11 erly designated officer of the Commission such reports re12 garding any transactions or positions described in para13 graphs (1) and (2) as the Commission may by rule or reg14 ulation require and unless, in accordance with the rules 15 and regulations of the Commission, such person shall keep 16 books and records of all such swaps and any transactions 17 and positions in any related commodity traded on or sub18 ject to the rules of any board of trade, and of cash or 19 spot transactions in, inventories of, and purchase and sale 20 commitments of, such a commodity. 21 (b) Such books and records shall show complete de-

22 tails concerning all transactions and positions as the Com23 mission may by rule or regulation prescribe.

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105 1 (c) Such books and records shall be open at all times

2 to inspection and examination by any representative of the 3 Commission. 4 (d) For the purpose of this subsection, the swaps,

5 futures and cash or spot transactions and positions of any 6 person shall include such transactions and positions of any 7 persons directly or indirectly controlled by such person. 8 (e) In making a determination whether a swap per-

9 forms or affects a significant price discovery function with 10 respect to regulated markets, the Commission shall con11 sider the factors set forth in section 4a(a)(3).. 12 13
SEC. 133. AUTHORITY TO BAN ABUSIVE S APS.

The Commodity Futures Trading Commission and

14 the Securities and Exchange Commission may jointly, by 15 rule or order, prohibit transactions in any swap (as de16 fined in section 1a(35) of the Commodity Exchange Act) 17 or security-based swap (as defined in section 1a(38) of 18 such Act) which the Commodity Futures Trading Com19 mission and the Securities Exchange Commission find 20 would be detrimental to the stability of a financial market 21 or of participants in a financial market. 22 23
SEC. 134. INTERNATIONAL HARMONI ATION.

In order to promote effective and consistent global

24 regulation of swaps, the Securities and Exchange Commis25 sion, the Commodity Futures Trading Commission, the

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106 1 Prudential Regulators (as defined in section 1a(43) of the 2 Commodity Exchange Act), the financial stability regu3 lator, and the Office of Derivatives Supervision shall con4 sult and coordinate with foreign regulatory authorities on 5 the establishment of consistent international standards 6 with respect to the regulation of swaps, and may agree 7 to such information-sharing arrangements as may be 8 deemed to be necessary or appropriate in the public inter9 est or for the protection of investors and swap counterpar10 ties. 11 12 13
SEC. 135. AUTHORITY TO BAN ACCESS TO THE UNITED STATES FINANCIAL SYSTEM.

The Secretary of the Treasury may prohibit any enti-

14 ty domiciled in a foreign country that regulates swaps (as 15 defined in section 1a(35) of the Commodity Exchange Act) 16 or security-based swaps (as defined in section 1a(38) of 17 such Act) in a manner which the Secretary of the Treas18 ury finds undermines the stability of a financial market, 19 from participating in such financial activities in the 20 United States as the Secretary deems appropriate. 21 22
SEC. 136. OTHER AUTHORITY.

Unless otherwise provided by its terms, this title does

23 not divest any appropriate Federal banking agency, the 24 Commission, the Securities and Exchange Commission, or

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107 1 other Federal or State agency, of any authority derived 2 from any other applicable law. 3 4
SEC. 137. ANTITRUST.

Nothing in the amendments made by this title shall

5 be construed to modify, impair, or supersede the operation 6 of any of the antitrust laws. For purposes of this subtitle, 7 the term antitrust laws has the same meaning given 8 such term in subsection (a) of the first section of the Clay9 ton Act, except that such term includes section 5 of the 10 Federal Trade Commission Act to the extent that such 11 section 5 applies to unfair methods of competition. 12 13
SEC. 13 . EFFECTIVE DATE.

This subtitle is effective 180 days after the date of

14 enactment. 15 16 17 18 19
SEC. 151.

Su tit

B R u ation of S curit Bas S a Mar ts

DEFINITIONS UNDER THE SECURITIES EXCHANGE ACT OF 1 34.

Section 3(a) of the Securities Exchange Act of 1934

20 (15 U.S.C. 78c(a)) is amended 21 22 23 24 25 (1) in paragraph (5)(A) and (B), by inserting (but not security-based swaps, other than securitybased swaps with or for persons that are not eligible contract participants) after the word securities in each place it appears;

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108 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (2) in paragraph (13), by adding at the end the following: For security-based swaps, such terms include the execution, termination (prior to its scheduled maturity date), assignment, exchange, or similar transfer or conveyance of, or extinguishing of rights or obligations under, a security-based swap, as the context may require.; (3) in paragraph (14), by adding at the end the following: For security-based swaps, such terms include the execution, termination (prior to its scheduled maturity date), assignment, exchange, or similar transfer or conveyance of, or extinguishing of rights or obligations under, a security-based swap, as the context may require.; (4) in paragraph (39) (A) by striking or government securities dealer and adding government securities dealer, security-based swap dealer or major security-based swap participant in its place in subparagraph (B)(i)(I); (B) by adding security-based swap dealer, major security-based swap participant, after government securities dealer, in subparagraph (B)(i)(II);

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109 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (C) by striking or government securities dealer and adding government securities dealer, security-based swap dealer or major security-based swap participant in its place in subparagraph (C); and (D) by adding security-based swap dealer, major security-based swap participant, after government securities dealer, in subparagraph (D); and (5) by adding at the end the following: (65) ELIGIBLE
CONTRACT PARTICIPANT.The

term eligible contract participant has the same meaning as in section 1a(13) of the Commodity Exchange Act (7 U.S.C. 1a(13)). (66) MAJOR
SWAP PARTICIPANT.The

term

major swap participant has the same meaning as in section 1a(40) of the Commodity Exchange Act (7 U.S.C. 1a(40)). (67) MAJOR
PANT.The SECURITY-BASED SWAP PARTICI-

term major security-based swap partic-

ipant has the same meaning as in section 1a(41) of the Commodity Exchange Act (7 U.S.C. 1a(41)). (68) SECURITY-BASED
SWAP.The

term se-

curity-based swap has the same meaning as in sec-

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110 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 tion 1a(38) of the Commodity Exchange Act (7 U.S.C. 1a(38)). (69) SWAP.The term swap has the same meaning as in section 1a(35) of the Commodity Exchange Act (7 U.S.C. 1a(35)). (70) PERSON
ASSOCIATED WITH A SECURITY-

BASED SWAP DEALER OR MAJOR SECURITY-BASED SWAP PARTICIPANT.The

term person associated

with a security-based swap dealer or major securitybased swap participant or associated person of a security-based swap dealer or major security-based swap participant has the same meaning as in section 1a(48) of the Commodity Exchange Act (7 U.S.C. 1a(48)). (71) SECURITY-BASED
SWAP DEALER.The

term security-based swap dealer has the same meaning as in section 1a(44) of the Commodity Exchange Act (7 U.S.C. 1a(44)). (72) APPROPRIATE
CY.The FEDERAL BANKING AGEN-

term appropriate Federal banking agency

has the same meaning as in section 3(q) of the Federal Deposit Insurance Act (12 U.S.C. 1813(q)). (73) BOARD.The term Board means the Board of Governors of the Federal Reserve System.

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111 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (74) PRUDENTIAL

REGULATOR.The

term

Prudential Regulator has the same meaning as in section 1a(43) of the Commodity Exchange Act (7 U.S.C. 1a(43)). (75) SWAP
DEALER.The

term swap dealer

has the same meaning as in section 1a(39) of the Commodity Exchange Act (7 U.S.C. 1a(39)). (76) SECURITY-BASED (A) IN
SWAP AGREEMENT.

GENERAL.For

purposes of sec-

tions 10, 16, 20, and 21A of this Act, and section 17 of the Securities Act of 1933 (15 U.S.C. 77q), the term security-based swap agreement means a swap agreement as defined in section 206A of the Gramm-Leach-Bliley Act (15 U.S.C. 78c note) of which a material term is based on the price, yield, value, or volatility of any security or any group or index of securities, or any interest therein. (B) EXCLUSIONS.The term securitybased swap agreement does not include any security-based swap..
SEC. 152. REPEAL OF PROHIBITION ON REGULATION OF SECURITY-BASED S APS.

(a) REPEAL

OF

LAW.Section 206B of the Gramm-

25 Leach-Bliley Act (15 U.S.C. 78c note) is repealed.

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112 1 (b) CONFORMING AMENDMENTS

TO THE

SECURITIES

2 ACT OF 1933. 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 (1) Section 2A(b) is amended by striking (as defined in section 206B of the Gramm-Leach-Bliley Act) each place that such term appears. (2) Section 17 of the Securities Act of 1933 (15 U.S.C. 77q) is amended (A) in subsection (a) (i) by inserting (including securitybased swaps) after securities; and (ii) by striking 206B of the GrammLeach-Bliley Act and inserting 3(a)(76) of the Securities Exchange Act of 1934; and (B) in subsection (d), by striking 206B of the Gramm-Leach-Bliley Act and inserting 3(a)(76) of the Securities Exchange Act of 1934. (c) CONFORMING AMENDMENTS
OF TO THE

SECURITIES

20 EXCHANGE ACT

1934.The Securities Exchange Act

21 of 1934 (15 U.S.C. 78a, et seq.) is amended as follows: 22 23 24 25 (1) Section 3A (15 U.S.C. 78c1) is amended by striking (as defined in section 206B of the Gramm-Leach-Bliley Act) each place that the term appears.

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113 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (2) Section 9(a) (15 U.S.C. 78i(a)) is amended by striking paragraphs (2) through (5) and inserting: (2) To effect, alone or with one or more other persons, a series of transactions in any security registered on a national securities exchange or in connection with any security-based swap with respect to such security creating actual or apparent active trading in such security, or raising or depressing the price of such security, for the purpose of inducing the purchase or sale of such security by others. (3) If a dealer, broker, security-based swap dealer, major security-based swap participant or other person selling or offering for sale or purchasing or offering to purchase the security to induce the purchase or sale of any security registered on a national securities exchange or any securitybased swap with respect to such security by the circulation or dissemination in the ordinary course of business of information to the effect that the price of any such security will or is likely to rise or fall because of market operations of any one or more persons conducted for the purpose of raising or depressing the price of such security.

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114 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (4) If a dealer, broker, security-based swap dealer, major security-based swap participant or other person selling or offering for sale or purchasing or offering to purchase the security, to make, regarding any security registered on a national securities exchange or any security-based swap with respect to such security, for the purpose of inducing the purchase or sale of such security or such security-based swap, any statement which was at the time and in the light of the circumstances under which it was made, false or misleading with respect to any material fact, and which he knew or had reasonable ground to believe was so false or misleading. (5) For a consideration, received directly or indirectly from a dealer, broker, security-based swap dealer, major security-based swap participant or other person selling or offering for sale or purchasing or offering to purchase the security, to induce the purchase of any security registered on a national securities exchange or any security-based swap with respect to such security by the circulation or dissemination of information to the effect that the price of any such security will or is likely to rise or fall because of the market operations of any one or

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115 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 more persons conducted for the purpose of raising or depressing the price of such security.. (3) Section 10 (15 U.S.C. 78j) is amended by striking (as defined in section 206B of the GrammLeach-Bliley Act) each place that the term appears. (4) Section 15(c)(1) is amended (A) in subparagraph (A, by striking , or any security-based swap agreement (as defined in section 206B of the Gramm-Leach-Bliley Act),; and (B) in subparagraphs (B) and (C), by striking agreement (as defined in section 206B of the Gramm-Leach-Bliley Act) in each place that the term appears. (5) Section 15(i) (15 U.S.C. 78o(i), as added by section 303(f) of the Commodity Futures Modernization Act of 2000 (Public Law 106554; 114 Stat. 2763A455) is amended by striking (as defined in section 206B of the Gramm-Leach-Bliley Act). (6) Section 16 (15 U.S.C. 78p) is amended (A) in subsection (a)(2)(C), by striking (as defined in section 206(b) of the GrammLeach-Bliley Act);

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116 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 ed (A) in subsection (a)(1), by striking (as defined in section 206B of the Gramm-LeachBliley Act); and (B) in subsection (g), by striking (as defined in section 206B of the Gramm-Leach-Bliley Act). (B) in subsection (b), by striking (as defined in section 206B of the Gramm-Leach-Bliley Act) in each place that the term appears; and (C) in subsection (g), by striking (as defined in section 206B of the Gramm-Leach-Bliley Act); (7) Section 20 (15 U.S.C. 78t) is amended (A) in subsection (d), by striking (as defined in section 206B of the Gramm-Leach-Bliley Act); and (B) in subsection (f), by striking (as defined in section 206B of the Gramm-Leach-Bliley Act); and (8) Section 21A (15 U.S.C. 78u1) is amend-

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117 1 2 3
SEC. 153. AMENDMENTS TO THE SECURITIES EXCHANGE ACT OF 1 34.

(a) CLEARING

FOR

SECURITY-BASED SWAPS.The

4 Securities Exchange Act of 1934 (15 U.S.C. 78a, et seq.) 5 is amended by adding the following section after section 6 3A: 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
SEC. 3B. CLEARING OF SECURITY-BASED S APS.

(a) CLEARING REQUIREMENT. (1) CLEARING (A)

OF SECURITY-BASED SWAPS. REQUIREMENT.The

CLEARING

Commission shall monitor security-based swap activity and transaction data and by rule or regulation identify specific security-based swap contracts that it determines are required to be cleared consistent with the public interest, after taking into account (i) the existence of significant outstanding notional exposures, trading liquidity and adequate pricing data; (ii) the availability of one or more swap clearinghouses with the rule framework, capacity, operational expertise and resources, and credit support infrastructure to clear the contract on terms that are consistent with the material terms and

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118 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 trading conventions on which the contract is then traded; (iii) the impact on the mitigation of systemic risk, taking into account the size of the market for such contract and the resources of the swap clearinghouses available to clear the contract; (iv) the impact on competition; and (v) the existence of reasonable legal certainty in the event of the insolvency of the relevant swap clearinghouse or one or more of its clearing members with regard to the treatment of customer and swap counterparty positions, funds, and property. (B) SCOPE
OF CLEARING FUNCTIONS.

The Commission shall by rule or regulation define the scope of the clearing functions that are necessary to satisfy the requirements of subparagraph (A). (2) PREVENTION
OF EVASION.The

Commis-

sion and the Commodities Futures Trading Commission shall have authority to prescribe rules under this section, or issue interpretations of such rules, as necessary to prevent evasions of this Act. Any such

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119 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 rules or interpretations of rules shall be prescribed and issued jointly by both Commissions. (3) REQUIRED (A) IN
REPORTING. GENERAL.Any

security-based

swap that is not accepted for clearing by any clearing agency shall be reported to either a security-based swap repository described in section 13(n) or, if there is no repository that would accept the security-based swap, to the Commission pursuant to section 13A within such time period as the Commission may by rule prescribe. (B) AUTHORITY
OF SWAP DEALER TO RE-

PORT.Counterparties

to a security-based swap

may agree as to which counterparty will report such swap as required by subparagraph (A). In any security-based swap where only one

counterparty is a swap dealer, the swap dealer shall report the swap. (4) TRANSITION
RULES.Rules

adopted by

the Commission under this section shall provide for the reporting of data, as follows: (A) Security-based swaps that were entered into before the date of enactment of the Over-the-Counter Derivatives Markets Act of

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120 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 2009 shall be reported to a registered securitybased swap repository or the Commission no later than 180 days after the effective date of such Act. (B) Security-based swaps that were entered into on or after the date of enactment of the Over-the-Counter Derivatives Markets Act of 2009 shall be reported to a registered security-based swap repository or the Commission no later than the later of (i) 90 days after the effective date of such Act; or (ii) such other time after entering into the swap as the Commission may prescribe by rule or regulation. (b) CONSULTATION.The Commission and the

17 Commodity Futures Trading Commission shall consult 18 with the appropriate Federal banking agencies and each 19 other prior to adopting rules under this section.. 20 (b) CLEARING AGENCY REQUIREMENTS.Section

21 17A of the Securities Exchange Act of 1934 (15 U.S.C. 22 78q) is amended by adding at the end the following new 23 subsections: 24 (g) REGISTRATION REQUIREMENT.It shall be un-

25 lawful for a clearing agency, unless registered with the

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121 1 Commission, directly or indirectly to make use of the mails 2 or any means or instrumentality of interstate commerce 3 to perform the functions of a clearing agency with respect 4 to a swap. 5 6 7 8 9 10 11 12 13 14 15 (h) VOLUNTARY REGISTRATION. (1) CLEARING
AGENCIES.A

person that

clears agreements, contracts, or transactions that are not required to be cleared under this Act may register with the Commission as a clearing agency. (2)
TIONS.A

DERIVATIVES

CLEARING

ORGANIZA-

clearing agency may clear swaps that are

required to be cleared by a person who is registered as a derivatives clearing organization under the Commodity Exchange Act (7 U.S.C. 1, et seq.). (i) REQUIRED REGISTRATION
FOR

BANKS

AND

16 CLEARING AGENCIES.A person that is required to be 17 registered as a clearing agency under this section shall 18 register with the Commission regardless of whether the 19 person is also a bank or a derivatives clearing organization 20 registered with the Commodity Futures Trading Commis21 sion under the Commodity Exchange Act (7 U.S.C. 1, et 22 seq.). 23 24 25 (j) REPORTING. (1) IN
GENERAL.A

clearing agency that

clears security-based swaps shall provide to the

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122 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Commission all information determined by the Commission to be necessary to perform its responsibilities under this Act. The Commission shall adopt data collection and maintenance requirements for security-based swaps cleared by clearing agencies that are comparable to the corresponding requirements for security-based swaps accepted by security-based swap repositories and security-based swaps traded on alternative swap execution facilities. The Commission shall share such information, upon request, with the Board, the Commodity Futures Trading Commission, the appropriate Federal banking agencies, the Financial Services Oversight Council, and the Department of Justice or to other persons the Commission deems appropriate, including foreign financial supervisors (including foreign futures authorities), foreign central banks, and foreign ministries. (2) PUBLIC
INFORMATION.A

clearing agency

that clears security-based swaps shall provide to the Commission, or its designee, such information as is required by, and in a form and at a frequency to be determined by, the Commission, in order to comply with the public reporting requirements contained in section 13.

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123 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (k) DESIGNATION OF COMPLIANCE OFFICER. (1) IN

GENERAL.Each

clearing agency that

clears security-based swaps shall designate an individual to serve as a compliance officer. (2) DUTIES.The compliance officer shall (A) report directly to the board or to the senior officer of the clearing agency; (B) in consultation with the board of the clearing agency, a body performing a function similar to that of a board, or the senior officer of the clearing agency, resolve any conflicts of interest that may arise; (C) be responsible for administering the policies and procedures required to be established pursuant to this section; (D) ensure compliance with securities laws and the rules and regulations issued thereunder, including rules prescribed by the Commission pursuant to this section; and (E) establish procedures for remediation of noncompliance issues found during compliance office reviews, lookbacks, internal or external audit findings, self-reported errors, or through validated complaints which will establish the handling, management response, reme-

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124 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 diation, retesting, and closing of noncompliance issues. (3) ANNUAL

REPORTS REQUIRED.The

com-

pliance officer shall annually prepare and sign a report on the compliance of the clearing agency with the securities laws and its policies and procedures, including its code of ethics and conflict of interest policies, in accordance with rules prescribed by the Commission. Such compliance report shall accompany the financial reports of the clearing agency that are required to be furnished to the Commission pursuant to this section and shall include a certification that, under penalty of law, the report is accurate and complete. (l) CORE PRINCIPLES (1) IN
FOR

CLEARING AGENCIES. be registered and to

GENERAL.To

maintain registration as a clearing agency, a clearing agency shall comply with the core principles specified in this subsection. The Commission may conform the core principles to reflect evolving United States and international standards. Except where the Commission determines otherwise by rule or regulation, a clearing agency shall have reasonable discretion in establishing the manner in which it complies with the core principles.

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125 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (3)
BILITY.

(2) FINANCIAL

RESOURCES.

(A) The clearing agency shall have adequate financial, operational, and managerial resources to discharge its responsibilities. (B) Financial resources shall at a minimum exceed the total amount that would (i) enable the clearing agency to meet its financial obligations to its members and participants notwithstanding a default by the member or participant creating the largest financial exposure for that clearing agency in extreme but plausible market conditions; and (ii) enable the clearing agency to cover its operating costs for a period of one year, calculated on a rolling basis. PARTICIPANT
AND PRODUCT ELIGI-

(A) The clearing agency shall establish (i) appropriate admission and continuing eligibility standards (including sufficient financial resources and operational capacity to meet obligations arising from participation in the clearing agency) for

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126 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 members of and participants in the organization; and (ii) appropriate standards for determining eligibility of agreements, contracts, or transactions submitted to the clearing agency for clearing. (B) The clearing agency shall have procedures in place to verify that participation and membership requirements are met on an ongoing basis. (C) The clearing agencys participation and membership requirements shall be objective, publicly disclosed, and permit fair and open access. (D) The rules of the clearing agency shall provide for acceptance of a standardized security-based swap regardless of the system on which the transaction was executed. (4) RISK
MANAGEMENT.

(A) The clearing agency shall have the ability to manage the risks associated with discharging the responsibilities of a clearing agency through the use of appropriate tools and procedures.

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127 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (B) The clearing agency shall measure its credit exposures to its members and participants at least once each business day and shall monitor such exposures throughout the business day. (C) Through margin requirements and other risk control mechanisms, a clearing agency shall limit its exposures to potential losses from defaults by its members and participants so that the operations of the clearing agency would not be disrupted and nondefaulting members or participants would not be exposed to losses that they cannot anticipate or control. (D) Margin required from all members and participants shall be sufficient to cover potential exposures in normal market conditions. (E) The models and parameters used in setting margin requirements shall be risk-based and reviewed regularly. (5) SETTLEMENT agency shall (A) complete money settlements on a timely basis, and not less than once each business day;
PROCEDURES.The

clearing

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128 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (B) employ money settlement arrangements that eliminate or strictly limit the clearing agencys exposure to settlement bank risks, such as credit and liquidity risks from the use of banks to effect money settlements; (C) ensure money settlements are final when effected; (D) maintain an accurate record of the flow of funds associated with each money settlement; (E) have the ability to comply with the terms and conditions of any permitted netting or offset arrangements with other clearing organizations; and (F) for physical settlements, establish rules that clearly state the clearing agencys obligations with respect to physical deliveries. The risks from these obligations shall be identified and managed. (6) TREATMENT
OF FUNDS.

(A) The clearing agency shall have standards and procedures designed to protect and ensure the safety of member and participant funds and assets.

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129 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (B) The clearing agency shall hold member and participant funds and assets in a manner whereby risk of loss or of delay in the clearing agencys access to the assets and funds is minimized. (C) Assets and funds invested by the clearing agency shall be held in instruments with minimal credit, market, and liquidity risks. (7) DEFAULT
RULES AND PROCEDURES.

(A) The clearing agency shall have rules and procedures designed to allow for the efficient, fair, and safe management of events when members or participants become insolvent or otherwise default on their obligations to the clearing agency. (B) The clearing agencys default procedures shall be clearly stated, and they shall ensure that the clearing agency can take timely action to contain losses and liquidity pressures and to continue meeting its obligations. (C) The default procedures shall be publicly available. (8) RULE cy shall
ENFORCEMENT.The

clearing agen-

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130 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (A) maintain adequate arrangements and resources for the effective monitoring and enforcement of compliance with rules of the clearing agency and for resolution of disputes; and (B) have the authority and ability to discipline, limit, suspend, or terminate a members or participants activities for violations of rules of the clearing agency. (9) SYSTEM
SAFEGUARDS.The

clearing

agency shall (A) establish and maintain a program of risk analysis and oversight to identify and minimize sources of operational risk through the development of appropriate controls and procedures, and the development of automated systems, that are reliable, secure, and have adequate scalable capacity; (B) establish and maintain emergency procedures, backup facilities, and a plan for disaster recovery that allows for the timely recovery and resumption of operations and the fulfillment of the clearing agencys responsibilities and obligations; and (C) periodically conduct tests to verify that backup resources are sufficient to ensure

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131 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 continued order processing and trade matching, price reporting, market surveillance, and maintenance of a comprehensive and accurate audit trail. (10) REPORTING.The clearing agency shall provide to the Commission all information necessary for the Commission to conduct oversight of the clearing agency. (11) RECORDKEEPING.The clearing agency shall maintain records of all activities related to the business of the clearing agency as a clearing agency in a form and manner acceptable to the Commission for a period of 5 years. (12) PUBLIC
INFORMATION.

(A) The clearing agency shall provide market participants with sufficient information to identify and evaluate accurately the risks and costs associated with using the clearing agencys services. (B) The clearing agency shall make information concerning the rules and operating procedures governing its clearing and settlement systems (including default procedures) available to market participants.

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132 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (C) The clearing agency shall disclose publicly and to the Commission information concerning (i) the terms and conditions of contracts, agreements, and transactions

cleared and settled by the clearing agency; (ii) clearing and other fees that the clearing agency charges its members and participants; (iii) the margin-setting methodology and the size and composition of the financial resource package of the clearing agency; (iv) other information relevant to participation in the settlement and clearing activities of the clearing agency; and (v) daily settlement prices, volume, and open interest for all contracts settled or cleared by it. (13) INFORMATION-SHARING.The clearing agency shall (A) enter into and abide by the terms of all appropriate and applicable domestic and international information-sharing agreements; and

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133 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) use relevant information obtained from the agreements in carrying out the clearing organizations risk management program. (14) ANTITRUST
CONSIDERATIONS.Unless

appropriate to achieve the purposes of this chapter, the clearing agency shall avoid (A) adopting any rule or taking any action that results in any unreasonable restraint of trade; or (B) imposing any material anticompetitive burden. (15) GOVERNANCE
FITNESS STANDARDS.

(A) The clearing agency shall establish governance arrangements that are transparent in order to fulfill public interest requirements and to support the objectives of owners and participants. (B) The clearing agency shall establish and enforce appropriate fitness standards for directors, members of any disciplinary committee, and members of the clearing agency, and any other persons with direct access to the settlement or clearing activities of the clearing agency, including any parties affiliated with any of the persons described in this subparagraph.

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134 1 2 3 4 5 6 7 8 9 10 11 12 13 (16) CONFLICTS

OF INTEREST.The

clearing

agency shall establish and enforce rules to minimize conflicts of interest in the decisionmaking process of the clearing agency and establish a process for resolving such conflicts of interest. (17) COMPOSITION
OF THE BOARDS.The

clearing agency shall ensure that the composition of the governing board or committee includes market participants. (18) LEGAL
RISK.The

clearing agency shall

have a well-founded, transparent, and enforceable legal framework for each aspect of its activities. (m) CONSULTATION.The Commission and the

14 Commodity Futures Trading Commission shall consult 15 with the appropriate Federal banking agencies and each 16 other prior to adopting rules under this section. 17 (n) HARMONIZATION
OF

RULES.Not later than

18 180 days after the effective date of the Over-the-Counter 19 Derivatives Markets Act of 2009, the Commission and the 20 Commodity Futures Trading Commission shall jointly 21 adopt uniform rules governing persons that are registered 22 as derivatives clearing organizations for swaps under the 23 Commodity Exchange Act (7 U.S.C. 1, et seq.) and per24 sons that are registered as clearing agencies for security-

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135 1 based swaps under the Securities Exchange Act of 1934 2 (15 U.S.C. 78a, et seq.).. 3 (c) EXECUTION
OF

SECURITY-BASED SWAPS.The

4 Securities Exchange Act of 1934 (15 U.S.C. 78a, et seq.) 5 is amended by inserting after section 5 the following: 6 7
SEC. 5A. EXECUTION OF SECURITY-BASED S APS.

(a) TRADE EXECUTION.With respect to trans-

8 actions involving security-based swaps subject to the re9 quirement of section 3B and where both counterparties 10 are either security-based swap dealers or major security11 based swap participants, such counterparties must either: 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) execute the transaction on a national securities exchange registered pursuant to section 6(a) (in which event such transaction shall be subject to regulation under this title as a transaction in a security); (2) execute the transaction on a swap execution facility registered with the Commission; (3) execute the transaction on a foreign swap execution facility that is subject to regulation as such under the laws of a foreign jurisdiction; or (4) if the transaction is not executed on an entity listed in paragraph (1), (2), or (3), comply with any recordkeeping and end-of-day transaction reporting requirements

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136 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 (A) as may be prescribed by the Commission with respect to security-based swaps subject to the requirements of section 3B and where both counterparties are either securitybased swap dealers or major security-based swap participants; or (B) as may be prescribed by the relevant foreign regulator in the case of security-based swaps subject to the requirements of section 3B and where both counterparties are either security-based swap dealers or major security-based swap participants entered into by (i) a foreign swap dealer or a foreign swap market participant; or (ii) a non-foreign swap dealer or major swap participant that is entering into the security-based swap either outside of the United States, its territories and possessions or with a foreign counterparty. (b) EXCHANGE TRADING.In adopting rules and

21 regulations, the Commission shall endeavor to eliminate 22 unnecessary impediments to the trading on national secu23 rities exchanges or swap execution facilities, agreements 24 or transactions that would be commodity swaps but for

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137 1 the trading of such contracts, agreements or transactions 2 on such a designated contract market. . 3 (d) ALTERNATIVE SWAP EXECUTION FACILITIES.

4 The Securities Exchange Act of 1934 (15 U.S.C. 78a, et 5 seq.) is amended by adding after section 3B the following: 6 7 8 9 10 11 12 13 14 15 16 17 18 19
SEC. 3C. ALTERNATIVE S AP EXECUTION FACILITIES.

(a) REGISTRATION. (1) IN

GENERAL.No

person may operate a

facility for the trading of security-based swaps unless the facility is registered as an alternative swap execution facility under this section. (2) DUAL
REGISTRATION.Any

person that is

required to be registered as an alternative swap execution facility under this section shall register with the Commission regardless of whether that person also is registered with the Commodity Futures Trading Commission as an alternative swap execution facility. (b) REQUIREMENTS
FOR

TRADING.An alternative

20 swap execution facility that is registered under subsection 21 (a) may trade any security-based swap. 22 (c) TRADING
BY

EXCHANGES.An exchange shall,

23 to the extent that the exchange also operates an alter24 native swap execution facility and uses the same electronic 25 trade execution system for trading on the exchange and

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138 1 the alternative swap execution facility, identify whether 2 the electronic trading is taking place on the exchange or 3 the alternative swap execution facility. 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (d) CRITERIA FOR REGISTRATION. (1) IN
GENERAL.To

be registered as an al-

ternative swap execution facility, the facility shall be required to demonstrate to the Commission that it meets the criteria specified herein. (2) DETERRENCE
OF ABUSES.The

swap exe-

cution facility shall establish and enforce trading and participation rules that will deter abuses and have the capacity to detect, investigate, and enforce those rules, including means to (A) obtain information necessary to perform the functions required under this section; or (B) use means to (i) provide market participants with impartial access to the market; and (ii) capture information that may be used in establishing whether rule violations have occurred. (3) TRADING
PROCEDURES.The

swap execu-

tion facility shall establish and enforce rules or terms and conditions defining, or specifications de-

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139 1 2 3 4 5 6 7 8 9 10 tailing, trading procedures to be used in entering and executing orders traded on or through its facilities. (4) FINANCIAL
INTEGRITY OF TRANS-

ACTIONS.The

swap execution facility shall estab-

lish and enforce rules and procedures for ensuring the financial integrity of security-based swaps entered on or through its facilities, including the clearance and settlement of the security-based swaps. (e) CORE PRINCIPLES
FOR

ALTERNATIVE SWAP

11 EXECUTION FACILITIES. 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) IN

GENERAL.To

maintain its registra-

tion as an alternative swap execution facility, the facility shall comply with the core principles specified in this subsection and any requirement that the Commission may impose by rule or regulation. Except where the Commission determines otherwise by rule or regulation, the facility shall have reasonable discretion in establishing the manner in which it complies with these core principles. (2) COMPLIANCE
WITH RULES.The

swap

execution facility shall monitor and enforce compliance with any of the rules of the facility, including the terms and conditions of the security-based swaps

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140 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 traded on or through the facility and any limitations on access to the facility. (3) SECURITY-BASED
SWAPS NOT READILY

SUSCEPTIBLE TO MANIPULATION.The

swap execu-

tion facility shall permit trading only in securitybased swaps that are not readily susceptible to manipulation. (4) MONITORING
OF TRADING.The

swap

execution facility shall monitor trading in securitybased swaps to prevent manipulation and price distortion through surveillance, compliance, and disciplinary practices and procedures, including methods for conducting real-time monitoring of trading and comprehensive and accurate trade reconstructions. (5) ABILITY
TO OBTAIN INFORMATION.The

swap execution facility shall (A) establish and enforce rules that will allow the facility to obtain any necessary information to perform any of the functions described in this subsection; (B) provide the information to the Commission upon request; and

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141 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (C) have the capacity to carry out such international information-sharing agreements as the Commission may require. (6) EMERGENCY
AUTHORITY.The

swap exe-

cution facility shall adopt rules to provide for the exercise of emergency authority, in consultation or cooperation with the Commission, where necessary and appropriate, including the authority to suspend or curtail trading in a security-based swap. (7) TIMELY
MATION.The PUBLICATION OF TRADING INFOR-

swap execution facility shall make

public timely information on price, trading volume, and other trading data to the extent prescribed by the Commission. (8) RECORDKEEPING
AND REPORTING.The

swap execution facility shall maintain records of all activities related to the business of the facility, including a complete audit trail, in a form and manner acceptable to the Commission for a period of 5 years, and report to the Commission all information determined by the Commission to be necessary or appropriate for the Commission to perform its responsibilities under this Act in a form and manner acceptable to the Commission. The Commission shall adopt data collection and reporting requirements for

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142 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 alternative swap execution facilities that are comparable to corresponding requirements for clearing agencies and security-based swap repositories. (9) ANTITRUST
CONSIDERATIONS.Unless

necessary or appropriate to achieve the purposes of this Act, the swap execution facility shall avoid (A) adopting any rules or taking any actions that result in any unreasonable restraints of trade; or (B) imposing any material anticompetitive burden on trading on the swap execution facility. (10) CONFLICTS execution facility shall (A) establish and enforce rules to minimize conflicts of interest in its decision-making process; and (B) establish a process for resolving the conflicts of interest. (11) DESIGNATION
CER. OF COMPLIANCE OFFIOF INTEREST.The

swap

(A) IN

GENERAL.Each

alternative swap

execution facility shall designate an individual to serve as a compliance officer. (B) DUTIES.The compliance officer

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143 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (i) shall report directly to the board or to the senior officer of the facility; (ii) shall (I) review compliance with the core principles in section 3B(e). (II) in consultation with the board of the facility, a body performing a function similar to that of a board, or the senior officer of the facility, resolve any conflicts of interest that may arise; (III) be responsible for administering the policies and procedures required to be established pursuant to this section; and (IV) ensure compliance with securities laws and the rules and regulations issued thereunder, including

rules prescribed by the Commission pursuant to this section; and (iii) shall establish procedures for remediation of non-compliance issues found during compliance office reviews,

lookbacks, internal or external audit findings, self-reported errors, or through vali-

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144 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 dated complaints. Procedures will establish the handling, management response, remediation, retesting, and closing of noncompliant issues. (C) ANNUAL
REPORTS REQUIRED.The

compliance officer shall annually prepare and sign a report on the compliance of the facility with the securities laws and its policies and procedures, including its code of ethics and conflict of interest policies, in accordance with rules prescribed by the Commission. Such compliance report shall accompany the financial reports of the facility that are required to be furnished to the Commission pursuant to this section and shall include a certification that, under penalty of law, the report is accurate and complete. (f) EXEMPTIONS.The Commission may exempt,

18 conditionally or unconditionally, an alternative swap exe19 cution facility from registration under this section if the 20 Commission finds that such organization is subject to 21 comparable, comprehensive supervision and regulation on 22 a consolidated basis by the Commodity Futures Trading 23 Commission, a Prudential Regulator or the appropriate 24 governmental authorities in the organizations home coun25 try.

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145 1 (g) HARMONIZATION

OF

RULES.Not later than

2 180 days after the date of enactment of the Over-the3 Counter Derivatives Markets Act of 2009, the Commission 4 and the Commodity Futures Trading Commission shall 5 jointly prescribe rules governing the regulation of alter6 native swap execution facilities under this section and sec7 tion 5h of the Commodity Exchange Act (7 U.S.C. 7b 8 3).. 9 10
IN

(e) SEGREGATION

OF

ASSETS HELD

AS

COLLATERAL

SWAP TRANSACTIONS.The Securities Exchange Act

11 of 1934 (15 U.S.C. 78a, et seq.) is further amended by 12 adding after section 3C (as added by subsection (b) the 13 following: 14 15 16
SEC. 3D. SEGREGATION OF ASSETS HELD AS COLLATERAL IN S AP TRANSACTIONS.

(a) CLEARED SWAPS.A security-based swap deal-

17 er or clearing agency by or through which funds or other 18 property are held as margin or collateral to secure the obli19 gations of a counterparty under a security-based swap to 20 be cleared by or through a derivatives clearing agency 21 shall segregate, maintain, and use the funds or other prop22 erty for the benefit of the counterparty, in accordance with 23 such rules and regulations as the Commission or Pruden24 tial Regulator shall prescribe. Any such funds or other

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146 1 property shall be treated as customer property under this 2 Act. 3 (b) OVER-THE-COUNTER SWAPS.At the request of

4 a counterparty to a security-based swap who provides 5 funds or other property to a swap dealer as margin or 6 collateral to secure the obligations of the counterparty 7 under a security-based swap between the counterparty and 8 the swap dealer that is not submitted for clearing to a 9 derivatives clearing agency, the swap dealer shall seg10 regate the funds or other property for the benefit of the 11 counterparty, and maintain the funds or other property 12 in an account which is carried by a third-party custodian 13 and designated as a segregated account for the 14 counterparty, in accordance with such rules and regula15 tions as the Commission or Prudential Regulator may pre16 scribe. This subsection shall not be interpreted to preclude 17 commercial arrangements regarding the investment of the 18 segregated funds or other property and the related alloca19 tion of gains and losses resulting from any such invest20 ment.. 21 22 (f) TRADING
MENTS.Section IN

SECURITY-BASED SWAP AGREE-

6 of the Securities Exchange Act of

23 1934 (15 U.S.C. 78f) is amended by adding at the end 24 the following:

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147 1 (l) It shall be unlawful for any person to effect a

2 transaction in a security-based swap with or for a person 3 that is not an eligible contract participant unless such 4 transaction is effected on a national securities exchange 5 registered pursuant to subsection (b).. 6 7
TAIN

(g) ADDITIONS

OF

SECURITY-BASED SWAPS

TO

CER(1)

ENFORCEMENT

PROVISIONS.Paragraphs

8 through (3) of section 9(b) of the Securities Exchange Act 9 of 1934 (15 U.S.C. 78i(b)(1)(3)) are amended to read 10 as follows: 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) any transaction in connection with any security whereby any party to such transaction acquires (A) any put, call, straddle, or other option or privilege of buying the security from or selling the security to another without being bound to do so; (B) any security futures product on the security; or (C) any security-based swap involving the security or the issuer of the security; (2) any transaction in connection with any security with relation to which he has, directly or indirectly, any interest in any (A) such put, call, straddle, option, or privilege; (B) such security futures product; or (C) such security-based swap; or (3) any transaction in any security for the account of any person who he has reason to believe

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148 1 2 3 4 5 6 7 has, and who actually has, directly or indirectly, any interest in any (A) such put, call, straddle, option, or privilege; (B) such security futures product with relation to such security; or (C) any security-based swap involving such security or the issuer of such security.. (h) RULEMAKING AUTHORITY TO PREVENT FRAUD,

8 MANIPULATION, AND DECEPTIVE CONDUCT IN SECURITY9 BASED SWAPS.Section 9 of the Securities Exchange Act 10 of 1934 (15 U.S.C. 78i) is amended by adding at the end 11 the following: 12 (i) It shall be unlawful for any person, directly or

13 indirectly, by the use of any means or instrumentality of 14 interstate commerce or of the mails, or of any facility of 15 any national securities exchange, to effect any transaction 16 in, or to induce or attempt to induce the purchase or sale 17 of, any security-based swap, in connection with which such 18 person engages in any fraudulent, deceptive, or manipula19 tive act or practice, makes any fictitious quotation, or en20 gages in any transaction, practice, or course of business 21 which operates as a fraud or deceit upon any person. The 22 Commission shall, for the purposes of this paragraph, by 23 rules and regulations define, and prescribe means reason24 ably designed to prevent, such transactions, acts, prac-

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149 1 tices, and courses of business as are fraudulent, deceptive, 2 or manipulative, and such quotations as are fictitious.. 3 4 (i) POSITION LIMITS
ABILITY FOR AND

POSITION ACCOUNT-

SECURITY-BASED SWAPS.The Securities

5 Exchange Act of 1934 is amended by inserting after sec6 tion 10A (15 U.S.C. 78j1) the following new section: 7 8 9 10
SEC. 1 B. POSITION LIMITS AND POSITION ACCOUNTABILITY FOR SECURITY-BASED S APS AND LARGE TRADER REPORTING.

(a) POSITION LIMITS.As a means reasonably de-

11 signed to prevent fraud and manipulation, the Commission 12 may, by rule or regulation, as necessary or appropriate 13 in the public interest or for the protection of investors, 14 establish limits (including related hedge exemption provi15 sions) on the size of positions in any security-based swap 16 or security-based swap agreement that may be held by any 17 person. In establishing such limits, the Commission may 18 require any person to aggregate positions in 19 20 21 22 23 24 25 (1) any security-based swap and any security or loan or group or index of securities or loans on which such security-based swap is based, which such security-based swap references, or to which such security-based swap is related as described in section (a)(3) of the Over-the-Counter Derivatives Markets Act of 2009, and any security-based swap agreement

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150 1 2 3 4 5 6 7 8 9 10 11 12 and any other instrument relating to such security or loan or group or index of securities or loans; or (2) any security-based swap and (A) any security or group or index of securities, the price, yield, value, or volatility of which, or of which any interest therein, is the basis for a material term of such security-based swap as described in section 3(a)(76) of the Securities Exchange Act of 1934 and (B) any security-based swap and any other instrument relating to the same security or group or index of securities. (b) EXEMPTIONS.The Commission, by rule, regu-

13 lation, or order, may conditionally or unconditionally ex14 empt any person or class of persons, any security-based 15 swap or class of security-based swaps, or any transaction 16 or class of transactions from any requirement it may es17 tablish under this section with respect to position limits. 18 19 20 21 22 23 24 25 (c) SRO RULES. (1) IN
GENERAL.As

a means reasonably de-

signed to prevent fraud or manipulation, the Commission, by rule, regulation, or order, as necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this title, may direct a self-regulatory organization

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151 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (A) to adopt rules regarding the size of positions in any security-based swap that may be held by (i) any member of such self-regulatory organization; or (ii) any person for whom a member of such self-regulatory organization effects transactions in such security-based swap or other security-based swap agreement; and (B) to adopt rules reasonably designed to ensure compliance with requirements prescribed by the Commission under paragraph (c)(1)(A). (2) REQUIREMENT
TIONS.In TO AGGREGATE POSI-

establishing such limits, the self-regu-

latory organization may require such member or person to aggregate positions in (A) any security-based swap and any security or loan or group or index of securities or loans on which such security-based swap is based, which such security-based swap references, or to which such security-based swap is related as described in section 3(a) of the Overthe-Counter Derivatives Markets Act of 2009, and any security-based swap agreement and any other instrument relating to such security

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152 1 2 3 4 5 6 7 8 9 10 11 12 13 or loan or group or index of securities or loans; or (B)(i) any security-based swap; (ii) any security or group or index of securities, the price, yield, value, or volatility of which, or of which any interest therein, is the basis for a material term of such security-based swap as described in section 3(a)(76) of the Securities Exchange Act of 1934; and (iii) any security-based swap and any other instrument relating to the same security or group or index of securities. (d) LARGE TRADER REPORTING.The Commis-

14 sion, by rule or regulation, may require any person that 15 effects transactions for such persons own account or the 16 account of others in any securities-based swap or security17 based swap agreement and any security or loan or group 18 or index of securities or loans as set forth in paragraphs 19 (a)(1) and (2) under this section to report such informa20 tion as the Commission may prescribe regarding any posi21 tion or positions in any security-based swap or security22 based swap agreement and any security or loan or group 23 or index of securities or loans and any other instrument 24 relating to such security or loan or group or index of secu-

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153 1 rities or loans as set forth in paragraphs (a)(1) and (2) 2 under this section.. 3 4 (j) PUBLIC REPORTING
CURITY-BASED AND

REPOSITORIES

FOR

SE-

SWAP AGREEMENTS.Section 13 of the

5 Securities Exchange Act of 1934 (15 U.S.C. 78m) is 6 amended by adding at the end the following: 7 (m) PUBLIC REPORTING OF AGGREGATE SECURITY-

8 BASED SWAP DATA. 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 3A; (1) IN

GENERAL.The

Commission, or a per-

son designated by the Commission pursuant to paragraph (2), shall make available to the public, in a manner that does not disclose the business transactions and market positions of any person, aggregate data on security-based swap trading volumes and positions from the sources set forth in paragraph (3). (2) DESIGNEE
OF THE COMMISSION.The

Commission may designate a clearing agency or a security-based swap repository to carry out the public reporting described in paragraph (1). (3) SOURCES
OF INFORMATION.The

sources

of the information to be publicly reported as described in paragraph (1) are (A) clearing agencies pursuant to section

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154 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) security-based swap repositories pursuant to subsection (n); and (C) reports received by the Commission pursuant to section 13A. (n) SECURITY-BASED SWAP REPOSITORIES. (1) REGISTRATION (A) IN
REQUIREMENT.

GENERAL.It

shall be unlawful

for a security-based swap repository, unless registered with the Commission, directly or indirectly to make use of the mails or any means or instrumentality of interstate commerce to perform the functions of a security-based swap repository. (B) INSPECTION Registered
AND EXAMINATION.

security-based

swap

repositories

shall be subject to inspection and examination by any representatives of the Commission. (2) STANDARD (A) DATA
SETTING. IDENTIFICATION.The

Com-

mission shall prescribe standards that specify the data elements for each security-based swap that shall be collected and maintained by each security-based swap repository. (B) DATA
NANCE.The COLLECTION AND MAINTE-

Commission shall prescribe data

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155 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 collection and data maintenance standards for security-based swap repositories. (C) COMPARABILITY.The standards

prescribed by the Commission under this subsection shall be comparable to the data standards imposed by the Commission on clearing agencies that clear security-based swaps. (3) DUTIES.A security-based swap repository shall (A) accept data prescribed by the Commission for each security-based swap under this paragraph (2); (B) maintain such data in such form and manner and for such period as may be required by the Commission; (C) provide to the Commission, or its designee, such information as is required by, and in a form and at a frequency to be determined by, the Commission, in order to comply with the public reporting requirements contained in subsection (m); and (D) make available, on a confidential basis, all data obtained by the security-based swap repository, including individual

counterparty trade and position data, to the

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156 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Commission, the appropriate Federal banking agencies, the Commodity Futures Trading Commission, the Financial Services Oversight Council, and the Department of Justice or to other persons the Commission deems appropriate, including foreign financial supervisors (including foreign futures authorities), foreign central banks, and foreign ministries. (4) REQUIRED
REGISTRATION FOR SECURITY-

BASED SWAP REPOSITORIES.Any

person that is re-

quired to be registered as a securities-based swap repository under this subsection shall register with the Commission, regardless of whether that person also is registered with the Commodity Futures Trading Commission as a swap repository. (5) HARMONIZATION
OF RULES.Not

later

than 180 days after the date of enactment of the Over-the-Counter Derivatives Markets Act of 2009, the Commission and the Commodity Futures Trading Commission shall jointly adopt uniform rules governing persons that are registered under this section and persons that are registered as swap repositories under the Commodity Exchange Act (7 U.S.C. 1, et seq.), including uniform rules that specify the

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157 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 data elements that shall be collected and maintained by each repository. (6) EXEMPTIONS.The Commission may exempt, conditionally or unconditionally, a securitybased swap repository from the requirements of this section if the Commission finds that such securitybased swap repository is subject to comparable, comprehensive supervision or regulation on a consolidated basis by the Commodity Futures Trading Commission, a Prudential Regulator or the appropriate governmental authorities in the organizations home country..
SEC. 154. REGISTRATION AND REGULATION OF S AP DEALERS AND MA OR S AP PARTICIPANTS.

The Securities Exchange Act of 1934 (15 U.S.C. 78a,

16 et seq.) is amended by inserting after section 15E (15 17 U.S.C. 78o-7) the following: 18 19 20 21 22 23 24 25
SEC. 15F. REGISTRATION AND REGULATION OF SECURITYBASED S AP DEALERS AND MA OR SECURITY-BASED S AP PARTICIPANTS.

(a) REGISTRATION. (1) It shall be unlawful for any person to act as a security-based swap dealer unless such person is registered as a security-based swap dealer with the Commission.

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158 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (2) It shall be unlawful for any person to act as a major security-based swap participant unless such person is registered as a major security-based swap participant with the Commission. (b) REQUIREMENTS. (1) IN
GENERAL.A

person shall register as

a security-based swap dealer or major security-based swap participant by filing a registration application with the Commission. (2) CONTENTS.The application shall be made in such form and manner as prescribed by the Commission, giving any information and facts as the Commission may deem necessary concerning the business in which the applicant is or will be engaged. Such person, when registered as a security-based swap dealer or major security-based swap participant, shall continue to report and furnish to the Commission such information pertaining to such persons business as the Commission may require. (3) EXPIRATION.Each registration shall expire at such time as the Commission may by rule or regulation prescribe. (4) RULES.Except as provided in subsections (c), (d) and (e), the Commission may prescribe rules applicable to security-based swap dealers

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159 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 and major security-based swap participants, including rules that limit the activities of security-based swap dealers and major security-based swap participants. Except as provided in subsections (c) and (e), the Commission may provide conditional or unconditional exemptions from rules prescribed under this section for security-based swap dealers and major security-based swap participants that are subject to substantially similar requirements as brokers or dealers. (5) TRANSITION.Rules adopted under this section shall provide for the registration of securitybased swap dealers and major security-based swap participants no later than 1 year after the effective date of the Over-the-Counter Derivatives Markets Act of 2009. (c) DUAL REGISTRATION. (1) SECURITY-BASED
SWAP DEALERS.Any

person that is required to be registered as a security-based swap dealer under this section shall register with the Commission regardless of whether that person also is a bank or is registered with the Commodity Futures Trading Commission as a swap dealer.

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160 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (2) MAJOR

PANTS.Any SECURITY-BASED SWAP PARTICI-

person that is required to be reg-

istered as a major security-based swap participant under this section shall register with the Commission regardless of whether that person also is a bank or is registered with the Commodity Futures Trading Commission as a major swap participant. (d) JOINT RULES. (1) IN
GENERAL.Not

later than 180 days

after the effective date of the Over-the-Counter Derivatives Markets Act of 2009, the Commission and the Commodity Futures Trading Commission shall jointly adopt uniform rules for persons that are registered as security-based swap dealers or major security-based swap participants under this Act and persons that are registered as swap dealers or major swap participants under the Commodity Exchange Act (7 U.S.C. 1, et seq.). (2) EXCEPTION
MENTS.The FOR PRUDENTIAL REQUIRE-

Commission and the Commodity Fu-

tures Trading Commission shall not prescribe rules imposing prudential requirements (including activity restrictions) on security-based swap dealers or major security-based swap participants for which there is a Prudential Regulator. This provision shall not be

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161 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 construed as limiting the authority of the Commission and the Commodity Futures Trading Commission to prescribe appropriate business conduct, reporting, and recordkeeping requirements to protect investors. (e) CAPITAL AND MARGIN REQUIREMENTS. (1) IN
GENERAL. SECURITY-BASED SWAP DEAL-

(A) BANK

ERS AND MAJOR SECURITY-BASED SWAP PARTICIPANTS.Each

registered

security-based

swap dealer and major security-based swap participant for which there is a Prudential Regulator shall meet such minimum capital requirements and minimum initial and variation margin requirements as the Prudential Regulators shall by rule or regulation jointly prescribe to help ensure the safety and soundness of the security-based swap dealer or major securitybased swap participant. (B) NONBANK
SECURITY-BASED SWAP

DEALERS AND MAJOR SECURITY-BASED SWAP PARTICIPANTS.Each

registered security-based

swap dealer and major security-based swap participant for which there is not a Prudential Regulator shall meet such minimum capital re-

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162 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 quirements and minimum initial and variation margin requirements as the Commission and the Commodity Futures Trading Commission shall by rule or regulation jointly prescribe to help ensure the safety and soundness of the security-based swap dealer or major securitybased swap participant. (2) JOINT
RULES. SECURITY-BASED SWAP DEAL-

(A) BANK

ERS AND MAJOR SECURITY-BASED SWAP PARTICIPANTS.Within

180 days of the enactment

of the Over-the-Counter Derivatives Markets Act of 2009, the Prudential Regulators, in consultation with the Commission and the Commodity Futures Trading Commission, shall jointly adopt rules imposing capital and margin requirements under this subsection for securitybased swap dealers and major security-based swap participants. (B) NONBANK
SECURITY-BASED SWAP

DEALERS AND MAJOR SECURITY-BASED SWAP PARTICIPANTS.Within

180 days of the enact-

ment of the Over-the-Counter Derivatives Markets Act of 2009, the Commission and the Commodity Futures Trading Commission, in

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163 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 consultation with the Prudential Regulators, shall jointly adopt rules imposing capital and margin requirements under this subsection for security-based swap dealers and major securitybased swap participants for which there is no Prudential Regulator. (3) CAPITAL. (A) BANK
SECURITY-BASED SWAP DEAL-

ERS AND MAJOR SECURITY-BASED SWAP PARTICIPANTS.In

setting capital requirements

under this subsection, the Prudential Regulators shall impose (i) a capital requirement that is greater than zero for security-based swaps that are cleared by a clearing agency; and (ii) to offset the greater risk to the security-based swap dealer or major security-based swap participant and to the financial system arising from the use of security-based swaps that are not centrally cleared, higher capital requirements for security-based swaps that are not cleared by a clearing agency than for security-based swaps that are centrally cleared.

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164 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) NONBANK

SECURITY-BASED SWAP

DEALERS AND MAJOR SECURITY-BASED SWAP PARTICIPANTS.Capital

requirements set by

the Commission and the Commodity Futures Trading Commission under this subsection shall be as strict as or stricter than the capital requirements set by the Prudential Regulators under this subsection. (C) BANK
HOLDING COMPANIES.Capital

requirements set by the Board for securitybased swaps of bank holding companies on a consolidated basis shall be as strict as or stricter than the capital requirements set by the Prudential Regulators under this subsection. (4) MARGIN. (A) BANK
SECURITY-BASED SWAP DEAL-

ERS AND MAJOR SECURITY-BASED SWAP PARTICIPANTS.The

Prudential Regulators shall

impose both initial and variation margin requirements under this subsection on all security-based swaps that are not cleared by a registered clearing agency. (B) NON-SWAP
DEALERS AND MAJOR

MARKET PARTICIPANTS.The

Prudential Regu-

lators may, but are not required to, impose

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165 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 margin requirements with respect to securitybased swaps in which one of the counterparties is not a swap dealer, major swap participant, security-based swap dealer or major securitybased swap participant. Margin requirements for swaps set by the Commission and the Commodity Futures Trading Commission shall provide for the use of non-cash assets as collateral. (C) NONBANK
SECURITY-BASED SWAP

DEALERS AND MAJOR SECURITY-BASED SWAP PARTICIPANTS.Margin

requirements for secu-

rity-based swaps set by the Commission and the Commodity Futures Trading Commission under this subsection shall be as strict as or stricter than margin requirements for security-based swaps set by the Prudential Regulators. (f) REPORTING AND RECORDKEEPING. (1) IN
GENERAL.Each

registered security-

based swap dealer and major security-based swap participant (A) shall make such reports as are prescribed by the Commission by rule or regulation regarding the transactions and positions and financial condition of such person; (B) for which

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166 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (i) there is a Prudential Regulator, shall keep books and records of all activities related to its business as a securitybased swap dealer or major security-based swap participant in such form and manner and for such period as may be prescribed by the Commission by rule or regulation; or (ii) there is no Prudential Regulator, shall keep books and records in such form and manner and for such period as may be prescribed by the Commission by rule or regulation; (C) shall keep such books and records open to inspection and examination by any representative of the Commission; and (D) shall keep any such books and records relating to transactions in swaps based on 1 or more securities open to inspection and examination by the Commission. (2) RULES.Not later than 1 year after the date of enactment of the Over-the-Counter Derivatives Markets Act of 2009, the Commission and the Commodity Futures Trading Commission, in consultation with the appropriate Federal banking agen-

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167 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 cies, shall jointly adopt rules governing reporting and recordkeeping for swap dealers, major swap participants, security-based swap dealers and major security-based swap participants. (g) DAILY TRADING RECORDS. (1) IN
GENERAL.Each

registered security-

based swap dealer and major security-based swap participant shall maintain daily trading records of its security-based swaps and all related records (including related transactions) and recorded communications including but not limited to electronic mail, instant messages, and recordings of telephone calls, for such period as may be prescribed by the Commission by rule or regulation. (2) INFORMATION
REQUIREMENTS.The

daily

trading records shall include such information as the Commission shall prescribe by rule or regulation. (3) CUSTOMER
RECORDS.Each

registered se-

curity-based swap dealer or major security-based swap participant shall maintain daily trading records for each customer or counterparty in such manner and form as to be identifiable with each securitybased swap transaction. (4) AUDIT
TRAIL.Each

registered security-

based swap dealer or major security-based swap par-

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168 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 ticipant shall maintain a complete audit trail for conducting comprehensive and accurate trade reconstructions. (5) RULES.Not later than 1 year after the date of enactment of the Over-the-Counter Derivatives Markets Act of 2009, the Commission and the Commodity Futures Trading Commission, in consultation with the appropriate Federal banking agencies, shall jointly adopt rules governing daily trading records for swap dealers, major swap participants, security-based swap dealers, and major securitybased swap participants. (h) BUSINESS CONDUCT STANDARDS. (1) IN
GENERAL.Each

registered security-

based swap dealer and major security-based swap participant shall conform with business conduct standards as may be prescribed by the Commission by rule or regulation addressing (A) fraud, manipulation, and other abusive practices involving security-based swaps (including security-based swaps that are offered but not entered into); (B) diligent supervision of its business as a security-based swap dealer;

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169 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (C) adherence to all applicable position limits; and (D) such other matters as the Commission shall determine to be necessary or appropriate. (2) BUSINESS
CONDUCT REQUIREMENTS.

Business conduct requirements adopted by the Commission shall (A) establish the standard of care for a security-based swap dealer or major securitybased swap participant to verify that any security-based swap counterparty meets the eligibility standards for an eligible contract participant; (B) require disclosure by the securitybased swap dealer or major security-based swap participant to any counterparty to the securitybased swap (other than a swap dealer, major swap participant, security-based swap dealer or major security-based swap participant) of (i) information about the material risks and characteristics of the securitybased swap; (ii) the source and amount of any fees or other material remuneration that

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170 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the security-based swap dealer or major security-based swap participant would directly or indirectly expect to receive in connection with the security-based swap; and (iii) any other material incentives or conflicts of interest that the security-based swap dealer or major security-based swap participant may have in connection with the security-based swap; and (C) establish such other standards and requirements as the Commission may determine are necessary or appropriate in the public interest, for the protection of investors, or otherwise in furtherance of the purposes of this title. (3) RULES.Not later than 1 year after the date of enactment of the Over-the-Counter Derivatives Markets Act of 2009, the Commission and the Commodity Futures Trading Commission, in consultation with the appropriate Federal banking agencies, shall jointly prescribe rules under this subsection governing business conduct standards for swap dealers, major swap participants, securitybased swap dealers, and major security-based swap participants.

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171 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 (i) DOCUMENTATION

ARDS. AND

BACK OFFICE STAND-

(1) IN

GENERAL.Each

registered security-

based swap dealer and major security-based swap participant shall conform with standards, as may be prescribed by the Commission by rule or regulation, addressing timely and accurate confirmation, processing, netting, documentation, and valuation of all security-based swaps. (2) RULES.Not later than 1 year after the date of enactment of the Over-the-Counter Derivatives Markets Act of 2009, the Commission and the Commodity Futures Trading Commission, in consultation with the appropriate Federal banking agencies, shall jointly adopt rules governing documentation and back office standards for swap dealers, major swap participants, security-based swap dealers, and major security-based swap participants. (j) DEALER RESPONSIBILITIES.Each registered

20 security-based swap dealer and major security-based swap 21 participant at all times shall comply with the following re22 quirements: 23 24 25 (1) MONITORING
OF TRADING.The

security-

based swap dealer or major security-based swap participant shall monitor its trading in security-based

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172 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 swaps to prevent violations of applicable position limits. (2) DISCLOSURE

TION.The OF GENERAL INFORMA-

security-based swap dealer or major se-

curity-based swap participant shall disclose to the Commission and to the Prudential Regulator for such security-based swap dealer or major securitybased swap participant, as applicable, information concerning (A) terms and conditions of its securitybased swaps; (B) security-based swap trading operations, mechanisms, and practices; (C) financial integrity protections relating to security-based swaps; and (D) other information relevant to its trading in security-based swaps. (3) ABILITY
TO OBTAIN INFORMATION.The

security-based swap dealer or major swap securitybased participant shall (A) establish and enforce internal systems and procedures to obtain any necessary information to perform any of the functions described in this section; and

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173 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (B) provide the information to the Commission and to the Prudential Regulator for such security-based swap dealer or major security-based swap participant, as applicable, upon request. (4) CONFLICTS
OF INTEREST.The

security-

based swap dealer and major security-based swap participant shall implement conflict-of-interest systems and procedures that (A) establish structural and institutional safeguards to assure that the activities of any person within the firm relating to research or analysis of the price or market for any security are separated by appropriate informational partitions within the firm from the review, pressure, or oversight of those whose involvement in trading or clearing activities might potentially bias their judgment or supervision; and (B) address such other issues as the Commission determines appropriate. (5) ANTITRUST
CONSIDERATIONS.Unless

necessary or appropriate to achieve the purposes of this Act, the security-based swap dealer or major security-based swap participant shall avoid

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174 1 2 3 4 5 6 (A) adopting any processes or taking any actions that result in any unreasonable restraints of trade; or (B) imposing any material anticompetitive burden on trading. (k) RULES.The Commission, the Commodity Fu-

7 tures Trading Commission, and the Prudential Regulators 8 shall consult with each other prior to adopting any rules 9 under the Over-the-Counter Derivatives Markets Act of 10 2009. 11 (l) STATUTORY DISQUALIFICATION.Except to the

12 extent otherwise specifically provided by rule, regulation, 13 or order of the Commission, it shall be unlawful for a secu14 rity-based swap dealer or a major security-based swap par15 ticipant to permit any person associated with a security16 based swap dealer or a major security-based swap partici17 pant who is subject to a statutory disqualification to effect 18 or be involved in effecting security-based swaps on behalf 19 of such security-based swap dealer or major security-based 20 swap participant, if such security-based swap dealer or 21 major security-based swap participant knew, or in the ex22 ercise of reasonable care should have known, of such stat23 utory disqualification. 24 25 (m) ENFORCEMENT
CEEDING AND

ADMINISTRATIVE PRO-

AUTHORITY.

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175 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) PRIMARY

ENFORCEMENT AUTHORITY.

(A) SEC.Except as provided in subsection (b), the Commission shall have primary authority to enforce the provisions of the amendments made by subtitle B of the Overthe-Counter Derivatives Markets Act of 2009 with respect to any person. (B) PRUDENTIAL
REGULATORS.The

Prudential Regulators shall have exclusive authority to enforce the provisions of subsection (e) and other prudential requirements of this Act with respect to banks, and branches or agencies of foreign banks that are securitybased swap dealers or major security-based swap participants. (C) REFERRAL.If the Prudential Regulator for a security-based swap dealer or major security-based swap participant has cause to believe that such security-based swap dealer or major security-based swap participant may have engaged in conduct that constitutes a violation of the nonprudential requirements of section 15F or rules adopted by the Commission thereunder, that Prudential Regulator may recommend in writing to the Commission that the

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176 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Commission initiate an enforcement proceeding as authorized under this Act. The recommendation shall be accompanied by a written explanation of the concerns giving rise to the recommendation. (D) BACKSTOP
ITY.If ENFORCEMENT AUTHOR-

the Commission does not initiate an

enforcement proceeding before the end of the 90 day period beginning on the date on which the Commission receives a recommendation under subparagraph (C), the Prudential Regulator may initiate an enforcement proceeding as permitted under Federal law. (2) CENSURE,
AND HEARING.The DENIAL, SUSPENSION; NOTICE

Commission, by order, shall

censure, place limitations on the activities, functions, or operations of, or revoke the registration of any security-based swap dealer or major security-based swap participant that has registered with the Commission pursuant to subsection (b) if it finds, on the record after notice and opportunity for hearing, that such censure, placing of limitations, or revocation is in the public interest and that such security-based swap dealer or major security-based swap participant, or any person associated with such security-

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177 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 based swap dealer or major security-based swap participant effecting or involved in effecting transactions in security-based swaps on behalf of such security-based swap dealer or major security-based swap participant, whether prior or subsequent to becoming so associated (A) has committed or omitted any act, or is subject to an order or finding, enumerated in subparagraph (A), (D), or (E) of paragraph (4) of section 15(b); (B) has been convicted of any offense specified in subparagraph (B) of such paragraph (4) within 10 years of the commencement of the proceedings under this subsection; (C) is enjoined from any action, conduct, or practice specified in subparagraph (C) of such paragraph (4); (D) is subject to an order or a final order specified in subparagraph (F) or (H), respectively, of such paragraph (4); or (E) has been found by a foreign financial regulatory authority to have committed or omitted any act, or violated any foreign statute or regulation, enumerated in subparagraph (G) of such paragraph (4).

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178 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (3) With respect to any person who is associated, who is seeking to become associated, or, at the time of the alleged misconduct, who was associated or was seeking to become associated with a securitybased swap dealer or major security-based swap participant for the purpose of effecting or being involved in effecting security-based swaps on behalf of such security-based swap dealer or major securitybased swap participant, the Commission, by order, shall censure, place limitations on the activities or functions of such person, or suspend for a period not exceeding 12 months, or bar such person from being associated with a security-based swap dealer or major security-based swap participant, if the Commission finds, on the record after notice and opportunity for a hearing, that such censure, placing of limitations, suspension, or bar is in the public interest and that such person (A) has committed or omitted any act, or is subject to an order or finding, enumerated in subparagraph (A), (D), or (E) of paragraph (4) of section 15(b); (B) has been convicted of any offense specified in subparagraph (B) of such para-

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179 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 graph (4) within 10 years of the commencement of the proceedings under this subsection; (C) is enjoined from any action, conduct, or practice specified in subparagraph (C) of such paragraph (4); (D) is subject to an order or a final order specified in subparagraph (F) or (H), respectively, of such paragraph (4); or (E) has been found by a foreign financial regulatory authority to have committed or omitted any act, or violated any foreign statute or regulation, enumerated in subparagraph (G) of such paragraph (4). (4) It shall be unlawful (A) for any person as to whom an order under paragraph (3) is in effect, without the consent of the Commission, willfully to become, or to be, associated with a security-based swap dealer or major security-based swap participant in contravention of such order; or (B) for any security-based swap dealer or major security-based swap participant to permit such a person, without the consent of the Commission, to become or remain a person associated with the security-based swap dealer or

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180 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 major security-based swap participant in contravention of such order, if such security-based swap dealer or major security-based swap participant knew, or in the exercise of reasonable care should have known, of such order. (5) RECOGNITION
REGULATION.The OF COMPARABLE NON-U.S.

Commission, in consultation

with the Secretary of the Treasury, the Commodity Futures Trading Commission and the Prudential Regulators, shall adopt rules exempting from registration and the other requirements of title I of the Over-the-Counter Derivatives Market Act of 2009 foreign financial institutions that the Commission finds are subject to comparable regulation in the financial institutions home country..
SEC. 155. REPORTING AND RECORDKEEPING.

(a) IN GENERAL.The Securities Exchange Act of

18 1934 (15 U.S.C. 78a, et seq.) is amended by inserting 19 after section 13 the following section: 20 21 22
SEC. 13A. REPORTING AND RECORDKEEPING FOR CERTAIN SECURITY-BASED S APS.

(a) IN GENERAL.Any person who enters into a se-

23 curity-based swap and 24 25 (1) did not clear the security-based swap in accordance with section 3A; and

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181 1 2 3 4 (2) did not have data regarding the securitybased swap accepted by a security-based swap repository in accordance with rules adopted by the Commission under section 13(n),

5 shall meet the requirements in subsection (b). 6 (b) REPORTS.Any person described in subsection

7 (a) shall 8 9 10 11 12 13 14 15 16 17 18 19 20 21 (1) make such reports in such form and manner and for such period as the Commission shall prescribe by rule or regulation regarding the securitybased swaps held by the person; and (2) keep books and records pertaining to the security-based swaps held by the person in such form and manner and for such period as may be required by the Commission, which books and records shall be open to inspection by any representative of the Commission, an appropriate Federal banking agency, the Commodity Futures Trading Commission, the Financial Services Oversight Council, and the Department of Justice. (c) IDENTICAL DATA.In adopting rules under this

22 section, the Commission shall require persons described in 23 subsection (a) to report the same or more comprehensive 24 data than the Commission requires security-based swap 25 repositories to collect under subsection (n)..

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182 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 (b) BENEFICIAL OWNERSHIP REPORTING. (1) Section 13(d)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(d)(1)) is amended by inserting or otherwise becomes or is deemed to become a beneficial owner of any of the foregoing upon the purchase or sale of a security-based swap or other derivative instrument as the Commission may define by rule, and after Alaska Native Claims Settlement Act,. (2) Section 13(g)(1) of the Securities Exchange Act of 1934 (15 U.S.C. 78m(g)(1)) is amended by inserting or otherwise becomes or is deemed to become a beneficial owner of any security of a class described in subsection (d)(1) upon the purchase or sale of a security-based swap or other derivative instrument, as the Commission may define by rule after subsection (d)(1) of this section. (c) REPORTS
AGERS.Section BY INSTITUTIONAL INVESTMENT

MAN-

13(f)(1) of the Securities Exchange Act

20 of 1934 (15 U.S.C. 78m(f)(1)) is amended by inserting 21 or otherwise becomes or is deemed to become a beneficial 22 owner of any security of a class described in subsection 23 (d)(1) upon the purchase or sale of a security-based swap 24 or other derivative instrument, as the Commission may de25 fine by rule, after subsection (d)(1) of this section.

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183 1 (d) ADMINISTRATIVE PROCEEDING AUTHORITY.

2 Section 15(b)(4) of the Securities Exchange Act of 1934 3 (15 U.S.C. 78o(b)(4)) is amended 4 5 6 7 8 9 10 (1) in subparagraph (C), by inserting securitybased swap dealer, major security-based swap participant, after government securities dealer,; and (2) in subparagraph (F), by inserting , or security-based swap dealer, or a major security-based swap participant after or dealer. (e) TRANSACTIONS
BY

CORPORATE INSIDERS.Sec-

11 tion 16(f) of the Securities Exchange Act of 1934 (15 12 U.S.C.78p) is amended by inserting or security-based 13 swaps after security futures products. 14 15
SEC. 156. STATE GAMING AND BUCKET SHOP LA S.

Section 28(a) of the Securities Exchange Act of 1934

16 (15 U.S.C. 78bb(a)) is amended to read as follows: 17 (a) Except as provided in subsection (f), the rights

18 and remedies provided by this title shall be in addition 19 to any and all other rights and remedies that may exist 20 at law or in equity; but no person permitted to maintain 21 a suit for damages under the provisions of this title shall 22 recover, through satisfaction of judgment in one or more 23 actions, a total amount in excess of his actual damages 24 on account of the act complained of. Except as otherwise 25 specifically provided in this title, nothing in this title shall

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184 1 affect the jurisdiction of the securities commission (or any 2 agency or officer performing like functions) of any State 3 over any security or any person insofar as it does not con4 flict with the provisions of this title or the rules and regu5 lations thereunder. No State law which prohibits or regu6 lates the making or promoting of wagering or gaming con7 tracts, or the operation of bucket shops or other similar 8 or related activities, shall invalidate (1) any put, call, 9 straddle, option, privilege, or other security subject to this 10 title (except a security-based swap agreement and any se11 curity that has a pari-mutuel payout or otherwise is deter12 mined by the Commission, acting by rule, regulation, or 13 order, to be appropriately subject to such laws), or apply 14 to any activity which is incidental or related to the offer, 15 purchase, sale, exercise, settlement, or closeout of any 16 such security, (2) any security-based swap between eligible 17 contract participants, or (3) any security-based swap ef18 fected on a national securities exchange registered pursu19 ant to section 6(b). No provision of State law regarding 20 the offer, sale, or distribution of securities shall apply to 21 any transaction in a security-based swap or a security fu22 tures product, except that this sentence shall not be con23 strued as limiting any State antifraud law of general ap24 plicability..

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185 1 2 3
SEC. 157. AMENDMENTS TO THE SECURITIES ACT OF 1 33; TREATMENT OF SECURITY-BASED S APS.

(a) DEFINITIONS.Section 2(a) of the Securities Act

4 of 1933 (15 U.S.C. 77b(a)) is amended 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) in paragraph (1), by inserting securitybased swap, after security future,; (2) in paragraph (3) by adding at the end the following: Any offer or sale of a security-based swap by or on behalf of the issuer of the securities upon which such security-based swap is based or is referenced, an affiliate of the issuer, or an underwriter, shall constitute a contract for sale of, sale of, offer for sale, or offer to sell such securities,; and (3) by adding at the end the following: (17) The terms swap and security-based swap have the same meanings as provided in sections 1a(35) and (38) of the Commodity Exchange Act (7 U.S.C. 1a(35) and (38)). (18) The terms purchase or sale of a security-based swap shall be deemed to mean the execution, termination (prior to its scheduled maturity date), assignment, exchange, or similar transfer or conveyance of, or extinguishing of rights or obligations under, a security-based swap, as the context may require..

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186 1 (b) REGISTRATION

OF

SECURITY-BASED SWAPS.

2 Section 5 of the Securities Act of 1933 (15 U.S.C. 77e) 3 is amended by adding at the end the following: 4 (d) Notwithstanding the provisions of section 3 or

5 section 4, unless a registration statement meeting the re6 quirements of subsection (a) of section 10 is in effect as 7 to a security-based swap, it shall be unlawful for any per8 son, directly or indirectly, to make use of any means or 9 instruments of transportation or communication in inter10 state commerce or of the mails to offer to sell, offer to 11 buy or purchase or sell a security-based swap to any per12 son who is not an eligible contract participant as defined 13 in section 1a(13) of the Commodity Exchange Act (7 14 U.S.C. 1a(13)).. 15 16
SEC. 15 . OTHER AUTHORITY.

Unless otherwise provided by its terms, this subtitle

17 does not divest any appropriate Federal banking agency, 18 the Commission, the Commodity Futures Trading Com19 mission, or other Federal or State agency, of any authority 20 derived from any other applicable law. 21 22
SEC. 15 . URISDICTION.

Section 36 of the Securities Exchange Act of 1934

23 (15 U.S.C. 78mm) is amended by adding at the end the 24 following new subsection:

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187 1 (c) DERIVATIVES.The Commission shall not have

2 the authority to grant exemptions from the security-based 3 swap provisions of the Over-the-Counter Derivatives Mar4 kets Act of 2009, except as expressly authorized under the 5 provisions of that Act.. 6 7
SEC. 16 . EFFECTIVE DATE.

This subtitle is effective 180 days after the date of

8 enactment.

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  30

October 6, 2009

Committee to Hold Hearing on Regulation of OTC Derivatives

Washington, DC The Committee on Financial Services will hold a hearing titled Reform of the Over-the-Counter Derivative Market: Limiting Risk and Ensuring Fairness on Wednesday, October 7.

What: and When:

Who: House Financial Services Committee Hearing: Reform of the Over-the-Counter Derivative Market: Limiting Risk Ensuring Fairness Wednesday, October 7 10:00 a.m. Where: Room 2128, Rayburn House Office Building

Witness List Panel one The Honorable Gary Gensler, Chairman, Commodity Futures Trading Commission Mr. Henry Hu, Director, Division of Risk, Strategy, and Financial Innovation, U.S. Securities and Exchange Commission Panel two Mr. Jon Hixson, Director, Federal Government Relations, Cargill Inc. Mr. Ren M. Stulz, Everett D. Reese Chair of Banking and Monetary Economics, Fisher College of Business, The Ohio State University Mr. Scott Sleyster, CFA, Chief Investment Officer, Domestic, Prudential Financial Mr. David Hall, Chief Operating Officer, Chatham Financial Corp. Mr. James J. Hill, Managing Director, Morgan Stanley on behalf of SIFMA Mr. Stuart J. Kaswell, Executive Vice President & Managing Director, General

Counsel, Managed Funds Association Mr. Steven A. Holmes, Director of Treasury Operations, Treasury Department, Deere & Company World Headquarters Mr. Christopher Ferreri, Managing Director, ICAP on behalf of the Wholesale Markets Brokers Association ###

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Be up in a second. -------------------------Sent using BlackBerry )URP 7DUD:)RVFDWR#IUEJRY 7DUD:)RVFDWR#IUEJRY! 7R 5REHUVRQ 3HWHU 6HQW 7KX 2FW    6XEMHFW 5H <RXU GHULYDWLYHV ELOO

We're here now.

From: "Roberson, Peter" [Peter.Roberson@mail.house.gov] Sent: 10/08/2009 09:57 AM AST To: Tara Foscato Subject: Re: Your derivatives bill Good. I'm on a call right now. -------------------------Sent using BlackBerry )URP 7DUD:)RVFDWR#IUEJRY 7DUD:)RVFDWR#IUEJRY! 7R 5REHUVRQ 3HWHU 6HQW 7KX 2FW    6XEMHFW 5H <RXU GHULYDWLYHV ELOO

Got held up by presidential motorcade. On our way.

From: "Roberson, Peter" [Peter.Roberson@mail.house.gov] Sent: 10/08/2009 09:30 AM AST To: Tara Foscato Subject: Re: Your derivatives bill Go straight to 2222 Rayburn. -------------------------Sent using BlackBerry )URP 7DUD:)RVFDWR#IUEJRY 7DUD:)RVFDWR#IUEJRY! 7R 5REHUVRQ 3HWHU 6HQW 7KX 2FW    6XEMHFW 5( <RXU GHULYDWLYHV ELOO

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section 552(d)
Peter Roberson Senior Policy Advisor Committee on Financial Services U.S. House of Representatives 202.226.1215

)URP 7DUD:)RVFDWR#IUEJRY >PDLOWR7DUD:)RVFDWR#IUEJRY@ 6HQW :HGQHVGD\ 2FWREHU    30 7R 5REHUVRQ 3HWHU 6XEMHFW 5H <RXU GHULYDWLYHV ELOO

Pat Parkinson, Pat White and Stephanie Martin. section 552(d)

From: "Roberson, Peter" [Peter.Roberson@mail.house.gov] Sent: 10/07/2009 05:46 PM AST To: Tara Foscato Subject: RE: Your derivatives bill
Who is coming tomorrowsection 552(d) .
Peter Roberson Senior Policy Advisor Committee on Financial Services U.S. House of Representatives 202.226.1215

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Thanks.

From: "Roberson, Peter" [Peter.Roberson@mail house.gov] Sent: 10/06/2009 07:53 PM AST To: Tara Foscato Subject: Re: Your derivatives bill

Should be okay. Let me check with Lawranne who should also be on the call. -------------------------Sent using BlackBerry

----- Original Message ----From: Tara.W.Foscato@frb.gov <Tara.W.Foscato@frb.gov> To: Roberson, Peter Sent: Tue Oct 06 19:17:28 2009 Subject: Re: Your derivatives bill How about 10am? Thanks.

----- Original Message ----From: "Roberson, Peter" [Peter.Roberson@mail.house.gov] Sent: 10/06/2009 11:20 AM AST To: Tara Foscato Subject: RE: Your derivatives bill

Sure. Toss out a time. Peter Roberson Senior Policy Advisor Committee on Financial Services U.S. House of Representatives 202.226.1215 -----Original Message----From: Tara.W.Foscato@frb.gov [mailto:Tara.W.Foscato@frb.gov] Sent: Tuesday, October 06, 2009 11:14 AM To: Roberson, Peter Subject: Your derivatives bill

Do you have time on Thursday to meet with some of our folks on this? Thanks.

Non-Responsive -Internal Email Between Federal Reserve System staff

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For Immediate Release: October 8, 2009

Contact: Steve Adamske (202) 225-7141 or Elizabeth Esfahani (202) 226-3314

Committee to Begin Consideration of Financial Regulatory Reform Legislation

Washington, DC Rep. Barney Frank (D-MA), Chairman of the House Committee on Financial Services, today announced that the committee will meet on Wednesday, October 14, and subsequent days if necessary, to consider the following measures: The October 2, 2009 Discussion Draft of the Over-the-Counter Derivatives Markets Act of 2009; The September 25, 2009 Discussion Draft of the Consumer Financial Protection Agency Act of 2009 (to be reported as H.R. 3126); H.R. 3763, to amend the Fair Credit Reporting Act to provide for an exclusion from Red Flag Guidelines for certain businesses; and H.R. 3606, to amend the Truth in Lending Act to make a technical correction to an amendment made by the Credit CARD Act of 2009.

WHO: WHAT: WHEN:

House Financial Services Committee Markup of OTC Derivatives Markets Act, Consumer Financial Protection Agency Act, H.R.3763, and H.R. 3606 Wednesday, October 14 (and subsequent days if necessary)

WHERE:

10:00 a.m. Room 2128, Rayburn House Office Building

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Please use this version. H.R. 3639 will be considered rather than H.R. 3606. For Immediate Release: October 9, 2009

Committee to Begin Consideration of Financial Regulatory Reform Legislation

Washington, DC Rep. Barney Frank (D-MA), Chairman of the House Committee on Financial Services, today announced that the committee will meet on Wednesday, October 14, and subsequent days if necessary, to consider the following measures: The October 2, 2009 Discussion Draft of the Over-the-Counter Derivatives Markets Act of 2009; The September 25, 2009 Discussion Draft of the Consumer Financial Protection Agency Act of 2009 (to be reported as H.R. 3126); H.R. 3763, to amend the Fair Credit Reporting Act to provide for an exclusion from Red Flag Guidelines for certain businesses; and H.R. 3639, Expedited CARD Reform for Consumers Act of 2009.

WHO: WHAT: WHEN: WHERE:

House Financial Services Committee Markup of OTC Derivatives Markets Act, Consumer Financial Protection Agency Act, H.R.3763, and H.R. 3639 Wednesday, October 14 (and subsequent days if necessary) 10:00 a.m. Room 2128, Rayburn House Office Building

###

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Thanks.

Enjoy your weekend.

Tag back Tuesday.

-----Original Message----From: Tara.W.Foscato@frb.gov [mailto:Tara.W.Foscato@frb.gov] Sent: Friday, October 09, 2009 5:45 PM To: Glassic, Tom Subject: Re: Update: 10/20 Hearing - Systemic/Prudential/Resolution Authority Thanks Tom. We will likely send Governor Tarullo, but I will officially confirm with you on Tuesday am. Have a nice weekend. Tara

----- Original Message ----From: "Glassic, Tom" [Tom.Glassic@mail.house.gov] Sent: 10/09/2009 04:51 PM AST To: "Glassic, Tom" <Tom.Glassic@mail.house.gov> Cc: "O'Shea, Timothy (Intern)" <Timothy.OShea@mail.house.gov> Subject: Update: 10/20 Hearing - Systemic/Prudential/Resolution Authority

Thanks for your willingness to provide a witness for our 10/20 full committee hearing and your patience while my many bosses pin down exactly what need to be covered during the hearing. At 2:00 on 10/20 there will be a full committee hearing based on discussion drafts of the systemic risk, prudential, resolution authority and securitization titles of the administration's reg. reform proposal. If I haven't missed one, those topics are covered by Titles I, II, III, VI, VIII, IX E, XII & XIII in the original text. I hope to be able to include the discussion draft language when sending witness invitations on Tues./Weds. of next week. The hearing will have a 4 witness regulator panel and a consumer/industry panel with 8-9 witnesses. While everyone has helpfully confirmed their ability to provide a witness on the 20th, we've not heard back regarding specific, proposed witnesses. If you've not already done so, please forward the name, title, mailing address & email of your proposed witness sometime before noon on Tuesday the 13th so that witness invitation letter can be prepared & sent early next week. I hope this message clears up some of the ambiguity surrounding the hearing details and focus. If you've any questions or need further information, please email or feel free to call over the weekend (202.251.2749). Thanks again for your help.

Tom

************************************************************************ **** Thomas M. Glassic Counsel, Committee on Financial Services United States House of Representatives 2129 Rayburn House Office Building Washington, DC 20515 (b) (6) tom.glassic@mail.house.gov ************************************************************************ ****

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Thank you. -----Original Message----From: Jane.Vergel@frb.gov [mailto:Jane.Vergel@frb.gov] Sent: Tuesday, October 13, 2009 3:37 PM To: Irving, Walker (Warner) Subject: RE: Meeting request for Governor Tarullo Yes, it works. Wednesday Oct. 21, at 5 to 5:30 p.m. is confirmed.

"Irving, Walker (Warner)" <Walker_Irving@wa rner.senate.gov> 10/13/2009 03:35 PM

To "'Jane.Vergel@frb.gov'" <Jane.Vergel@frb.gov> cc Subject RE: Meeting request for Governor Tarullo

So this time does work? -----Original Message----From: Jane.Vergel@frb.gov [mailto:Jane.Vergel@frb.gov] Sent: Tuesday, October 13, 2009 3:09 PM To: Irving, Walker (Warner) Subject: RE: Meeting request for Governor Tarullo

Walker, We are confirmed for this meeting. I will email the cell phone number of the Congressional Liaison that will accompany him as soon as I find out who it is. Thanks for your assistance. Jane

"Irving, Walker (Warner)" <Walker_Irving@wa rner.senate.gov> 10/13/2009 01:44 PM

To "'Jane.Vergel@frb.gov'" <Jane.Vergel@frb.gov> cc Subject RE: Meeting request for Governor Tarullo

Thanks Jane, I have the meeting scheduled for 30 minutes in our office, 459A of the Russell building. Who else will attend the meeting? And can I please have a cell number so I can be in touch in case of any last minute changes. Best, Walker -----Original Message----From: Jane.Vergel@frb.gov [mailto:Jane.Vergel@frb.gov] Sent: Friday, October 09, 2009 9:42 AM To: Irving, Walker (Warner) Subject: RE: Meeting request for Governor Tarullo Walker, His best time is at 5pm on Wednesday, Oct. 21. 30 minutes? Also, where is your office? Jane Shall we confirm this for

"Irving, Walker (Warner)" <Walker_Irving@wa rner.senate.gov> 10/08/2009 07:24

To "'Jane.Vergel@frb.gov'" <Jane.Vergel@frb.gov> cc

PM Subject RE: Meeting request for Governor Tarullo

Thanks Jane, Do you have any availability at 3:00 pm or 5:00 pm on Wednesday, October 21 or 2:30 pm on October 22? -----Original Message----From: Jane.Vergel@frb.gov [mailto:Jane.Vergel@frb.gov] Sent: Wednesday, October 07, 2009 2:32 PM To: Irving, Walker (Warner) Subject: RE: Meeting request for Governor Tarullo Dear Walker, Thank you for your response. Yes, Gov. Tarullo is in town the week of Oct. 19, and his best days are the afternoons of Oct. 19, 20, and 23rd, but there are other available too the whole week. Please, email the times that work for Senator Warner. Jane

"Irving, Walker (Warner)" <Walker_Irving@wa rner.senate.gov> 10/07/2009 02:20 PM

To "'Jane.Vergel@frb.gov'" <Jane.Vergel@frb.gov> cc Subject RE: Meeting request for Governor Tarullo

Hi Jane, Thank you for being in touch. Is Governor Tarullo available the week of October 19th? If so I will send over a few times that work for Senator Warner.

Best, (Ms.) Walker Irving -----Original Message----From: Jane.Vergel@frb.gov [mailto:Jane.Vergel@frb.gov] Sent: Monday, October 05, 2009 4:48 PM To: Irving, Walker (Warner) Subject: Meeting request for Governor Tarullo Dear Mr. Irving, Governor Tarullo would like to have a meeting with Senator Warner to discuss the range of issues related to financial industry regulatory reform. He has available slots on his calendar and I would like to work with you to make this happen. He will be accompanied by a Congressional Liaison from the Federal Reserve Board's Congressional Liaison Office. Please let me know if Senator Warner is available for a meeting with Governor Tarullo. My contact information is below. Below is Governor Tarullo's official bio. http://www.federalreserve.gov/aboutthefed/bios/board/tarullo.htm Jane Vergel Executive Assistant to Governor Daniel K. Tarullo Board of Governors of the Federal Reserve System 20th & C Streets, NW, Washington, DC 20551 (b) (6) Email: jane.vergel@frb.gov

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Following this series of votes, the Financial Services Committee will reconvene to finalize debate on the derivatives bill and postpone all votes, between 6 and 8 roll call votes, on that legislation until 9:30am tomorrow, Thursday, October 15, 2009. Immediately following the end of debate on the derivatives bill today, Wednesday, October 14, 2009, the Committee on Financial Services will begin its consideration of the Consumer Financial Protection Agency Act of 2009. The Committee will debate amendments to the managers amendment to the CFPA until approximately 5:15 PM today and reconvene, as noted, at 9:30 am tomorrow, Thursday, October 15, 2009, in 2128 RHOB to vote on postponed roll call votes and then continue consideration of the CFPA bill. Let me know if that was as clear as mud.

Greg

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That was clearer than mud, but one question-- they will take the final vote on derivatives tomorrow?

From: "Davis, Greg" [Greg.Davis@mail.house.gov] Sent: 10/14/2009 03:40 PM AST To: undisclosed-recipients: Subject: FOLLOWING THESE 5 FLOOR VOTES, FSC WILL RECONVENE TODAY TO BEGIN CONSIDERATION OF CFPA AND WILL WORK UNTIL 5:15PM

Following this series of votes, the Financial Services Committee will reconvene to finalize debate on the derivatives bill and postpone all votes, between 6 and 8 roll call votes, on that legislation until 9:30am tomorrow, Thursday, October 15, 2009. Immediately following the end of debate on the derivatives bill today, Wednesday, October 14, 2009, the Committee on Financial Services will begin its consideration of the Consumer Financial Protection Agency Act of 2009. The Committee will debate amendments to the managers amendment to the CFPA until approximately 5:15 PM today and reconvene, as noted, at 9:30 am tomorrow, Thursday, October 15, 2009, in 2128 RHOB to vote on postponed roll call votes and then continue consideration of the CFPA bill. Let me know if that was as clear as mud.

Greg

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Following this series of votes, the Financial Services Committee will reconvene to finalize debate on the derivatives bill and postpone all votes on it, including final passage, tomorrow, Thursday, October 15, 2009.
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That was clearer than mud, but one question-- they will take the final vote on derivatives tomorrow? From: "Davis, Greg" [Greg.Davis@mail.house.gov] Sent: 10/14/2009 03:40 PM AST To: undisclosed-recipients: Subject: FOLLOWING THESE 5 FLOOR VOTES, FSC WILL RECONVENE TODAY TO BEGIN CONSIDERATION OF CFPA AND WILL WORK UNTIL 5:15PM

Following this series of votes, the Financial Services Committee will reconvene to finalize debate on the derivatives bill and postpone all votes, between 6 and 8 roll call votes, on that legislation until 9:30am tomorrow, Thursday, October 15, 2009. Immediately following the end of debate on the derivatives bill today, Wednesday, October 14, 2009, the Committee on Financial Services will begin its consideration of the Consumer Financial Protection Agency Act of 2009. The Committee will debate amendments to the managers amendment to the CFPA until approximately 5:15 PM today and reconvene, as noted, at 9:30 am tomorrow, Thursday, October 15, 2009, in 2128 RHOB to vote on postponed roll call votes and then continue consideration of the CFPA bill. Let me know if that was as clear as mud.

Greg

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FOR IMMEDIATE RELEASE Brian Fallon (Schumer), 202-224-7433 October 16, 2009

Contact:

SCHUMER TO FED: TAKE TOUGHER APPROACH ON OVERDRAFT FEES OR CONGRESS WILL ACT
Earlier This Week, Fed Official Told Schumer That Rule Would Be Finalized Within Next Month To Police Practice That Has Become Big Money-Maker for Banks Senator: Requiring Overdraft Protection To Be Voluntary For Customers Does Not Do Enough To Reform This Abusive Practice Demands That Crackdown Go Further Senator: Banks Should Not Be Clawing Way Back To Profitability On The Backs Of Their Unknowing Customers
WASHINGTON, DC U.S. Senator Charles E. Schumer (D-NY) urged the Federal Reserve Friday to take a tougher approach on overdraft fees that banks impose on their customers, expressing fear that the regulators planned crackdown on the abusive practice wont go far enough and adding that the Feds slowness to act on the issue shows the need for a new consumer watchdog agency. On Wednesday, Federal Reserve official Daniel Tarullo acknowledged to Schumer at a Senate Banking Committee hearing that the regulator would finally issue a new rule to curb the practice within the next month. But Tarullo did not indicate exactly what the rule would look like, acknowledging only that it would go right to the heart of the issue of opt-in or opt-out. The Federal Reserves proposal seeks comment on both opt-in and opt-out rules. In a letter to Federal Reserve Chairman Ben Bernanke today, Schumer said that these programs must be truly

voluntary and that while ending the automatic enrollment in these overdraft protection policies would be an important step, far more reforms are necessary to protect consumers. The Fed is finally ready to act on this abusive practice, but so far, it doesnt look like their reforms will go far enough to protect consumers, Schumer said. Making overdraft protection policies truly voluntary for customers would be a good first step, but even that is not enough. This practice needs to be totally reined in. If the Fed doesnt go far enough, Congress will go further. Banks should not be scratching and clawing their way back to profitability on the backs of their customers, Schumer added. Schumers letter comes as the Senate prepares to address the issue through legislation. Senate Banking Chairman Christopher Dodd has promised to unveil a comprehensive proposal this fall. Schumer will be an original co-sponsor of Dodds bill. At issue is a practice by which banks enroll many of their account holders into expensive overdraft programs automatically an option customers generally dont want and often arent even aware of. This allows the bank to accept over-the-limit debit card charges and assess a fee for each purchase over the limit, rather than rejecting the card at the point of sale. According the Center for Responsible Lending (CRL), 80% of consumers would rather have their debit card transaction denied than have it covered and get charged an overdraft fee, but are never given the choice because they are automatically enrolled in overdraft loan programs. Furthermore, banks game the system by rearranging the order of charges to maximize the fees they can squeeze from a costumer. For example, if a consumer has $10 in their account and makes three $2 purchases and then a $9 purchase, he or she should only be charged for a single overdraft. However, banks commonly rearrange charges so that the $9 purchase would be charged first, and then the three $2 charges. Therefore, instead of paying a single overdraft fee, a consumer pays three likely producing over $100 in fees for the bank. These fees result in billions of dollars in profits for banks nationwide, mostly from small transactions. The average transaction on which an overdraft fee is chargeds is $20, but the average fee charged is $34. Many banks claim that the system benefits debit card users by allowing them to spend when they do not have sufficient funds in their accounts. However, the fees exacted on the customer are often double or triple the amount of the actual purchase amounting to enormous costs to the consumer. For example, a customer who overdraws from his account by purchasing a $6 sandwich when he has only $5.95 can be charged a $35 penalty. If the customer doesn't realize his or her mistake, he or she can be charged up to 10 overdrafts in a day, resulting in up to $350 in fees. Last month, Bank of America and JPMorgan Chase announced they would voluntarily reform their overdraft policies. But Schumer said those announced steps do not go far enough. To fully protect consumers, Schumer said in his letter to Bernanke Friday, customers ought to be notified at the point-of-sale whenever a transaction will result in an overdraft charge so that they have an opportunity to cancel the transaction. Moreover, Schumer said that any fees should be reasonable and proportional (meaning the banks should not be able to assess $35 fees for $2

transactions), there should not be recurring fees that amount to hundreds of dollars over just a few days, and there should be a strict limit on the number of fees consumers can be charged each year. A copy of Schumers letter to Bernanke appears below.

October 16, 2009 Ben S. Bernanke Chairman The Federal Reserve Board 20th Street and Constitution Avenue, NW Washington, DC 20551 Dear Chairman Bernanke: I write to you today to urge the Federal Reserve to adopt strong final rules to protect consumers from excessive and unfair overdraft charges. At the Financial Institutions Subcommittee hearing last Wednesday, Governor Daniel Tarullo testified that the Federal Reserve is working on a proposal which would go right to the heart of the issue of overdraft abuses and that he expects action on that proposal within a month. However, based on the existing overdraft proposal, which in several cases seek comment on multiple alternative approaches, I am concerned that your final rules will not do enough to protect consumers. For example, I am concerned that if you adopt the proposed opt-out option, as opposed to a meaningful opt-in requirement, your final rules will allow abusive existing programs to continue unless customers who never signed up for these programs to begin with and often dont even know theyre subject to such fees until their bank statement shows up proactively withdraw from these accounts. I therefore strongly urge you to adopt the most robust consumer protections possible. As you are aware, Congress is working on legislation to strengthen these rules and provide additional protections for consumers. As Congress works to pass this legislation, and before your rules become effective, many banks continue to operate their overdraft protection programs in an unfair and deceptive manner, without protecting customers against paying large fees and often paying them again and again for small debit card transactions. Banks raked in approximately $24 billion last year in overdraft fees a 35% increase from the prior year! This is an unacceptable way for banks to soften the blow of the financial crisis, by placing the burden on those least responsible for the crisis and least able to afford it. I strongly urge the Federal Reserve to adopt final rules that give consumers real choice with respect to their overdraft protections and protect consumers from excessive fees. Real choice

means that consumers must be given the opportunity separate and apart from the account application process to affirmatively choose to participate in an overdraft lending program; they must be given complete, accurate and easy-to-understand disclosure about the program and all associated costs and benefits; and they must not be subject to overdraft fees on any point of sale transactions unless they are notified at the point of sale that the transaction will result in an overdraft charge and they have the opportunity to cancel the transaction. Protection from excessive fees means that fees are reasonable and proportional (no $35 charges for $2 transactions); consumers are not subject to recurring fees that can amount to hundreds of dollars over just a few days; and there is a strict limit on the number of fees consumers can be charged in a year. I strongly urge you to adopt as quickly as possible a strong set of rules consistent with these protections. Thank you for your consideration of this matter. Please dont hesitate to contact my staff with any questions you may have.

Sincerely,

Charles Schumer United States Senator

###

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October 17, 2009

Committee to Continue Consideration of Financial Regulatory Reform Legislation

Washington, DC Rep. Barney Frank (D-MA), Chairman of the House Committee on Financial Services, today announced that the committee will meet on Wednesday, October 21, and subsequent days if necessary, to consider the following measures:

The October 1, 2009 Discussion Draft of the Private Fund Investment Advisers Registration Act of 2009 (to be reported as H.R. 3818);

The October 1, 2009 Discussion Draft of the Investor Protection Act of 2009 (to be reported as H.R. 3817);

The October 16, 2009 Amendment in the nature of a substitute to H.R. 2609, Federal Insurance Office Act of 2009 (document attached); and

The October 16, 2009 Discussion Draft of the Accountability and Transparency in Rating Agencies Act (document attached).

In addition, the committee will reconvene on Tuesday, October 20, at 2 p.m. to continue consideration of the Consumer Financial Protection Agency Act.

WHO: WHAT:

House Financial Services Committee Markup of H.R. 3818, H.R. 3817, H.R. 2609, and the Accountability and

Transparency in Rating Agencies Act WHEN: Wednesday, October 21 (and subsequent days if necessary) 10:00 a.m. WHERE: Room 2128, RayburnHouseOfficeBuilding

###
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..................................................................... (Original Signature of Member)

111TH CONGRESS 1ST SESSION

H. R.

To amend the Securities Exchange Act of 1934 to enhance oversight of nationally recognized statistical rating organizations, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

Mr. KANJORSKI introduced the following bill; which was referred to the Committee on

A BILL
To amend the Securities Exchange Act of 1934 to enhance oversight of nationally recognized statistical rating organizations, and for other purposes. 1 Be it enacted by the Senate and House of Representa-

2 tives of the United States of America in Congress assembled, 3 4

SECTION 1. SHORT TITLE.

This title may be cited as the Accountability and

5 Transparency in Rating Agencies Act.

f:\VHLC\101609\101609.191.xml October 16, 2009 (5:57 p.m.)

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F:\BJY\111FS\NRSROS\NRSRO_007.XML

2 1 2 3 4
SEC. 2. ENHANCED REGULATION OF NATIONALLY RECOGNIZED TIONS. STATISTICAL RATING ORGANIZA-

Section 15E of the Securities Exchange Act of 1934

5 (15 U.S.C. 78o7) is amended 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) in subsection (a) (A) in paragraph (1)(A), by striking furnish to and inserting file with; (B) in paragraph (2)(A), by striking furnished to and inserting filed with; and (C) in paragraph (2)(B)(i)(II), by striking furnished to and inserting filed with; (2) in subsection (b) (A) in paragraph (1)(A), by striking furnished and inserting filed and by striking furnishing and inserting filing; (B) in paragraph (1)(B), by striking furnishing and inserting filing; and (C) in the first sentence of paragraph (2), by striking furnish to and inserting file with; (3) in subsection (c) (A) paragraph (2) (i) in the second sentence by inserting including the requirements of this sec-

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3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 tion, after Notwithstanding any other provision of law,; and (ii) by inserting before the period at the end of the last sentence , provided that this paragraph does not afford a defense against any action or proceeding brought by the Commission to enforce the antifraud provision of the securities laws; (B) by adding at the end the following new paragraph: (3) REVIEW
OF INTERNAL PROCESSES FOR

DETERMINING CREDIT RATINGS.

(A) IN

GENERAL.The

Commission shall

review credit ratings issued by, and the policies, procedures, and methodologies employed by, each nationally recognized statistical rating organization to ensure that (i) the nationally recognized statistical rating organization has established and documented a system of internal controls, due diligence and implementation of methodologies for determining credit ratings, taking into consideration such factors as the Commission may prescribe by rule;

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4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (ii) the nationally recognized statistical rating organization adheres to such system; and (iii) the public disclosures of the nationally recognized statistical rating organization required under this section about its ratings, methodologies, and procedures are consistent with such system. (B) MANNER
AND FREQUENCY.The

Commission shall conduct reviews required by this paragraph no less frequently than annually in a manner to be determined by the Commission. (4) PROVISION
MISSION.Each OF INFORMATION TO THE COM-

nationally recognized statistical rat-

ing organization shall make available and maintain such records and information, for such a period of time, as the Commission may prescribe, by rule, as necessary for the Commission to conduct the reviews under paragraph (3). (4) in subsection (d) (A) in the heading, by inserting FINE, after CENSURE,; (B) by striking shall censure and all that follows through revocation and inserting

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5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the following: shall censure, fine in accordance with section 21B(a), place limitations on the activities, functions, or operations of, suspend for a period not exceeding 12 months, or revoke the registration of any nationally recognized statistical rating organization (or with respect to any person who is associated, who is seeking to become associated, or, at the time of the alleged misconduct, who was associated or was seeking to become associated with a nationally recognized statistical rating organization, the Commission, by order, shall censure, fine in accordance with section 21B(a), place limitations on the activities or functions of such person, suspend for a period not exceeding 12 months, or bar such person from being associated with a nationally recognized statistical rating organization), if the Commission finds, on the record after notice and opportunity for hearing, that such censure, fine, placing of limitations, bar, suspension, or revocation; (C) in paragraph (2), by striking furnished to and inserting filed with; (D) in paragraph (4)

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6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (i) by striking furnish and inserting file; (ii) by striking or at the end; (E) in paragraph (5), by striking the period at the end; and (F) by adding at the end the following: (6) has failed reasonably to supervise another person who commits a violation of the securities laws or any rules of the Municipal Securities Rulemaking Board if such other person is subject to his or her supervision, except that no person shall be deemed to have failed reasonably to supervise any other person under this paragraph, if (A) there have been established procedures, and a system for applying such procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any such violation by such other person, and (B) such person has reasonably discharged the duties and obligations incumbent upon him or her by reason of such procedures and system without reasonable cause to believe that such procedures and system were not being complied with; or

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7 1 2 3 4 5 6 7 8 9 10 11 12 (7) fails to conduct sufficient surveillance to ensure that credit ratings remain current and reliable, as applicable.; (5) in subsection (e) (A) by striking paragraph (1); and (B) in paragraph (2), by striking (2) COMMISSION
AUTHORITY.

and moving the

text of such paragraph to follow the heading of subsection (e); (6) by amending subsection (h) to read as follows: (h) CORPORATE GOVERNANCE, ORGANIZATION, AND

13 MANAGEMENT OF CONFLICTS OF INTEREST. 14 15 16 17 18 19 20 21 22 23 24

13

(1) BOARD (A) IN

OF DIRECTORS. GENERAL.Each

nationally recog-

nized statistical rating organization or its parent entity shall have a board of directors. (B) INDEPENDENT
DIRECTORS.At

least

of such board, but no less than 2 of the

members of the board of directors, shall be independent directors. In order to be considered independent for purposes of this subsection, a director of a nationally recognized statistical rating organization may not, other than in his

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8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 or her capacity as a member of the board of directors or any committee thereof (i) accept any consulting, advisory, or other compensatory fee from the nationally recognized statistical rating organization; or (ii) be a person associated with the nationally recognized statistical rating organization or with any affiliated company thereof. (C) COMPENSATION
AND TERM.The

compensation of the independent directors shall not be linked to the business performance of the nationally recognized statistical rating organization and shall be arranged so as to ensure the independence of their judgment. The term of office of the independent directors shall be for a pre-agreed fixed period not exceeding 5 years and shall not be renewable. (D) DUTIES.In addition to the overall responsibility of the board of directors, the board shall oversee (i) the establishment, maintenance, and enforcement of policies and procedures for determining credit ratings;

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9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (ii) the establishment, maintenance, and enforcement of policies and procedures to address, manage, and disclose any conflicts of interest; (iii) the effectiveness of the internal control system with respect to policies and procedures for determining credit ratings; and (iv) the compensation and promotion policies and practices of the nationally recognized statistical rating organization. (2) ORGANIZATION
DURES.Each POLICIES AND PROCE-

nationally recognized statistical rat-

ing organization shall establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of the business of the nationally recognized statistical rating organization and affiliated persons and affiliated companies thereof, to address, manage, and disclose any conflicts of interest that can arise from such business. (3) COMMISSION
RULES.The

Commission

shall issue rules to prohibit, or require the management and disclosure of, any conflicts of interest relating to the issuance of credit ratings by a nation-

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10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ally recognized statistical rating organization, including (A) conflicts of interest relating to the manner in which a nationally recognized statistical rating organization is compensated by the obligor, or any affiliate of the obligor, for issuing credit ratings or providing related services; (B) conflicts of interest relating to the provision of consulting, advisory, or other services by a nationally recognized statistical rating organization, or any person associated with such nationally recognized statistical rating organization, to the obligor, or any affiliate of the obligor; (C) disclosure of conflicts of interests relating to business relationships, ownership interests, and affiliations of nationally recognized statistical rating organization board members with obligors, or any other financial or personal interests between a nationally recognized statistical rating organization, or any person associated with such nationally recognized statistical rating organization, and the obligor, or any affiliate of the obligor;

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11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (D) disclosure of conflicts of interests relating to any affiliation of a nationally recognized statistical rating organization, or any person associated with such nationally recognized statistical rating organization, with any person who underwrites securities, money market instruments, or other instruments that are the subject of a credit rating; (E) a requirement that each nationally recognized statistical rating organization disclose on such organizations website a consolidated report at the end of each fiscal year that shows (i) the percent of net revenue earned by the nationally recognized statistical rating organization or an affiliate of a nationally recognized statistical rating organization, or any person associated with a nationally recognized statistical rating organization, to the extent determined appropriate by the Commission, for that fiscal year for providing services and products other than credit rating services to each person who paid for a credit rating; and

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12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (ii) the relative standing of each person who paid for a credit rating that was outstanding as of the end of the fiscal year in terms of the amount of net revenue earned by the nationally recognized statistical rating organization attributable to each such person and classified by the highest 5, 10, 25, and 50 percentiles and lowest 50 and 25 percentiles. (F) rules providing for the establishment of a system of payment for each nationally recognized statistical rating organization that requires that payments are structured in a manner designed to ensure that the nationally recognized statistical rating organization conducts accurate and reliable surveillance of ratings over time, as applicable, and that incentives for reliable ratings are in place; (G) a requirement that a nationally recognized statistical rating organization disclose with the publication of a credit rating the type and number of credit ratings it has provided to the person being rated or affiliates of such person, the fees it has billed for the credit rating, and the aggregate amount of net revenue

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13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 earned by the nationally recognized statistical rating in the preceding 2 fiscal years attributable to the person being rated and its affiliates; and (H) any other potential conflict of interest, as the Commission determines necessary or appropriate in the public interest or for the protection of investors. (4) LOOK-BACK
REQUIREMENT. BY THE NATIONALLY RECOG-

(A) REVIEW

NIZED STATISTICAL RATING ORGANIZATION.

Each nationally recognized statistical rating organization shall establish, maintain, and enforce policies and procedures reasonably designed to ensure that, in any case in which an employee of a person subject to a credit rating of the nationally recognized statistical rating organization or the issuer, underwriter, or sponsor of a security or money market instrument subject to a credit rating of the nationally recognized statistical rating organization was employed by the nationally recognized statistical rating organization and participated in any capacity in determining credit ratings for the person or the securities or money market instruments during

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14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the 1-year period preceding the date an action was taken with respect to the credit rating, the nationally recognized statistical rating organization shall (i) conduct a review to determine whether any conflicts of interest of the employee influenced the credit rating; and (ii) take action to revise the rating if appropriate, in accordance with such rules as the Commission shall prescribe. (B) REVIEW (i) IN
BY COMMISSION. GENERAL.The

Commission

shall conduct periodic reviews of the policies described in subparagraph (A) and the implementation of the policies at each nationally recognized statistical rating organization to ensure they are reasonably designed and implemented to most effectively eliminate conflicts of interest. (ii) TIMING
OF REVIEWS.The

Com-

mission shall review the code of ethics and conflict of interest policy of each nationally recognized statistical rating organization

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15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 tion; (ii) participated in any capacity in determining credit ratings for such issuer, underwriter, or sponsor; or (iii) supervised an employee described un subparagraph (B). (I) not less frequently than annually; and (II) whenever such policies are materially modified or amended. (5) REPORT
TO COMMISSION ON CERTAIN EM-

PLOYMENT TRANSITIONS.

(A) REPORT

REQUIRED.Each

nationally

recognized statistical rating organization shall report to the Commission any case such organization knows or can reasonably be expected to know where a former employee of such organization obtains employment with any issuer, underwriter, or sponsor of a security or money market instrument for which the organization issued a credit rating during the 12-month period prior to such employment, if such employee (i) was an officer of such organiza-

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16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) PUBLIC
DISCLOSURE.Upon

receiv-

ing such a report, the Commission shall make such information publicly available.; (7) by amending subsection (j) to read as follows: (j) DESIGNATION OF COMPLIANCE OFFICER. (1) IN
GENERAL.Each

nationally recognized

statistical rating organization shall designate an individual to serve as a compliance officer. (2) DUTIES.The compliance officer shall (A) report directly to the board of the nationally recognized statistical rating organization; (B) review compliance with policies and procedures to manage conflicts of interest and assess the risk that the compliance (or lack of such compliance) may compromise the integrity of the credit rating process; (C) review compliance with internal controls with respect to the procedures and methodologies for determining credit ratings, including quantitative models and qualitative inputs used in the rating process, and assess the risk that such compliance with the internal controls (or lack of such compliance) may compromise

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17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the integrity and quality of the credit rating process; (D) in consultation with the board of the nationally recognized statistical rating organization, resolve any conflicts of interest that may arise; (E) be responsible for administering the policies and procedures required to be established pursuant to this section; (F) ensure compliance with securities laws and the rules and regulations issued thereunder, including rules prescribed by the Commission pursuant to this section; and (G) shall establish procedures (i) for the receipt, retention, and treatment of complaints regarding credit ratings, models, methodologies, and compliance with the securities laws and the policies and procedures required under this section; (ii) for the receipt, retention, and treatment of confidential, anonymous complaints by employees, issuers, and investors;

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18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (iii) for the remediation of non-compliance issues found during compliance office reviews, the reviews required under paragraph (7), internal or external audit findings, self-reported errors, or through validated complaints; and (iv) designed so that ratings that the nationally recognized statistical rating organization disseminates reflect consideration of all information that comes to the attention of and is believed by the nationally recognized statistical rating organization to be relevant, in a manner generally consistent with the nationally recognized statistical rating organizations published rating methodology, including information which is provided, received, or otherwise obtained from issuer and non-issuer

sources, such as investors, the media, and other interested or informed parties. (3) LIMITATIONS.The compliance officer shall not, while serving in that capacity (A) determine credit ratings; (B) participate in the establishment of the procedures and methodologies or the quan-

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19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 or (D) participate in establishing compensation levels, other than for employees working for the compliance officer. (4) ANNUAL
REPORTS REQUIRED.The

titative models and qualitative inputs used to determine credit ratings; (C) perform marketing or sales functions;

com-

pliance officer shall annually prepare and sign a report on the compliance of the nationally recognized statistical rating organization with the securities laws and such organizations internal policies and procedures, including its code of ethics and conflict of interest policies, in accordance with rules prescribed by the Commission. Such compliance report shall accompany the financial reports of the nationally recognized statistical rating organization that are required to be filed with the Commission pursuant to this section and shall include a certification that, under penalty of law, the report is accurate and complete.; (8) in subsection (k) (A) by striking , on a confidential basis,; (B) by striking Each nationally and inserting the following:

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20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 (1) IN
GENERAL.Each

nationally; and

(C) by adding at the end the following new paragraph: (2) EXCEPTION.The Commission may treat as confidential any item filed with the Commission under paragraph (1), the publication of which the Commission determines may have a harmful effect on a nationally recognized statistical rating organization.; (9) in subsection (l)(2)(A)(i), by striking furnished and inserting filed; (10) by amending subsection (p) to read as follows: (p) ESTABLISHMENT
OF

SEC OFFICE.The Com-

15 mission shall establish an office that administers the rules 16 of the Commission with respect to the practices of nation17 ally recognized statistical rating organizations in deter18 mining ratings, in the public interest and for the protec19 tion of investors, including rules designed to ensure that 20 credit ratings issued by such registrants are accurate and 21 not unduly influenced by conflicts of interest.; and 22 23 24 (11) by adding after subsection (p) the following new subsections: (q) TRANSPARENCY
OF

RATINGS PERFORMANCE.

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21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) RULEMAKING
REQUIRED.The

Commis-

sion shall, by rule, require each nationally recognized statistical rating organization to publicly disclose information on initial ratings and subsequent changes to such ratings for the purpose of providing a gauge of the performance of ratings and allowing investors to compare performance of ratings by different nationally recognized statistical rating organizations. (2) CONTENT.The rules of the Commission under this subsection shall require, at a minimum, disclosures that (A) are comparable among nationally recognized statistical rating organizations, so that investors can compare rating performance across rating organizations; (B) are clear and informative for a wide range of investor sophistication; (C) include performance information over a range of years and for a variety of classes of credit ratings, as determined by the Commission; and (D) are published and made freely available by the nationally recognized statistical rating organization, on an easily accessible portion

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22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of its website and in written form when requested by investors. (r) CREDIT RATINGS METHODOLOGIES. (1) IN
GENERAL.The

Commission shall pre-

scribe rules, in the public interest and for the protection of investors, that require each nationally recognized statistical rating organization to establish, maintain, and enforce written procedures and methodologies that are reasonably designed to (A) ensure that credit ratings are determined using procedures and methodologies, including quantitative models and qualitative inputs that are determined in accordance with the policies and procedures of the nationally recognized statistical rating organization for developing and modifying credit rating procedures and methodologies; (B) ensure that when major changes to credit rating procedures and methodologies, including to quantitative models and qualitative inputs, are made, that the changes are applied consistently to all credit ratings to which the changed procedures and methodologies apply and, to the extent the changes are made to credit rating surveillance procedures and meth-

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23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 odologies, they are applied to current credit ratings within a time period to be determined by the Commission by rule, and that the reason for the change is publicly disclosed; (C) notify persons who have access to the credit ratings of the nationally recognized statistical rating organization, regardless of whether they are made readily accessible for free or a reasonable fee, of the version of a procedure or methodology, including quantitative models and qualitative inputs, used with respect to a particular credit rating; (D) notify persons who have access to the credit ratings of the nationally recognized statistical rating organization, regardless of whether they are made readily accessible for free or a reasonable fee, when a change is made to a procedure or methodology, including to quantitative models and qualitative inputs, or an error is identified in a procedure or methodology that may result in credit rating actions, and the likelihood of the change resulting in current credit ratings being subject to rating actions; and

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24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (E) use credit rating symbols that distinguish credit ratings for structured products from credit ratings for other products that the Commission determines appropriate or necessary in the public interest and for the protection of investors. (2) RATING
CLARITY AND CONSISTENCY. OBLIGATION.Subject

(A) COMMISSION

to subparagraphs (B) and (C), the Commission shall require, by rule, each nationally recognized statistical rating organization to establish, maintain, and enforce written policies and procedures reasonably designed (i) with respect to credit ratings of securities and money market instruments, to assess the risk that investors in securities and money market instruments may not receive payment in accordance with the terms of such securities and instruments; (ii) to define clearly any credit rating symbol used by that organization; and (iii) to apply such credit rating symbol in a consistent manner for all types of securities and money market instruments.

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25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) ADDITIONAL
CREDIT FACTORS.

Nothing in subparagraph (A) (i) prohibits a nationally recognized statistical rating organization from using additional credit factors that are documented and disclosed by the organization and that have a demonstrated impact on the risk an investor in a security or money market instrument will not receive repayment in accordance with the terms of issuance; (ii) prohibits a nationally recognized statistical rating organization from considering credit factors that are unique to municipal securities that are not backed by the issuers full faith and credit in its assessment of the risk an investor in a security or money market instrument will not receive repayment in accordance with the terms of issuance; or (iii) prohibits a nationally recognized statistical rating organization from using an additional symbol with respect to the ratings described in subparagraph (A)(i) for the purpose of distinguishing the rat-

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26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 ings of a certain type of security or money market instrument from ratings of any other types of securities or money market instruments. (C) COMPLEMENTARY
RATINGS.The

Commission shall not impose any requirement under subparagraph (A) that prevents nationally recognized statistical rating organizations from establishing ratings that are complementary to the ratings described in subparagraph (A)(i) and that are created to measure a discrete aspect of the securitys or instruments risk. (s) TRANSPARENCY
OF

CREDIT RATING METHREVIEWED. Commission shall re-

ODOLOGIES AND INFORMATION

(1) IN

GENERAL.The

quire, by rule, a nationally recognized statistical rating organization to include with the publication of each credit rating regardless of whether the credit rating is made readily accessible for free or a reasonable fee a form that discloses information about the assumptions underlying the procedures and methodologies used, and the data relied on, to determine the credit rating in the format prescribed in

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27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 paragraph (2) and containing the information described in paragraph (3). (2) FORMAT.The Commission shall prescribe a form for use under paragraph (1) that (A) is designed in a user-friendly and helpful manner for investors to understand the information contained in the report; (B) requires the nationally recognized statistical rating organization to provide the content, as required by paragraph (3), in a manner that is directly comparable across securities; and (C) the nationally recognized statistical rating organization certifies the information on the form as true and accurate. (3) CONTENT.The Commission shall prescribe a form that requires a nationally recognized statistical rating organization to disclose (A) the main assumptions included in constructing procedures and methodologies, including quantitative models and qualitative inputs and assumptions about the correlation of defaults across obligors used in rating certain structured products;

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28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) the potential shortcomings of the credit ratings, and the types of risks not measured in the credit ratings that the registrant is not commenting on, such as liquidity, market, and other risks; (C) information on the certainty of the rating, including information on the reliability, accuracy, and quality of the data relied on in determining the ultimate credit rating and a statement on the extent to which key data inputs for the credit rating were reliable or limited, including any limits on the reach of historical data, limits in accessibility to certain documents or other forms of information that would have better informed the credit rating, and the completeness of certain information considered; (D) whether and to what extent third party due diligence services have been utilized, and a description of the information that such third party reviewed in conducting due diligence services; (E) a description of relevant data about any obligor, issuer, security, or money market instrument that was used and relied on for the purpose of determining the credit rating;

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29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and (ii) the loss given default; (I) information on the sensitivity of the rating to assumptions made by the nationally recognized statistical rating organization; (J) where applicable, how the nationally recognized statistical rating organization used servicer or remittance reports, and with what frequency, to conduct surveillance of the credit rating; and (F) a statement containing an overall assessment of the quality of information available and considered in producing a credit rating for a security in relation to the quality of information available to the nationally recognized statistical rating organization in rating similar obligors, securities, or money market instruments; (G) an explanation or measure of the potential volatility for the credit rating, including any factors that might lead to a change in the credit rating, and the extent of the change that might be anticipated under different conditions; (H) information on the content of the credit rating, including (i) the expected default probability;

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30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (K) such additional information as may be required by the Commission. (4) DUE
DILIGENCE SERVICES. REQUIRED.In

(A) CERTIFICATION

any

case in which third-party due diligence services are employed by a nationally recognized statistical rating organization or an issuer or underwriter in connection with the issuance of a credit rating, the firm providing the due diligence services shall provide to the nationally recognized statistical rating organization written certification of such due diligence, which shall be subject to review by the Commission, and the issuer or underwriter shall provide any reports issued by the provider of such due diligence services to the nationally recognized statistical rating organization. (B) FORMAT
AND CONTENT.The

Com-

mission shall establish the appropriate format and content for written certifications required under subparagraph (A) to ensure that providers of due diligence services have conducted a thorough review of data, documentation, and other relevant information necessary for the na-

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31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 tionally recognized statistical rating organization to provide an reliable rating. (C) DISCLOSURE
OF CERTIFICATION.

The Commission shall adopt rules requiring a nationally recognized statistical rating organization to disclose to persons who have access to the credit ratings of the nationally recognized statistical rating organization regardless of whether they are made readily accessible for free or a reasonable fee the certification described in subparagraph (A) with the publication of the applicable credit rating in a manner that may permit the persons to determine the adequacy and level of due diligence services provided by the third party. (t) PROHIBITED ACTIVITIES. (1) IN
GENERAL.Except

as provided in para-

graph (2), beginning 180 days from the date of enactment of the Accountability, Reliability, and Transparency in Rating Agencies Act, it shall be unlawful for a nationally recognized statistical rating organization, or an affiliate of a nationally recognized statistical rating organization, or any person associated with a nationally recognized statistical rating organization, to the extent determined appro-

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32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 priate by the Commission, that provides a rating for an issuer, underwriter, or placement agent of a security to provide to that issuer, underwriter, or placement agent, any non-rating service that preceded the retention of the nationally recognized statistical rating organization by the issuer, underwriter, or placement agent to provide a rating for the security in question or any assistance provided after such point for which additional compensation is paid directly or indirectly, including (B) risk management advisory services; (C) advice or consultation relating to any merger, sales, or disposition of assets of the issuer; (D) ancillary assistance, advice, or consulting services unrelated to any specific credit rating issuance; and (E) such further activities or services as the Commission may determine as necessary or appropriate in the public interest or for the protection of investors. (2) EXEMPTION
AUTHORITY.The

Commis-

sion may, on a case by case basis, exempt any person, issuer, underwriter, placement agent, or nationally recognized statistical rating organization from

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33 1 2 3 4 5 6 7 the prohibition in subsection (t), to the extent that such exemption is necessary or appropriate in the public interest and is consistent with the protection of investors, and subject to review by the Commission..
SEC. 4. STANDARDS FOR PRIVATE ACTIONS.

(a) IN GENERAL.Section 21D(b)(2) of the Securi-

8 ties Exchange Act of 1934 (15 U.S.C. 78u-4(b)(2)) is 9 amended by inserting before the period at the end of the 10 following: , and in the case of an action brought under 11 this title for money damages against a nationally recog12 nized statistical rating organization, it shall be sufficient 13 for purposes of pleading any required state of mind for 14 purposes of such action that the complaint shall state with 15 particularity facts giving rise to a strong inference that 16 the nationally recognized statistical rating organization 17 knowingly or recklessly violated the securities laws.. 18 (b) PLEADING STANDARD.Section 15E(m) of the

19 Securities Exchange Act of 1934 (15 U.S.C. 78o-7(m)) 20 amended to read as follows: 21 (m) APPLICATION
IN OF

ENFORCEMENT PROVISIONS;
OF

22 PLEADING STANDARD

PRIVATE RIGHTS

ACTION.

23 Statements made by nationally recognized statistical rat24 ing organizations shall not be deemed forward looking 25 statements for purposes of section 21E. In any private

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34 1 right of action commenced against a nationally recognized 2 statistical rating organization under this title, the same 3 pleading standards with respect to knowledge and reck4 lessness shall apply to the nationally recognized statistical 5 rating organization as would apply to any other person 6 in the same or a similar private right of action against 7 such person.. 8 9
SEC. 5. ISSUER DISCLOSURE OF PRELIMINARY RATINGS.

The Securities and Exchange Commission shall adopt

10 rules under authority of the Securities Act of 1933 (15 11 U.S.C. 77a, et seq.) to require issuers to disclose prelimi12 nary credit ratings received from nationally recognized 13 statistical rating agencies on structured products and all 14 forms of corporate debt. 15 16
SEC. 6. TIMELINE FOR REGULATIONS.

Unless otherwise specified in this Act, the Securities

17 and Exchange Commission shall adopt rules and regula18 tions, as required by the amendments made by this Act, 19 not later than 365 days after the date of enactment. 20 21 22
SEC. 7. FEDERAL AGENCY REVIEW OF RELIANCE ON RATINGS.

(a) REVIEW.Not later than 1 year after the date

23 of the enactment of this Act, each Federal agency and de24 partment shall, to the extent applicable, review

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35 1 2 3 4 5 6 (1) any regulation issued by such agency or department that requires the use of an assessment of the creditworthiness of a security or money market instrument, and (2) its policies and practices with regard to such ratings,

7 to determine if another measure of creditworthiness is ap8 propriate in order to reduce the reliance of such agency 9 on such ratings, to the extent permitted by law. 10 (b) REPORT.Upon conclusion of the review required

11 under subsection (a), each Federal agency and department 12 shall submit a report to the Congress containing a descrip13 tion of 14 15 16 17 18 19 20 21 22 23 24 25 (1) any modification of any regulation such agency or department made following the review required by subsection (a); and (2) each regulation issued by such agency or department that requires the use of an assessment of the creditworthiness of a security or money market instrument that such agency or department did not modify pursuant to subsection (a), accompanied by an explanation of why such modification could not be made.
SEC. 8. STUDIES AND REPORTS.

(a) GAO STUDY.

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36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) IN
GENERAL.The

Comptroller General

shall conduct a study of (A) the implementation of this Act and the amendments made by this Act by the Securities and Exchange Commission; (B) the appropriateness of relying on ratings for use in Federal, State, and local securities and banking regulations, including for determining capital requirements; and (C) the effect of liability in private actions arising under the Securities Exchange Act of 1934; and (D) alternative means for compensating credit rating agencies that would create incentives for accurate credit ratings and what, if any, statutory changes would be required to permit or facilitate the use of such alternative means of compensation. (2) REPORT.Not later than 30 months after the date of enactment of this Act, the Comptroller General shall submit to Congress and the Securities Exchange Commission, a report containing the findings under the study required by subsection (a). (b) SEC STUDY.The Securities and Exchange

25 Commission shall undertake a study on creating a system

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37 1 whereby nationally recognized statistical rating organiza2 tions are assigned on a rotating basis to issuers seeking 3 a credit rating. Not later than 1 year after the date of 4 enactment of this Act, the Securities and Exchange Com5 mission shall transmit to Congress a report containing the 6 findings of the study.

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AMENDMENT

IN THE TO

NATURE

OF A

SUBSTITUTE

H.R. 2609
OF

OFFERED

BY

MR. KANJORSKI

PENNSYLVANIA

Strike all after the enacting clause and insert the following: 1 2
SECTION 1. SHORT TITLE.

This Act may be cited as the Federal Insurance Of-

3 fice Act of 2009. 4 5

SEC. 2. FEDERAL INSURANCE OFFICE ESTABLISHED.

(a) ESTABLISHMENT

OF

OFFICE.Subchapter I of

6 chapter 3 of title 31, United States Code, is amended 7 8 9 10 11 12 13 14 15 (1) by transferring and inserting section 312 after section 313; (2) by redesignating sections 313 and 312 (as so transferred) as sections 312 and 315, respectively; and (3) by inserting after section 312 (as so redesignated) the following new sections:
SEC. 313. FEDERAL INSURANCE OFFICE.

(a) ESTABLISHMENT

OF

OFFICE.There is estab-

16 lished the Federal Insurance Office as an office in the De17 partment of the Treasury.

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2 1 (b) LEADERSHIP.The Office shall be headed by a

2 Director, who shall be appointed by the Secretary of the 3 Treasury. The position of such Director shall be a career 4 reserved position in the Senior Executive Service. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (c) FUNCTIONS. (1) AUTHORITY
SECRETARY.The PURSUANT TO DIRECTION OF

Office shall have the authority,

pursuant to the direction of the Secretary, as follows: (A) To monitor all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the United States financial system. (B) To recommend to the Board of Governors of the Federal Reserve System or to any other entity identified under law as having systemic risk responsibility, that it designate an insurer, including its affiliates, as an entity subject to heightened regulation. (C) To assist the Secretary in administering the Terrorism Insurance Program established in the Department of the Treasury under the Terrorism Risk Insurance Act of 2002 (15 U.S.C. 6701 note).

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3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 (D) To coordinate Federal efforts and develop Federal policy on prudential aspects of international insurance matters, including representation as appropriate in the International Association of Insurance Supervisors and assisting the Secretary in negotiating international insurance agreements on prudential measures. (E) To determine, in accordance with subsection (f), whether State insurance measures are preempted by international insurance agreements on prudential measures. (F) To consult with the States regarding insurance matters of national importance and prudential insurance matters of international importance. (G) To perform such other related duties and authorities as may be assigned to it by the Secretary. (2) ADVISORY
FUNCTIONS.The

Office shall

advise the Secretary on major domestic and prudential international insurance policy issues. (d) SCOPE.The authority of the Office shall ex-

23 tend to all lines of insurance except health insurance, as 24 determined by the Secretary based on section 2791 of the 25 Public Health Service Act (42 U.S.C. 300gg-91).

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4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (e) GATHERING OF INFORMATION. (1) GENERAL.In carrying out its functions under subsection (c), the Office may receive and collect data and information on and from the insurance industry and insurers, enter into information-sharing agreements, analyze and disseminate data and information, and issue reports regarding all lines of insurance except health insurance. (2) COLLECTION
OF INFORMATION FROM IN-

SURERS AND AFFILIATES.Except

as provided in

paragraph (3), the Office may require an insurer, or affiliate of an insurer, to submit such data or information that the Office may reasonably require in carrying out its functions under subsection (c). (3) EXCEPTION
FOR SMALL INSURERS.Para-

graph (2) shall not apply with respect to any insurer or affiliate thereof that meets a minimum size threshold that may be established by the Office by order or rule. Such threshold shall be appropriate to the particular request and need for the data or information. (4) ADVANCE
COORDINATION.Before

col-

lecting any data or information under paragraph (2) from an insurer, or affiliate of an insurer, the Office shall coordinate with each relevant State insurance

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5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 regulator (or other relevant Federal or State regulatory agency, if any, in the case of an affiliate of an insurer) and any publicly available sources to determine if the information to be collected is available from, or may be obtained in a timely manner by, such State insurance regulator, individually or collectively, other regulatory agency, or publicly available sources. Notwithstanding any other provision of law, each such relevant State insurance regulator or other Federal or State regulatory agency is authorized to provide to the Office such data or information. (5) CONFIDENTIALITY. (A) The submission of any non-publicly available data and information to the Office under this subsection shall not constitute a waiver of, or otherwise affect, any privilege arising under Federal or State law (including the rules of any Federal or State Court) to which the data or information is otherwise subject. (B) Any requirement under Federal or State law to the extent otherwise applicable, or any requirement pursuant to a written agreement in effect between the original source of any non-publicly available data or information

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6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and the source of such data or information to the Office, regarding the privacy or confidentiality of any data or information in the possession of the source to the Office, shall continue to apply to such data or information after the data or information has been provided pursuant to this subsection to the Office. (C) Any data or information obtained by the Office may be made available to State insurance regulators individually or collectively through an information sharing agreement that shall comply with applicable Federal law and that shall not constitute a waiver of, or otherwise affect, any privilege under Federal or State law (including the rules of any Federal or State Court) to which the data or information is otherwise subject. (D) Section 552 of title 5, United States Code, shall apply to any data or information submitted by an insurer or affiliate of an insurer. (f) PREEMPTION
URES. OF

STATE INSURANCE MEAS-

(1) STANDARD.A State insurance measure shall be preempted if, and only to the extent that the

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7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Director determines, in accordance with this subsection, that the measure (A) directly or indirectly treats a nonUnited States insurer domiciled in a foreign jurisdiction that is subject to an international insurance agreement on prudential measures less favorably than it treats a United States insurer domiciled, licensed, admitted, or otherwise authorized in that State; and (B) is inconsistent with an international insurance agreement on prudential measures that is entered into on a date after the date of the enactment of this Act. (2) DETERMINATION. (A) NOTICE
ENCY.Before OF POTENTIAL INCONSIST-

making any determination of in-

consistency, the Director shall (i) cause to be published in the Federal Register notice of the issue regarding the potential inconsistency or preemption, including a description of each State insurance measure at issue and any applicable international insurance agreement on prudential measures;

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8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 on (I) the protection of policyholders and policy claimants; (II) the maintenance of the safety, soundness, integrity, and financial responsibility of any entity involved in the business of insurance or insurance operations; (III) ensuring the integrity and stability of the United States financial system; (IV) the need to establish a supervisory or regulatory authority of the Office over any entity involved in the business of insurance or insurance operations in the United States; and (V) the creation of a gap or void in financial or market conduct regulation of any entity involved in the business of insurance or insurance operations in the United States; and (ii) provide interested parties a reasonable opportunity to submit written comments to the Office; (iii) consider the effect of preemption

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9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (iv) consider any comments received. (B) SCOPE

OF REVIEW.For

purposes of

this section, the Directors determination of State insurance measures shall be limited to the subject matter of the prudential measures applicable to the business of insurance contained within the international insurance agreement on prudential measures involved. (C) NOTICE
OF DETERMINATION OF IN-

CONSISTENCY.Upon

making any determina-

tion of inconsistency, the Director shall (i) notify the appropriate State of the determination and the extent of the inconsistency; (ii) establish a reasonable period of time, which shall not be shorter than 90 days, before the determination shall become effective; and (iii) notify the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate of the inconsistency. (3) NOTICE
OF EFFECTIVENESS.Upon

the

conclusion of the period referred to in paragraph

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10 1 2 3 4 5 6 7 8 9 10 11 12 (2)(B)(ii), if the basis for the determination of inconsistency still exists, the determination shall become effective and the Director shall (A) cause to be published notice in the Federal Register that the preemption has become effective, as well as the effective date; and (B) notify the appropriate State. (4) LIMITATION.No State may enforce a State insurance measure to the extent that it has been preempted under this subsection. (g) APPLICABILITY
DURE OF

ADMINISTRATIVE PROCE-

ACT.Determinations of inconsistency pursuant to

13 subsection (f)(2) shall be subject to the applicable provi14 sions of subchapter II of chapter 5 of title 5, United 15 States Code (relating to administrative procedure), and 16 chapter 7 of such title (relating to judicial review). 17 (h) REGULATIONS, POLICIES,
AND

PROCEDURES.

18 The Secretary may issue orders, regulations, policies and 19 procedures to implement this section. 20 (i) CONSULTATION.The Director shall consult

21 with State insurance regulators, individually and collec22 tively, to the extent the Director determines appropriate, 23 in carrying out the functions of the Office. 24 (j) SAVINGS PROVISIONS.Nothing in this section

25 shall

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11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 (1) preempt any State insurance measure that governs any insurers rates, premiums, underwriting or sales practices, or State coverage requirements for insurance, or to the application of the antitrust laws of any State to the business of insurance; (2) be construed to alter, amend, or limit the responsibility of any department or agency of the Federal Government to issue regulations under the Truth in Lending Act (15 U.S.C. 1601 et seq.) or any other Federal law regulating the provision of consumer financial products or services; or (3) affect the preemption of any State insurance measure otherwise inconsistent with and preempted by Federal law. (k) RETENTION
OF

EXISTING STATE REGULATORY

16 AUTHORITY.Nothing in this section shall be construed 17 to establish a general supervisory or regulatory authority 18 of the Office or the Department of the Treasury over the 19 business of insurance. 20 (l) ANNUAL REPORT
TO

CONGRESS.Beginning

21 September 30, 2011, the Director shall submit a report 22 on or before September 30 of each calendar year to the 23 President and to the Committee on Financial Services of 24 the House of Representatives and the Committee on 25 Banking, Housing, and Urban Affairs of the Senate on

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12 1 the insurance industry, any actions taken by the office 2 pursuant to subsection (f) (regarding preemption of incon3 sistent State insurance measures), and any other informa4 tion as deemed relevant by the Director or as requested 5 by such Committees. 6 (m) USE
OF

EXISTING RESOURCES.To carry out

7 this section, the Office may employ personnel, facilities, 8 and other Department of the Treasury resources available 9 to the Secretary. 10 (n) DEFINITIONS.For purposes of this section and

11 section 314, the following definitions shall apply: 12 13 14 15 16 17 18 19 20 21 22 23 24 25

ON

(1) AFFILIATE.The term affiliate means, with respect to an insurer, any person that controls, is controlled by, or is under common control with the insurer. (2) DETERMINATION
OF INCONSISTENCY.

The term determination of inconsistency means a determination that a State insurance measure is preempted under subsection (f). (3) INSURER.The term insurer means any person engaged in the business of insurance, including reinsurance. (4) INTERNATIONAL
PRUDENTIAL INSURANCE AGREEMENT

MEASURES.The

term inter-

national insurance agreement on prudential meas-

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13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ures means a written bilateral or multilateral agreement entered into between the United States and a foreign government, authority, or regulatory entity regarding prudential measures applicable to the business of insurance or reinsurance. (5) NON-UNITED
STATES INSURER.The

term

non-United States insurer means an insurer that is organized under the laws of a jurisdiction other than a State, but does not include any United States branch of such an insurer. (6) OFFICE.The term Office means the Federal Insurance Office established by this section. (7) SECRETARY.The term Secretary means the Secretary of the Treasury. (8) STATE.The term State means any State, commonwealth, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, or the United States Virgin Islands. (9) STATE
INSURANCE MEASURE.The

term

State insurance measure means any State law, regulation, administrative ruling, bulletin, guideline, or practice relating to or affecting prudential measures applicable to insurance or reinsurance.

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14 1 2 3 4 5 6 7 8 9 10 11 (10) STATE
INSURANCE REGULATOR.The

term State insurance regulator means any State regulatory authority responsible for the supervision of insurers. (11) UNITED
STATES INSURER.The

term

United States insurer means (A) an insurer that is organized under the laws of a State; or (B) a United States branch of a nonUnited States insurer. (o) AUTHORIZATION
OF

APPROPRIATIONS.There

12 are authorized to be appropriated for the Office such sums 13 as may be necessary for each fiscal year. 14 15 16
SEC. 314. INTERNATIONAL INSURANCE AGREEMENTS ON PRUDENTIAL MEASURES.

The Secretary is authorized to negotiate and enter

17 into international insurance agreements on prudential 18 measures on behalf of the United States.. 19 (b) DUTIES
OF

SECRETARY.Section 321(a) of title

20 31, United States Code, is amended 21 22 23 24 end; (2) in paragraph (8)(C), by striking the period at the end and inserting ; and; and (1) in paragraph (7), by striking and at the

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15 1 2 3 4 5 6 7 (3) by adding at the end the following new paragraph: (9) advise the President on major domestic and international prudential policy issues in connection with all lines of insurance except health insurance.. (c) CLERICAL AMENDMENT.The table of sections

8 for subchapter I of chapter 3 of title 31, United States 9 Code, is amended by striking the item relating to section 10 312 and inserting the following new items:
Sec. Sec. Sec. Sec. 312. 313. 314. 315. Terrorism and Financial Intelligence. Federal Insurance Office. International Insurance Agreements on Prudential Measures. Continuing in office..

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Great. The location is Capitol, H-107. There will be other members, in addition to Mr. Hoyer. Should be able to give you a list Friday of this week or Monday of next. Simone -----Original Message----From: Marie.L.Spicer@frb.gov [mailto:Marie.L.Spicer@frb.gov] On Behalf Of Rita.C.Proctor@frb.gov Sent: Monday, October 19, 2009 10:57 AM To: Litrenta, Simone Cc: Linda.L.Robertson@frb.gov Subject: RE: Meeting w/Majority Leader Hoyer and Chairman Bernanke Hi Simone, I believe we've crossed emails. sending me yours. While I was sending you my email, you were

I can confirm that the Chairman is available to meet with Majority Leader Hoyer on Tuesday, October 27, at 4:30 p.m. Please let us know the location, etc., of the meeting at your convenience. Thank you. Marie Spicer Executive Assistant Chairman's Office Federal Reserve Board Washington, DC 20551 (b) (6)

"Litrenta, Simone" <Simone.Litrenta@ mail.house.gov> 10/19/2009 10:47 AM

To <Rita.C.Proctor@frb.gov> cc Subject RE: Meeting w/Majority Leader Hoyer and Chairman Bernanke

Hi, Rita. My apologize. I didn't see this before I sent the other email. let's book the meeting for Tuesday, Oct. 27th at 4:30pm. -----Original Message----From: Rita.C.Proctor@frb.gov [mailto:Rita.C.Proctor@frb.gov] Sent: Saturday, October 17, 2009 9:16 AM To: Litrenta, Simone Cc: Linda.L.Robertson@frb.gov Subject: Meeting w/Majority Leader Hoyer and Chairman Bernanke Hi Simone, I'm following up on your message to Linda Robertson. The Chairman is travelling Monday, Thursday and Friday next week. available to meet w/Rep. Hoyer as follows: Tuesday, 10/20 Monday,10/26 Tuesday, 10/27 Wednesday, 10/28 2:30-6 10-noon 10-noon or 4:15-6 11:30-1:00 He is

Let us know what works best for the Congressman's schedule. Rita ************ Rita C. Proctor Assistant to the Chairman The Honorable Ben S. Bernanke Federal Reserve Board Eccles Board Building 20th and C Streets, N.W. Washington, DC 20551 (b) (6)

Linda L Robertson/BOARD/F RS 10/16/2009 06:21 PM

To Linda L Robertson/BOARD/FRS@BOARD, Rita C Proctor/BOARD/FRS@BOARD cc "Litrenta, Simone" <Simone.Litrenta@mail.house.gov> Subject RE: Meeting request for Majority Leader Hoyer(Document link: Rita C Proctor)

We very much want to set this up and appreciate the opportunity to meet with Majority Leader Hoyer and his colleagues. I am copying Rita Proctor who handles scheduling for the Chairman.

Linda L Robertson/BOARD/F RS 10/16/2009 05:50 PM "Litrenta, Simone" <Simone.Litrenta@mail.house.gov>

To cc Subject RE: Meeting request for Majority Leader Hoyer(Document link: Linda L Robertson)

Thanks very much for your note. touch very soon. Linda

I will check with the Chairman and be in

"Litrenta, Simone" <Simone.Litrenta@ mail.house.gov> 10/16/2009 04:32 PM

To <Linda.L.Robertson@frb.gov> cc Subject RE: Meeting request for Majority Leader Hoyer

Hi, Linda.

Is there any chance of doing this next week?

possibly

Thursday? -----Original Message----From: Laricke.D.Blanchard@frb.gov [mailto:Laricke.D.Blanchard@frb.gov] Sent: Friday, October 16, 2009 3:22 PM To: Litrenta, Simone Cc: Linda.L.Robertson@frb.gov Subject: Re: Meeting request for Majority Leader Hoyer Hi Simone. You should contact Linda Robertson about this, and I've cc'd her on the email. Best, Laricke

"Litrenta, Simone" <Simone.Litrenta@ mail.house.gov> 10/16/2009 01:31 PM

To <Laricke.D.Blanchard@frb.gov> cc Subject Meeting request for Majority Leader Hoyer

Hi, Laricke. I was given your name as a contact for Mr. Bernanke. If youre not the right person, please let me know whom I should contact. Mr. Hoyer would like to invite Mr. Bernanke to a meeting with him and a group of members to discuss reg reform. Would ideally like to set it up for next, if theres any way that would work for you boss. Let me know. Thanks, Simone

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David, My apologies. I have been using the "spare time" of derivatives folks to focus on the HFSC and Ag bills and markups last week and this week. Would you mind suggesting dates next week and I'll try to work something out? Thanks. Tara

From: "Katz, David (HSGAC)" [David_Katz@hsgac.senate.gov] Sent: 10/19/2009 05:29 PM AST To: Tara Foscato Subject: RE: Derivative Topics
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  30

HEARING OF THE HOUSE FINANCIAL SERVICES COMMITTEE SUBJECT: FEDERAL RESERVE PERSPECTIVES ON FINANCIAL REGULATORY REFORM CHAIRED BY: REP. BARNEY FRANK (D-MA) WITNESS: BEN BERNANKE, CHAIRMAN OF THE FEDERAL RESERVE
2128 RAYBURN HOUSE OFFICE BUILDING, WASHINGTON, D.C. 9:02 A.M. EDT, THURSDAY, OCTOBER 1, 2009

REPRESENTATIVE RUBEN HINOJOSA (D-TX): Thank you, Mr. Chairman. And I thank you also, Chairman Bernanke, for coming to speak with members of our committee. At a recent congressional hearing, at which Secretary of the Treasury Timothy Geithner testified, I noted that I met with Treasury Assistant Secretary for Financial Institutions Michael Barr. And we discussed some of the concerns that I have with the proposed Consumer Financial Protection Agency we've been debating for quite some time. During that conversation, I expressed a concern about the negative impact the CFPA as proposed would have, on the local economies across the country, and the negative impact it would have on community banks, regional banks and credit unions. Community banks and regional banks and credit unions played no significant role in the current economic crisis, both domestic and global. And Secretary Barr stated that Treasury wants a level playing field. Therefore he stated that Treasury wants to put all financial institutions in the same box and wants all those institutions to be examined and enforced by the CFPA. I think that the community banks, regional banks, credit unions should be exempted from CFPA's umbrella. Thus, tell me what are your conclusions on exempting those groups that I mentioned from the CFPA umbrella? MR. BERNANKE: Well, I don't think I would want to exempt fully any lender, including non-bank lenders, from appropriate consumer- protection laws. That would invite those practices to migrate out of the banking -- you know, the big banks, into other

institutions. But on the enforcement side, the Federal Reserve takes what we call a risk-focused approach, which is jargon for saying that we put more resources where there are greater dangers. So in a -- we would spend a lot more time in a national credit-card company, for example, than we would in a local community bank that makes standard, you know, consumer loans or mortgages, for example. So I do think that would be appropriate -- it would be appropriate to have some differences in the level of intensity of enforcement, depending on the nature of the business and the kinds of risks that are -- that are inherent in the products that this company's involved with. REP. HINOJOSA: Thank you for sharing your thoughts with me.

FSC HEARING WITH SECRETARY GEITHNER REP. RUBEN HINOJOSA (D-TX): Thank you, Mr. Chairman. Thank you, Mr. Secretary, for coming to visit with our committee. Assistant Secretary Barr requested a meeting with me to discuss some of the concerns that I had on this legislation we're discussing. And we recently met in my office. During that conversation, I expressed my concern about the negative impact the CFPA, as recommended by the Department of the Treasury, could have on the local economies across the country. In particular, I said we were concerned about the impact that this was going to have on the community banks, credit banks, and other entities that played no role in the global financial meltdown. According to him or rather according to the secretary for financial institutions, the Treasury wants a level playing field, he said. He wants all financial institutions to be examined and enforced by the CFPA. And I disagree. I think that the community banks and credit unions should be exempted from that CFPA umbrella. They didn't cause the problem. They did not create the financial crisis. In fact, as I and many of my colleague here on this committee believe, community banks and credit unions provided some liquidity to local markets at a time when the large banks and the non-banks had frozen the market liquidity. Thus, Mr. Secretary, why should they be punished for actions of

others? SEC. GEITHNER: They shouldn't be, and I agree with you that one of the great strengths of our country is we have a system with 9,000 banks, including thousands and thousands of community banks that, as you said, were not part of the problem and are playing a very important role in providing credit. We need to preserve that But we have to make sure that, again, we're protecting them from the risk that competitors who are not subject to any regulation can take business away from them and they're forced to try to compete with them by lowering standards and engaging in the same practices. And that's why you need a level playing field more broadly applied. But you're raising, of course, understandable concerns about this. We're very sensitive to those, too. And we'd be happy to work with you and your colleagues to figure out how to get that balance right. e time has run out, and I yield back.

FOR IMMEDIATE RELEASE Media Contact

Aleis Stokes (aleis.stokes@icba.org) 202-821-4457

Media Contact

Karen Tyson (karen.tyson@icba.org) 202-821-4454

ICBA Praises Reps. Miller and Moore for Proposing Amendment to CFPA Provides Significant Relief to Main Street Community Banks Washington, D.C. (October 15, 2009)The Independent Community Bankers of America (ICBA) applauds Rep. Brad Miller (D-N.C.) and

Rep. Dennis Moore (D-Kan.) for proposing an ICBA-backed amendment during the House Financial Services Committee mark-up of the Consumer Financial Protection Agency Act (CFPA), H.R. 3126, which will provide significant relief to community banks with assets under $10 billion. Our nations more than 8,000 community banks are relationship lenders that remain committed to serving their customers in a fair and honest manner, said Camden R. Fine, ICBA president and CEO. ICBA

thanks Rep. Brad Miller (D-N.C.) and Rep. Dennis Moore (D-Kan.) for proposing this critical amendment, which recognizes community banks are responsible lenders that didnt cause the financial crisis. ICBA appreciates Chairman Barney Frank (D-Mass.) for listening to community banks concerns and applauds the House Financial Services Committee for voting to include this amendment in the CFPA legislation.
The Examination and Enforcement amendment addresses many of ICBAs key concerns as they relate to the examination, enforcement and authority of the CFPA. In particular, the amendment will allow examinations, both compliance and safety and soundness, for banks with assets less than $10 billion to remain with the banking agencies and will bar the CFPA from assessing fees against these banks for purposes of funding the agency. Finally, the bank regulator, instead of the CFPA, will have primary authority to enforce violations of consumer laws. ICBA also thanks Reps. Andre Carson (D-Ind.), Emanuel Cleaver

(D-Mo.), Joe Donnelly (D-Ind.), Steve Driehaus (D-Ohio), Bill Foster (D-Ill.), Al Green (D-Texas), Ruben Hinojosa (D-Texas), Suzanne Kosmas (D-Fla.), Dan Maffei (D-N.Y.), Ed Perlmutter (D-Colo.), Gary Peters (D-Mich.) and Jackie Speier (D-Calif.) for their sponsorship of the amendment.

While the Miller/Moore amendment is a key step in the right direction, ICBA will continue to work with the committee during mark-up, and with the House and Senate, to make additional improvements to the bill so that community banks, which have always been the best protection for consumers, can continue to serve them in cities and towns throughout America.
About ICBA The Independent Community Bankers of America, the nations voice for community banks, represents nearly 5,000 community banks of all sizes and charter types throughout the United States and is dedicated exclusively to representing the interests of the community banking industry and the communities and customers we serve. For more information, visit www.icba.org. END OF ICBA PRESS RELEASE
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  30

Committee Schedule *All Committee Hearings and Markups are Webcast Tuesday October 20, 2009, 2:00 p.m., in 2128 RayburnHouseOfficeBuilding. The Full Committee will hold a markup of: "Consumer Financial Protection Agency Act, and H.R. 3639" Wednesday October 21, 2009, 10:00 a.m.,(LIKELY THURSDAY, OCTOBER 22, 2009) and subsequent days if necessary, in 2128 RayburnHouseOfficeBuilding. The Full Committee will hold a markup of: "H.R. 3818, H.R. 3817, H.R. 2609, and the Accountability and Transparency in Rating Agencies Act

October 17, 2009

Committee to Continue Consideration of Financial Regulatory Reform Legislation

Washington, DC Rep. Barney Frank (D-MA), Chairman of the House Committee on Financial Services, today announced that the committee will meet on Wednesday, October 21, and subsequent days if necessary, to consider the following measures:

The October 1, 2009 Discussion Draft of the Private Fund Investment Advisers Registration Act of 2009 (to be reported as H.R. 3818);

The October 1, 2009 Discussion Draft of the Investor Protection Act of 2009 (to be reported as H.R. 3817);

The October 16, 2009 Amendment in the nature of a substitute to H.R. 2609, Federal Insurance Office Act of 2009 (document attached); and

The October 16, 2009 Discussion Draft of the Accountability and Transparency in Rating Agencies Act (document attached).

In addition, the committee will reconvene on Tuesday, October 20, at 2 p.m. to continue consideration of the Consumer Financial Protection Agency Act.

WHO: WHAT:

House Financial Services Committee Markup of H.R. 3818, H.R. 3817, H.R. 2609, and the Accountability and

Transparency in Rating Agencies Act WHEN: Wednesday, October 21 (and subsequent days if necessary) 10:00 a.m. WHERE: Room 2128, RayburnHouseOfficeBuilding

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..................................................................... (Original Signature of Member)

111TH CONGRESS 1ST SESSION

H. R.

To amend the Securities Exchange Act of 1934 to enhance oversight of nationally recognized statistical rating organizations, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

Mr. KANJORSKI introduced the following bill; which was referred to the Committee on

A BILL
To amend the Securities Exchange Act of 1934 to enhance oversight of nationally recognized statistical rating organizations, and for other purposes. 1 Be it enacted by the Senate and House of Representa-

2 tives of the United States of America in Congress assembled, 3 4

SECTION 1. SHORT TITLE.

This title may be cited as the Accountability and

5 Transparency in Rating Agencies Act.

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2 1 2 3 4
SEC. 2. ENHANCED REGULATION OF NATIONALLY RECOGNIZED TIONS. STATISTICAL RATING ORGANIZA-

Section 15E of the Securities Exchange Act of 1934

5 (15 U.S.C. 78o7) is amended 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) in subsection (a) (A) in paragraph (1)(A), by striking furnish to and inserting file with; (B) in paragraph (2)(A), by striking furnished to and inserting filed with; and (C) in paragraph (2)(B)(i)(II), by striking furnished to and inserting filed with; (2) in subsection (b) (A) in paragraph (1)(A), by striking furnished and inserting filed and by striking furnishing and inserting filing; (B) in paragraph (1)(B), by striking furnishing and inserting filing; and (C) in the first sentence of paragraph (2), by striking furnish to and inserting file with; (3) in subsection (c) (A) paragraph (2) (i) in the second sentence by inserting including the requirements of this sec-

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3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 tion, after Notwithstanding any other provision of law,; and (ii) by inserting before the period at the end of the last sentence , provided that this paragraph does not afford a defense against any action or proceeding brought by the Commission to enforce the antifraud provision of the securities laws; (B) by adding at the end the following new paragraph: (3) REVIEW
OF INTERNAL PROCESSES FOR

DETERMINING CREDIT RATINGS.

(A) IN

GENERAL.The

Commission shall

review credit ratings issued by, and the policies, procedures, and methodologies employed by, each nationally recognized statistical rating organization to ensure that (i) the nationally recognized statistical rating organization has established and documented a system of internal controls, due diligence and implementation of methodologies for determining credit ratings, taking into consideration such factors as the Commission may prescribe by rule;

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4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (ii) the nationally recognized statistical rating organization adheres to such system; and (iii) the public disclosures of the nationally recognized statistical rating organization required under this section about its ratings, methodologies, and procedures are consistent with such system. (B) MANNER
AND FREQUENCY.The

Commission shall conduct reviews required by this paragraph no less frequently than annually in a manner to be determined by the Commission. (4) PROVISION
MISSION.Each OF INFORMATION TO THE COM-

nationally recognized statistical rat-

ing organization shall make available and maintain such records and information, for such a period of time, as the Commission may prescribe, by rule, as necessary for the Commission to conduct the reviews under paragraph (3). (4) in subsection (d) (A) in the heading, by inserting FINE, after CENSURE,; (B) by striking shall censure and all that follows through revocation and inserting

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5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the following: shall censure, fine in accordance with section 21B(a), place limitations on the activities, functions, or operations of, suspend for a period not exceeding 12 months, or revoke the registration of any nationally recognized statistical rating organization (or with respect to any person who is associated, who is seeking to become associated, or, at the time of the alleged misconduct, who was associated or was seeking to become associated with a nationally recognized statistical rating organization, the Commission, by order, shall censure, fine in accordance with section 21B(a), place limitations on the activities or functions of such person, suspend for a period not exceeding 12 months, or bar such person from being associated with a nationally recognized statistical rating organization), if the Commission finds, on the record after notice and opportunity for hearing, that such censure, fine, placing of limitations, bar, suspension, or revocation; (C) in paragraph (2), by striking furnished to and inserting filed with; (D) in paragraph (4)

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6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (i) by striking furnish and inserting file; (ii) by striking or at the end; (E) in paragraph (5), by striking the period at the end; and (F) by adding at the end the following: (6) has failed reasonably to supervise another person who commits a violation of the securities laws or any rules of the Municipal Securities Rulemaking Board if such other person is subject to his or her supervision, except that no person shall be deemed to have failed reasonably to supervise any other person under this paragraph, if (A) there have been established procedures, and a system for applying such procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any such violation by such other person, and (B) such person has reasonably discharged the duties and obligations incumbent upon him or her by reason of such procedures and system without reasonable cause to believe that such procedures and system were not being complied with; or

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7 1 2 3 4 5 6 7 8 9 10 11 12 (7) fails to conduct sufficient surveillance to ensure that credit ratings remain current and reliable, as applicable.; (5) in subsection (e) (A) by striking paragraph (1); and (B) in paragraph (2), by striking (2) COMMISSION
AUTHORITY.

and moving the

text of such paragraph to follow the heading of subsection (e); (6) by amending subsection (h) to read as follows: (h) CORPORATE GOVERNANCE, ORGANIZATION, AND

13 MANAGEMENT OF CONFLICTS OF INTEREST. 14 15 16 17 18 19 20 21 22 23 24

13

(1) BOARD (A) IN

OF DIRECTORS. GENERAL.Each

nationally recog-

nized statistical rating organization or its parent entity shall have a board of directors. (B) INDEPENDENT
DIRECTORS.At

least

of such board, but no less than 2 of the

members of the board of directors, shall be independent directors. In order to be considered independent for purposes of this subsection, a director of a nationally recognized statistical rating organization may not, other than in his

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8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 or her capacity as a member of the board of directors or any committee thereof (i) accept any consulting, advisory, or other compensatory fee from the nationally recognized statistical rating organization; or (ii) be a person associated with the nationally recognized statistical rating organization or with any affiliated company thereof. (C) COMPENSATION
AND TERM.The

compensation of the independent directors shall not be linked to the business performance of the nationally recognized statistical rating organization and shall be arranged so as to ensure the independence of their judgment. The term of office of the independent directors shall be for a pre-agreed fixed period not exceeding 5 years and shall not be renewable. (D) DUTIES.In addition to the overall responsibility of the board of directors, the board shall oversee (i) the establishment, maintenance, and enforcement of policies and procedures for determining credit ratings;

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9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (ii) the establishment, maintenance, and enforcement of policies and procedures to address, manage, and disclose any conflicts of interest; (iii) the effectiveness of the internal control system with respect to policies and procedures for determining credit ratings; and (iv) the compensation and promotion policies and practices of the nationally recognized statistical rating organization. (2) ORGANIZATION
DURES.Each POLICIES AND PROCE-

nationally recognized statistical rat-

ing organization shall establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of the business of the nationally recognized statistical rating organization and affiliated persons and affiliated companies thereof, to address, manage, and disclose any conflicts of interest that can arise from such business. (3) COMMISSION
RULES.The

Commission

shall issue rules to prohibit, or require the management and disclosure of, any conflicts of interest relating to the issuance of credit ratings by a nation-

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10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ally recognized statistical rating organization, including (A) conflicts of interest relating to the manner in which a nationally recognized statistical rating organization is compensated by the obligor, or any affiliate of the obligor, for issuing credit ratings or providing related services; (B) conflicts of interest relating to the provision of consulting, advisory, or other services by a nationally recognized statistical rating organization, or any person associated with such nationally recognized statistical rating organization, to the obligor, or any affiliate of the obligor; (C) disclosure of conflicts of interests relating to business relationships, ownership interests, and affiliations of nationally recognized statistical rating organization board members with obligors, or any other financial or personal interests between a nationally recognized statistical rating organization, or any person associated with such nationally recognized statistical rating organization, and the obligor, or any affiliate of the obligor;

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11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (D) disclosure of conflicts of interests relating to any affiliation of a nationally recognized statistical rating organization, or any person associated with such nationally recognized statistical rating organization, with any person who underwrites securities, money market instruments, or other instruments that are the subject of a credit rating; (E) a requirement that each nationally recognized statistical rating organization disclose on such organizations website a consolidated report at the end of each fiscal year that shows (i) the percent of net revenue earned by the nationally recognized statistical rating organization or an affiliate of a nationally recognized statistical rating organization, or any person associated with a nationally recognized statistical rating organization, to the extent determined appropriate by the Commission, for that fiscal year for providing services and products other than credit rating services to each person who paid for a credit rating; and

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12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (ii) the relative standing of each person who paid for a credit rating that was outstanding as of the end of the fiscal year in terms of the amount of net revenue earned by the nationally recognized statistical rating organization attributable to each such person and classified by the highest 5, 10, 25, and 50 percentiles and lowest 50 and 25 percentiles. (F) rules providing for the establishment of a system of payment for each nationally recognized statistical rating organization that requires that payments are structured in a manner designed to ensure that the nationally recognized statistical rating organization conducts accurate and reliable surveillance of ratings over time, as applicable, and that incentives for reliable ratings are in place; (G) a requirement that a nationally recognized statistical rating organization disclose with the publication of a credit rating the type and number of credit ratings it has provided to the person being rated or affiliates of such person, the fees it has billed for the credit rating, and the aggregate amount of net revenue

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13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 earned by the nationally recognized statistical rating in the preceding 2 fiscal years attributable to the person being rated and its affiliates; and (H) any other potential conflict of interest, as the Commission determines necessary or appropriate in the public interest or for the protection of investors. (4) LOOK-BACK
REQUIREMENT. BY THE NATIONALLY RECOG-

(A) REVIEW

NIZED STATISTICAL RATING ORGANIZATION.

Each nationally recognized statistical rating organization shall establish, maintain, and enforce policies and procedures reasonably designed to ensure that, in any case in which an employee of a person subject to a credit rating of the nationally recognized statistical rating organization or the issuer, underwriter, or sponsor of a security or money market instrument subject to a credit rating of the nationally recognized statistical rating organization was employed by the nationally recognized statistical rating organization and participated in any capacity in determining credit ratings for the person or the securities or money market instruments during

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14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the 1-year period preceding the date an action was taken with respect to the credit rating, the nationally recognized statistical rating organization shall (i) conduct a review to determine whether any conflicts of interest of the employee influenced the credit rating; and (ii) take action to revise the rating if appropriate, in accordance with such rules as the Commission shall prescribe. (B) REVIEW (i) IN
BY COMMISSION. GENERAL.The

Commission

shall conduct periodic reviews of the policies described in subparagraph (A) and the implementation of the policies at each nationally recognized statistical rating organization to ensure they are reasonably designed and implemented to most effectively eliminate conflicts of interest. (ii) TIMING
OF REVIEWS.The

Com-

mission shall review the code of ethics and conflict of interest policy of each nationally recognized statistical rating organization

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15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 tion; (ii) participated in any capacity in determining credit ratings for such issuer, underwriter, or sponsor; or (iii) supervised an employee described un subparagraph (B). (I) not less frequently than annually; and (II) whenever such policies are materially modified or amended. (5) REPORT
TO COMMISSION ON CERTAIN EM-

PLOYMENT TRANSITIONS.

(A) REPORT

REQUIRED.Each

nationally

recognized statistical rating organization shall report to the Commission any case such organization knows or can reasonably be expected to know where a former employee of such organization obtains employment with any issuer, underwriter, or sponsor of a security or money market instrument for which the organization issued a credit rating during the 12-month period prior to such employment, if such employee (i) was an officer of such organiza-

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16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) PUBLIC
DISCLOSURE.Upon

receiv-

ing such a report, the Commission shall make such information publicly available.; (7) by amending subsection (j) to read as follows: (j) DESIGNATION OF COMPLIANCE OFFICER. (1) IN
GENERAL.Each

nationally recognized

statistical rating organization shall designate an individual to serve as a compliance officer. (2) DUTIES.The compliance officer shall (A) report directly to the board of the nationally recognized statistical rating organization; (B) review compliance with policies and procedures to manage conflicts of interest and assess the risk that the compliance (or lack of such compliance) may compromise the integrity of the credit rating process; (C) review compliance with internal controls with respect to the procedures and methodologies for determining credit ratings, including quantitative models and qualitative inputs used in the rating process, and assess the risk that such compliance with the internal controls (or lack of such compliance) may compromise

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17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the integrity and quality of the credit rating process; (D) in consultation with the board of the nationally recognized statistical rating organization, resolve any conflicts of interest that may arise; (E) be responsible for administering the policies and procedures required to be established pursuant to this section; (F) ensure compliance with securities laws and the rules and regulations issued thereunder, including rules prescribed by the Commission pursuant to this section; and (G) shall establish procedures (i) for the receipt, retention, and treatment of complaints regarding credit ratings, models, methodologies, and compliance with the securities laws and the policies and procedures required under this section; (ii) for the receipt, retention, and treatment of confidential, anonymous complaints by employees, issuers, and investors;

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18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (iii) for the remediation of non-compliance issues found during compliance office reviews, the reviews required under paragraph (7), internal or external audit findings, self-reported errors, or through validated complaints; and (iv) designed so that ratings that the nationally recognized statistical rating organization disseminates reflect consideration of all information that comes to the attention of and is believed by the nationally recognized statistical rating organization to be relevant, in a manner generally consistent with the nationally recognized statistical rating organizations published rating methodology, including information which is provided, received, or otherwise obtained from issuer and non-issuer

sources, such as investors, the media, and other interested or informed parties. (3) LIMITATIONS.The compliance officer shall not, while serving in that capacity (A) determine credit ratings; (B) participate in the establishment of the procedures and methodologies or the quan-

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19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 or (D) participate in establishing compensation levels, other than for employees working for the compliance officer. (4) ANNUAL
REPORTS REQUIRED.The

titative models and qualitative inputs used to determine credit ratings; (C) perform marketing or sales functions;

com-

pliance officer shall annually prepare and sign a report on the compliance of the nationally recognized statistical rating organization with the securities laws and such organizations internal policies and procedures, including its code of ethics and conflict of interest policies, in accordance with rules prescribed by the Commission. Such compliance report shall accompany the financial reports of the nationally recognized statistical rating organization that are required to be filed with the Commission pursuant to this section and shall include a certification that, under penalty of law, the report is accurate and complete.; (8) in subsection (k) (A) by striking , on a confidential basis,; (B) by striking Each nationally and inserting the following:

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20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 (1) IN
GENERAL.Each

nationally; and

(C) by adding at the end the following new paragraph: (2) EXCEPTION.The Commission may treat as confidential any item filed with the Commission under paragraph (1), the publication of which the Commission determines may have a harmful effect on a nationally recognized statistical rating organization.; (9) in subsection (l)(2)(A)(i), by striking furnished and inserting filed; (10) by amending subsection (p) to read as follows: (p) ESTABLISHMENT
OF

SEC OFFICE.The Com-

15 mission shall establish an office that administers the rules 16 of the Commission with respect to the practices of nation17 ally recognized statistical rating organizations in deter18 mining ratings, in the public interest and for the protec19 tion of investors, including rules designed to ensure that 20 credit ratings issued by such registrants are accurate and 21 not unduly influenced by conflicts of interest.; and 22 23 24 (11) by adding after subsection (p) the following new subsections: (q) TRANSPARENCY
OF

RATINGS PERFORMANCE.

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21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) RULEMAKING
REQUIRED.The

Commis-

sion shall, by rule, require each nationally recognized statistical rating organization to publicly disclose information on initial ratings and subsequent changes to such ratings for the purpose of providing a gauge of the performance of ratings and allowing investors to compare performance of ratings by different nationally recognized statistical rating organizations. (2) CONTENT.The rules of the Commission under this subsection shall require, at a minimum, disclosures that (A) are comparable among nationally recognized statistical rating organizations, so that investors can compare rating performance across rating organizations; (B) are clear and informative for a wide range of investor sophistication; (C) include performance information over a range of years and for a variety of classes of credit ratings, as determined by the Commission; and (D) are published and made freely available by the nationally recognized statistical rating organization, on an easily accessible portion

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22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of its website and in written form when requested by investors. (r) CREDIT RATINGS METHODOLOGIES. (1) IN
GENERAL.The

Commission shall pre-

scribe rules, in the public interest and for the protection of investors, that require each nationally recognized statistical rating organization to establish, maintain, and enforce written procedures and methodologies that are reasonably designed to (A) ensure that credit ratings are determined using procedures and methodologies, including quantitative models and qualitative inputs that are determined in accordance with the policies and procedures of the nationally recognized statistical rating organization for developing and modifying credit rating procedures and methodologies; (B) ensure that when major changes to credit rating procedures and methodologies, including to quantitative models and qualitative inputs, are made, that the changes are applied consistently to all credit ratings to which the changed procedures and methodologies apply and, to the extent the changes are made to credit rating surveillance procedures and meth-

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23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 odologies, they are applied to current credit ratings within a time period to be determined by the Commission by rule, and that the reason for the change is publicly disclosed; (C) notify persons who have access to the credit ratings of the nationally recognized statistical rating organization, regardless of whether they are made readily accessible for free or a reasonable fee, of the version of a procedure or methodology, including quantitative models and qualitative inputs, used with respect to a particular credit rating; (D) notify persons who have access to the credit ratings of the nationally recognized statistical rating organization, regardless of whether they are made readily accessible for free or a reasonable fee, when a change is made to a procedure or methodology, including to quantitative models and qualitative inputs, or an error is identified in a procedure or methodology that may result in credit rating actions, and the likelihood of the change resulting in current credit ratings being subject to rating actions; and

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24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (E) use credit rating symbols that distinguish credit ratings for structured products from credit ratings for other products that the Commission determines appropriate or necessary in the public interest and for the protection of investors. (2) RATING
CLARITY AND CONSISTENCY. OBLIGATION.Subject

(A) COMMISSION

to subparagraphs (B) and (C), the Commission shall require, by rule, each nationally recognized statistical rating organization to establish, maintain, and enforce written policies and procedures reasonably designed (i) with respect to credit ratings of securities and money market instruments, to assess the risk that investors in securities and money market instruments may not receive payment in accordance with the terms of such securities and instruments; (ii) to define clearly any credit rating symbol used by that organization; and (iii) to apply such credit rating symbol in a consistent manner for all types of securities and money market instruments.

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25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) ADDITIONAL
CREDIT FACTORS.

Nothing in subparagraph (A) (i) prohibits a nationally recognized statistical rating organization from using additional credit factors that are documented and disclosed by the organization and that have a demonstrated impact on the risk an investor in a security or money market instrument will not receive repayment in accordance with the terms of issuance; (ii) prohibits a nationally recognized statistical rating organization from considering credit factors that are unique to municipal securities that are not backed by the issuers full faith and credit in its assessment of the risk an investor in a security or money market instrument will not receive repayment in accordance with the terms of issuance; or (iii) prohibits a nationally recognized statistical rating organization from using an additional symbol with respect to the ratings described in subparagraph (A)(i) for the purpose of distinguishing the rat-

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26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 ings of a certain type of security or money market instrument from ratings of any other types of securities or money market instruments. (C) COMPLEMENTARY
RATINGS.The

Commission shall not impose any requirement under subparagraph (A) that prevents nationally recognized statistical rating organizations from establishing ratings that are complementary to the ratings described in subparagraph (A)(i) and that are created to measure a discrete aspect of the securitys or instruments risk. (s) TRANSPARENCY
OF

CREDIT RATING METHREVIEWED. Commission shall re-

ODOLOGIES AND INFORMATION

(1) IN

GENERAL.The

quire, by rule, a nationally recognized statistical rating organization to include with the publication of each credit rating regardless of whether the credit rating is made readily accessible for free or a reasonable fee a form that discloses information about the assumptions underlying the procedures and methodologies used, and the data relied on, to determine the credit rating in the format prescribed in

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27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 paragraph (2) and containing the information described in paragraph (3). (2) FORMAT.The Commission shall prescribe a form for use under paragraph (1) that (A) is designed in a user-friendly and helpful manner for investors to understand the information contained in the report; (B) requires the nationally recognized statistical rating organization to provide the content, as required by paragraph (3), in a manner that is directly comparable across securities; and (C) the nationally recognized statistical rating organization certifies the information on the form as true and accurate. (3) CONTENT.The Commission shall prescribe a form that requires a nationally recognized statistical rating organization to disclose (A) the main assumptions included in constructing procedures and methodologies, including quantitative models and qualitative inputs and assumptions about the correlation of defaults across obligors used in rating certain structured products;

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28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) the potential shortcomings of the credit ratings, and the types of risks not measured in the credit ratings that the registrant is not commenting on, such as liquidity, market, and other risks; (C) information on the certainty of the rating, including information on the reliability, accuracy, and quality of the data relied on in determining the ultimate credit rating and a statement on the extent to which key data inputs for the credit rating were reliable or limited, including any limits on the reach of historical data, limits in accessibility to certain documents or other forms of information that would have better informed the credit rating, and the completeness of certain information considered; (D) whether and to what extent third party due diligence services have been utilized, and a description of the information that such third party reviewed in conducting due diligence services; (E) a description of relevant data about any obligor, issuer, security, or money market instrument that was used and relied on for the purpose of determining the credit rating;

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29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and (ii) the loss given default; (I) information on the sensitivity of the rating to assumptions made by the nationally recognized statistical rating organization; (J) where applicable, how the nationally recognized statistical rating organization used servicer or remittance reports, and with what frequency, to conduct surveillance of the credit rating; and (F) a statement containing an overall assessment of the quality of information available and considered in producing a credit rating for a security in relation to the quality of information available to the nationally recognized statistical rating organization in rating similar obligors, securities, or money market instruments; (G) an explanation or measure of the potential volatility for the credit rating, including any factors that might lead to a change in the credit rating, and the extent of the change that might be anticipated under different conditions; (H) information on the content of the credit rating, including (i) the expected default probability;

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30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (K) such additional information as may be required by the Commission. (4) DUE
DILIGENCE SERVICES. REQUIRED.In

(A) CERTIFICATION

any

case in which third-party due diligence services are employed by a nationally recognized statistical rating organization or an issuer or underwriter in connection with the issuance of a credit rating, the firm providing the due diligence services shall provide to the nationally recognized statistical rating organization written certification of such due diligence, which shall be subject to review by the Commission, and the issuer or underwriter shall provide any reports issued by the provider of such due diligence services to the nationally recognized statistical rating organization. (B) FORMAT
AND CONTENT.The

Com-

mission shall establish the appropriate format and content for written certifications required under subparagraph (A) to ensure that providers of due diligence services have conducted a thorough review of data, documentation, and other relevant information necessary for the na-

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31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 tionally recognized statistical rating organization to provide an reliable rating. (C) DISCLOSURE
OF CERTIFICATION.

The Commission shall adopt rules requiring a nationally recognized statistical rating organization to disclose to persons who have access to the credit ratings of the nationally recognized statistical rating organization regardless of whether they are made readily accessible for free or a reasonable fee the certification described in subparagraph (A) with the publication of the applicable credit rating in a manner that may permit the persons to determine the adequacy and level of due diligence services provided by the third party. (t) PROHIBITED ACTIVITIES. (1) IN
GENERAL.Except

as provided in para-

graph (2), beginning 180 days from the date of enactment of the Accountability, Reliability, and Transparency in Rating Agencies Act, it shall be unlawful for a nationally recognized statistical rating organization, or an affiliate of a nationally recognized statistical rating organization, or any person associated with a nationally recognized statistical rating organization, to the extent determined appro-

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32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 priate by the Commission, that provides a rating for an issuer, underwriter, or placement agent of a security to provide to that issuer, underwriter, or placement agent, any non-rating service that preceded the retention of the nationally recognized statistical rating organization by the issuer, underwriter, or placement agent to provide a rating for the security in question or any assistance provided after such point for which additional compensation is paid directly or indirectly, including (B) risk management advisory services; (C) advice or consultation relating to any merger, sales, or disposition of assets of the issuer; (D) ancillary assistance, advice, or consulting services unrelated to any specific credit rating issuance; and (E) such further activities or services as the Commission may determine as necessary or appropriate in the public interest or for the protection of investors. (2) EXEMPTION
AUTHORITY.The

Commis-

sion may, on a case by case basis, exempt any person, issuer, underwriter, placement agent, or nationally recognized statistical rating organization from

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33 1 2 3 4 5 6 7 the prohibition in subsection (t), to the extent that such exemption is necessary or appropriate in the public interest and is consistent with the protection of investors, and subject to review by the Commission..
SEC. 4. STANDARDS FOR PRIVATE ACTIONS.

(a) IN GENERAL.Section 21D(b)(2) of the Securi-

8 ties Exchange Act of 1934 (15 U.S.C. 78u-4(b)(2)) is 9 amended by inserting before the period at the end of the 10 following: , and in the case of an action brought under 11 this title for money damages against a nationally recog12 nized statistical rating organization, it shall be sufficient 13 for purposes of pleading any required state of mind for 14 purposes of such action that the complaint shall state with 15 particularity facts giving rise to a strong inference that 16 the nationally recognized statistical rating organization 17 knowingly or recklessly violated the securities laws.. 18 (b) PLEADING STANDARD.Section 15E(m) of the

19 Securities Exchange Act of 1934 (15 U.S.C. 78o-7(m)) 20 amended to read as follows: 21 (m) APPLICATION
IN OF

ENFORCEMENT PROVISIONS;
OF

22 PLEADING STANDARD

PRIVATE RIGHTS

ACTION.

23 Statements made by nationally recognized statistical rat24 ing organizations shall not be deemed forward looking 25 statements for purposes of section 21E. In any private

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34 1 right of action commenced against a nationally recognized 2 statistical rating organization under this title, the same 3 pleading standards with respect to knowledge and reck4 lessness shall apply to the nationally recognized statistical 5 rating organization as would apply to any other person 6 in the same or a similar private right of action against 7 such person.. 8 9
SEC. 5. ISSUER DISCLOSURE OF PRELIMINARY RATINGS.

The Securities and Exchange Commission shall adopt

10 rules under authority of the Securities Act of 1933 (15 11 U.S.C. 77a, et seq.) to require issuers to disclose prelimi12 nary credit ratings received from nationally recognized 13 statistical rating agencies on structured products and all 14 forms of corporate debt. 15 16
SEC. 6. TIMELINE FOR REGULATIONS.

Unless otherwise specified in this Act, the Securities

17 and Exchange Commission shall adopt rules and regula18 tions, as required by the amendments made by this Act, 19 not later than 365 days after the date of enactment. 20 21 22
SEC. 7. FEDERAL AGENCY REVIEW OF RELIANCE ON RATINGS.

(a) REVIEW.Not later than 1 year after the date

23 of the enactment of this Act, each Federal agency and de24 partment shall, to the extent applicable, review

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35 1 2 3 4 5 6 (1) any regulation issued by such agency or department that requires the use of an assessment of the creditworthiness of a security or money market instrument, and (2) its policies and practices with regard to such ratings,

7 to determine if another measure of creditworthiness is ap8 propriate in order to reduce the reliance of such agency 9 on such ratings, to the extent permitted by law. 10 (b) REPORT.Upon conclusion of the review required

11 under subsection (a), each Federal agency and department 12 shall submit a report to the Congress containing a descrip13 tion of 14 15 16 17 18 19 20 21 22 23 24 25 (1) any modification of any regulation such agency or department made following the review required by subsection (a); and (2) each regulation issued by such agency or department that requires the use of an assessment of the creditworthiness of a security or money market instrument that such agency or department did not modify pursuant to subsection (a), accompanied by an explanation of why such modification could not be made.
SEC. 8. STUDIES AND REPORTS.

(a) GAO STUDY.

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36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) IN
GENERAL.The

Comptroller General

shall conduct a study of (A) the implementation of this Act and the amendments made by this Act by the Securities and Exchange Commission; (B) the appropriateness of relying on ratings for use in Federal, State, and local securities and banking regulations, including for determining capital requirements; and (C) the effect of liability in private actions arising under the Securities Exchange Act of 1934; and (D) alternative means for compensating credit rating agencies that would create incentives for accurate credit ratings and what, if any, statutory changes would be required to permit or facilitate the use of such alternative means of compensation. (2) REPORT.Not later than 30 months after the date of enactment of this Act, the Comptroller General shall submit to Congress and the Securities Exchange Commission, a report containing the findings under the study required by subsection (a). (b) SEC STUDY.The Securities and Exchange

25 Commission shall undertake a study on creating a system

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37 1 whereby nationally recognized statistical rating organiza2 tions are assigned on a rotating basis to issuers seeking 3 a credit rating. Not later than 1 year after the date of 4 enactment of this Act, the Securities and Exchange Com5 mission shall transmit to Congress a report containing the 6 findings of the study.

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AMENDMENT

IN THE TO

NATURE

OF A

SUBSTITUTE

H.R. 2609
OF

OFFERED

BY

MR. KANJORSKI

PENNSYLVANIA

Strike all after the enacting clause and insert the following: 1 2
SECTION 1. SHORT TITLE.

This Act may be cited as the Federal Insurance Of-

3 fice Act of 2009. 4 5

SEC. 2. FEDERAL INSURANCE OFFICE ESTABLISHED.

(a) ESTABLISHMENT

OF

OFFICE.Subchapter I of

6 chapter 3 of title 31, United States Code, is amended 7 8 9 10 11 12 13 14 15 (1) by transferring and inserting section 312 after section 313; (2) by redesignating sections 313 and 312 (as so transferred) as sections 312 and 315, respectively; and (3) by inserting after section 312 (as so redesignated) the following new sections:
SEC. 313. FEDERAL INSURANCE OFFICE.

(a) ESTABLISHMENT

OF

OFFICE.There is estab-

16 lished the Federal Insurance Office as an office in the De17 partment of the Treasury.

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2 1 (b) LEADERSHIP.The Office shall be headed by a

2 Director, who shall be appointed by the Secretary of the 3 Treasury. The position of such Director shall be a career 4 reserved position in the Senior Executive Service. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (c) FUNCTIONS. (1) AUTHORITY
SECRETARY.The PURSUANT TO DIRECTION OF

Office shall have the authority,

pursuant to the direction of the Secretary, as follows: (A) To monitor all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the United States financial system. (B) To recommend to the Board of Governors of the Federal Reserve System or to any other entity identified under law as having systemic risk responsibility, that it designate an insurer, including its affiliates, as an entity subject to heightened regulation. (C) To assist the Secretary in administering the Terrorism Insurance Program established in the Department of the Treasury under the Terrorism Risk Insurance Act of 2002 (15 U.S.C. 6701 note).

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3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 (D) To coordinate Federal efforts and develop Federal policy on prudential aspects of international insurance matters, including representation as appropriate in the International Association of Insurance Supervisors and assisting the Secretary in negotiating international insurance agreements on prudential measures. (E) To determine, in accordance with subsection (f), whether State insurance measures are preempted by international insurance agreements on prudential measures. (F) To consult with the States regarding insurance matters of national importance and prudential insurance matters of international importance. (G) To perform such other related duties and authorities as may be assigned to it by the Secretary. (2) ADVISORY
FUNCTIONS.The

Office shall

advise the Secretary on major domestic and prudential international insurance policy issues. (d) SCOPE.The authority of the Office shall ex-

23 tend to all lines of insurance except health insurance, as 24 determined by the Secretary based on section 2791 of the 25 Public Health Service Act (42 U.S.C. 300gg-91).

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4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (e) GATHERING OF INFORMATION. (1) GENERAL.In carrying out its functions under subsection (c), the Office may receive and collect data and information on and from the insurance industry and insurers, enter into information-sharing agreements, analyze and disseminate data and information, and issue reports regarding all lines of insurance except health insurance. (2) COLLECTION
OF INFORMATION FROM IN-

SURERS AND AFFILIATES.Except

as provided in

paragraph (3), the Office may require an insurer, or affiliate of an insurer, to submit such data or information that the Office may reasonably require in carrying out its functions under subsection (c). (3) EXCEPTION
FOR SMALL INSURERS.Para-

graph (2) shall not apply with respect to any insurer or affiliate thereof that meets a minimum size threshold that may be established by the Office by order or rule. Such threshold shall be appropriate to the particular request and need for the data or information. (4) ADVANCE
COORDINATION.Before

col-

lecting any data or information under paragraph (2) from an insurer, or affiliate of an insurer, the Office shall coordinate with each relevant State insurance

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5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 regulator (or other relevant Federal or State regulatory agency, if any, in the case of an affiliate of an insurer) and any publicly available sources to determine if the information to be collected is available from, or may be obtained in a timely manner by, such State insurance regulator, individually or collectively, other regulatory agency, or publicly available sources. Notwithstanding any other provision of law, each such relevant State insurance regulator or other Federal or State regulatory agency is authorized to provide to the Office such data or information. (5) CONFIDENTIALITY. (A) The submission of any non-publicly available data and information to the Office under this subsection shall not constitute a waiver of, or otherwise affect, any privilege arising under Federal or State law (including the rules of any Federal or State Court) to which the data or information is otherwise subject. (B) Any requirement under Federal or State law to the extent otherwise applicable, or any requirement pursuant to a written agreement in effect between the original source of any non-publicly available data or information

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6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and the source of such data or information to the Office, regarding the privacy or confidentiality of any data or information in the possession of the source to the Office, shall continue to apply to such data or information after the data or information has been provided pursuant to this subsection to the Office. (C) Any data or information obtained by the Office may be made available to State insurance regulators individually or collectively through an information sharing agreement that shall comply with applicable Federal law and that shall not constitute a waiver of, or otherwise affect, any privilege under Federal or State law (including the rules of any Federal or State Court) to which the data or information is otherwise subject. (D) Section 552 of title 5, United States Code, shall apply to any data or information submitted by an insurer or affiliate of an insurer. (f) PREEMPTION
URES. OF

STATE INSURANCE MEAS-

(1) STANDARD.A State insurance measure shall be preempted if, and only to the extent that the

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7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Director determines, in accordance with this subsection, that the measure (A) directly or indirectly treats a nonUnited States insurer domiciled in a foreign jurisdiction that is subject to an international insurance agreement on prudential measures less favorably than it treats a United States insurer domiciled, licensed, admitted, or otherwise authorized in that State; and (B) is inconsistent with an international insurance agreement on prudential measures that is entered into on a date after the date of the enactment of this Act. (2) DETERMINATION. (A) NOTICE
ENCY.Before OF POTENTIAL INCONSIST-

making any determination of in-

consistency, the Director shall (i) cause to be published in the Federal Register notice of the issue regarding the potential inconsistency or preemption, including a description of each State insurance measure at issue and any applicable international insurance agreement on prudential measures;

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8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 on (I) the protection of policyholders and policy claimants; (II) the maintenance of the safety, soundness, integrity, and financial responsibility of any entity involved in the business of insurance or insurance operations; (III) ensuring the integrity and stability of the United States financial system; (IV) the need to establish a supervisory or regulatory authority of the Office over any entity involved in the business of insurance or insurance operations in the United States; and (V) the creation of a gap or void in financial or market conduct regulation of any entity involved in the business of insurance or insurance operations in the United States; and (ii) provide interested parties a reasonable opportunity to submit written comments to the Office; (iii) consider the effect of preemption

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9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (iv) consider any comments received. (B) SCOPE

OF REVIEW.For

purposes of

this section, the Directors determination of State insurance measures shall be limited to the subject matter of the prudential measures applicable to the business of insurance contained within the international insurance agreement on prudential measures involved. (C) NOTICE
OF DETERMINATION OF IN-

CONSISTENCY.Upon

making any determina-

tion of inconsistency, the Director shall (i) notify the appropriate State of the determination and the extent of the inconsistency; (ii) establish a reasonable period of time, which shall not be shorter than 90 days, before the determination shall become effective; and (iii) notify the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate of the inconsistency. (3) NOTICE
OF EFFECTIVENESS.Upon

the

conclusion of the period referred to in paragraph

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10 1 2 3 4 5 6 7 8 9 10 11 12 (2)(B)(ii), if the basis for the determination of inconsistency still exists, the determination shall become effective and the Director shall (A) cause to be published notice in the Federal Register that the preemption has become effective, as well as the effective date; and (B) notify the appropriate State. (4) LIMITATION.No State may enforce a State insurance measure to the extent that it has been preempted under this subsection. (g) APPLICABILITY
DURE OF

ADMINISTRATIVE PROCE-

ACT.Determinations of inconsistency pursuant to

13 subsection (f)(2) shall be subject to the applicable provi14 sions of subchapter II of chapter 5 of title 5, United 15 States Code (relating to administrative procedure), and 16 chapter 7 of such title (relating to judicial review). 17 (h) REGULATIONS, POLICIES,
AND

PROCEDURES.

18 The Secretary may issue orders, regulations, policies and 19 procedures to implement this section. 20 (i) CONSULTATION.The Director shall consult

21 with State insurance regulators, individually and collec22 tively, to the extent the Director determines appropriate, 23 in carrying out the functions of the Office. 24 (j) SAVINGS PROVISIONS.Nothing in this section

25 shall

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11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 (1) preempt any State insurance measure that governs any insurers rates, premiums, underwriting or sales practices, or State coverage requirements for insurance, or to the application of the antitrust laws of any State to the business of insurance; (2) be construed to alter, amend, or limit the responsibility of any department or agency of the Federal Government to issue regulations under the Truth in Lending Act (15 U.S.C. 1601 et seq.) or any other Federal law regulating the provision of consumer financial products or services; or (3) affect the preemption of any State insurance measure otherwise inconsistent with and preempted by Federal law. (k) RETENTION
OF

EXISTING STATE REGULATORY

16 AUTHORITY.Nothing in this section shall be construed 17 to establish a general supervisory or regulatory authority 18 of the Office or the Department of the Treasury over the 19 business of insurance. 20 (l) ANNUAL REPORT
TO

CONGRESS.Beginning

21 September 30, 2011, the Director shall submit a report 22 on or before September 30 of each calendar year to the 23 President and to the Committee on Financial Services of 24 the House of Representatives and the Committee on 25 Banking, Housing, and Urban Affairs of the Senate on

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12 1 the insurance industry, any actions taken by the office 2 pursuant to subsection (f) (regarding preemption of incon3 sistent State insurance measures), and any other informa4 tion as deemed relevant by the Director or as requested 5 by such Committees. 6 (m) USE
OF

EXISTING RESOURCES.To carry out

7 this section, the Office may employ personnel, facilities, 8 and other Department of the Treasury resources available 9 to the Secretary. 10 (n) DEFINITIONS.For purposes of this section and

11 section 314, the following definitions shall apply: 12 13 14 15 16 17 18 19 20 21 22 23 24 25

ON

(1) AFFILIATE.The term affiliate means, with respect to an insurer, any person that controls, is controlled by, or is under common control with the insurer. (2) DETERMINATION
OF INCONSISTENCY.

The term determination of inconsistency means a determination that a State insurance measure is preempted under subsection (f). (3) INSURER.The term insurer means any person engaged in the business of insurance, including reinsurance. (4) INTERNATIONAL
PRUDENTIAL INSURANCE AGREEMENT

MEASURES.The

term inter-

national insurance agreement on prudential meas-

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13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ures means a written bilateral or multilateral agreement entered into between the United States and a foreign government, authority, or regulatory entity regarding prudential measures applicable to the business of insurance or reinsurance. (5) NON-UNITED
STATES INSURER.The

term

non-United States insurer means an insurer that is organized under the laws of a jurisdiction other than a State, but does not include any United States branch of such an insurer. (6) OFFICE.The term Office means the Federal Insurance Office established by this section. (7) SECRETARY.The term Secretary means the Secretary of the Treasury. (8) STATE.The term State means any State, commonwealth, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, or the United States Virgin Islands. (9) STATE
INSURANCE MEASURE.The

term

State insurance measure means any State law, regulation, administrative ruling, bulletin, guideline, or practice relating to or affecting prudential measures applicable to insurance or reinsurance.

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14 1 2 3 4 5 6 7 8 9 10 11 (10) STATE
INSURANCE REGULATOR.The

term State insurance regulator means any State regulatory authority responsible for the supervision of insurers. (11) UNITED
STATES INSURER.The

term

United States insurer means (A) an insurer that is organized under the laws of a State; or (B) a United States branch of a nonUnited States insurer. (o) AUTHORIZATION
OF

APPROPRIATIONS.There

12 are authorized to be appropriated for the Office such sums 13 as may be necessary for each fiscal year. 14 15 16
SEC. 314. INTERNATIONAL INSURANCE AGREEMENTS ON PRUDENTIAL MEASURES.

The Secretary is authorized to negotiate and enter

17 into international insurance agreements on prudential 18 measures on behalf of the United States.. 19 (b) DUTIES
OF

SECRETARY.Section 321(a) of title

20 31, United States Code, is amended 21 22 23 24 end; (2) in paragraph (8)(C), by striking the period at the end and inserting ; and; and (1) in paragraph (7), by striking and at the

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15 1 2 3 4 5 6 7 (3) by adding at the end the following new paragraph: (9) advise the President on major domestic and international prudential policy issues in connection with all lines of insurance except health insurance.. (c) CLERICAL AMENDMENT.The table of sections

8 for subchapter I of chapter 3 of title 31, United States 9 Code, is amended by striking the item relating to section 10 312 and inserting the following new items:
Sec. Sec. Sec. Sec. 312. 313. 314. 315. Terrorism and Financial Intelligence. Federal Insurance Office. International Insurance Agreements on Prudential Measures. Continuing in office..

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  30

AT THE BEGINNING OF TODAYS CONTINUATION OF THE COMMITTEE ON FINANCIAL SERVICES MARKUP OF THE DISCUSSION DRAFT ON THE CONSUMER FINANCIAL PROTECTION ACT OF 2009, CHAIRMAN FRANK MADE THE FOLLOWING ANNOUNCEMENT(S): THE COMMITTEE ON FINANCIAL SERVICES WILL MEET TOMORROW, WEDNESDAY, OCTOBER 21, 2009 AND THURSDAY, OCTOBER 22, IF NECESSARY TO COMPLETE THE MARKUP OF THE DISCUSSION DRAFT OF THE CONSUMER FINANCIAL PROTECTION AGENCY ACT OF 2009; THE COMMITTEE ON FINANCIAL SERVICES WILL CONSIDER AND COMPLETE THE MARKUP OF H.R. 3639, THE Expedited CARD Reform for Consumers Act of 2009. ON THURSDAY, October 22, 2009, ThE COMMITTEE ON FINANCIAL SERVICES WILL HOLD A HEARING ON RESOLUTION AUTHORITY THE FOLLOWINIG MARKUPS HAVE BEEN POSTPONED UNTIL NEXT WEEK, THE WEEK OF OCTOBER 26, 2009:

Committee Will Postpone the Following Vehicles for Markup originally scheduled for this Thursday, October and Move them to likely

10:00 AM, Tuesday, October 26, 2009 and Wednesday, October 28, 2009 in 2128 RHOBto Continue Consideration of Financial Regulatory Reform Legislation
Washington, DC - Rep. Barney Frank (D-MA), Chairman of the House Committee on Financial Services, today announced that the following markups scheduled for this week will be postponed until next week, the week of October 26, 2009 The October 1, 2009 Discussion Draft of the Private Fund Investment Advisers Registration Act of 2009 (to be reported as H.R. 3818); The October 1, 2009 Discussion Draft of the Investor Protection Act of 2009 (to be reported as H.R. 3817); The October 16, 2009 Amendment in the nature of a substitute to H.R. 2609, Federal Insurance Office Act of 2009; and The October 16, 2009 Discussion Draft of the Accountability and Transparency in Rating Agencies Act.

WHO: House Financial Services Committee WHAT: Markup of H.R. 3818, H.R. 3817, H.R. 2609, and the Accountability and Transparency in Rating Agencies Act WHEN: Likely Tuesday, October 27, 2009 Wednesday, October 28 (and subsequent days if necessary ) 10:00 a.m. WHERE: Room 2128, Rayburn House Office Building

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  30

October 17, 2009

Committee to Continue Consideration of Financial Regulatory Reform Legislation

Washington, DC Rep. Barney Frank (D-MA), Chairman of the House Committee on Financial Services, today announced that the committee will meet on Wednesday, October 21, and subsequent days if necessary, to consider the following measures:

The October 1, 2009 Discussion Draft of the Private Fund Investment Advisers Registration Act of 2009 (to be reported as H.R. 3818);

The October 1, 2009 Discussion Draft of the Investor Protection Act of 2009 (to be reported as H.R. 3817);

The October 16, 2009 Amendment in the nature of a substitute to H.R. 2609, Federal Insurance Office Act of 2009 (document attached); and

The October 16, 2009 Discussion Draft of the Accountability and Transparency in Rating Agencies Act (document attached).

In addition, the committee will reconvene on Tuesday, October 20, at 2 p.m. to continue

consideration of the Consumer Financial Protection Agency Act.

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..................................................................... (Original Signature of Member)

111TH CONGRESS 1ST SESSION

H. R.

To amend the Securities Exchange Act of 1934 to enhance oversight of nationally recognized statistical rating organizations, and for other purposes.

IN THE HOUSE OF REPRESENTATIVES

Mr. KANJORSKI introduced the following bill; which was referred to the Committee on

A BILL
To amend the Securities Exchange Act of 1934 to enhance oversight of nationally recognized statistical rating organizations, and for other purposes. 1 Be it enacted by the Senate and House of Representa-

2 tives of the United States of America in Congress assembled, 3 4

SECTION 1. SHORT TITLE.

This title may be cited as the Accountability and

5 Transparency in Rating Agencies Act.

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2 1 2 3 4
SEC. 2. ENHANCED REGULATION OF NATIONALLY RECOGNIZED TIONS. STATISTICAL RATING ORGANIZA-

Section 15E of the Securities Exchange Act of 1934

5 (15 U.S.C. 78o7) is amended 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (1) in subsection (a) (A) in paragraph (1)(A), by striking furnish to and inserting file with; (B) in paragraph (2)(A), by striking furnished to and inserting filed with; and (C) in paragraph (2)(B)(i)(II), by striking furnished to and inserting filed with; (2) in subsection (b) (A) in paragraph (1)(A), by striking furnished and inserting filed and by striking furnishing and inserting filing; (B) in paragraph (1)(B), by striking furnishing and inserting filing; and (C) in the first sentence of paragraph (2), by striking furnish to and inserting file with; (3) in subsection (c) (A) paragraph (2) (i) in the second sentence by inserting including the requirements of this sec-

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3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 tion, after Notwithstanding any other provision of law,; and (ii) by inserting before the period at the end of the last sentence , provided that this paragraph does not afford a defense against any action or proceeding brought by the Commission to enforce the antifraud provision of the securities laws; (B) by adding at the end the following new paragraph: (3) REVIEW
OF INTERNAL PROCESSES FOR

DETERMINING CREDIT RATINGS.

(A) IN

GENERAL.The

Commission shall

review credit ratings issued by, and the policies, procedures, and methodologies employed by, each nationally recognized statistical rating organization to ensure that (i) the nationally recognized statistical rating organization has established and documented a system of internal controls, due diligence and implementation of methodologies for determining credit ratings, taking into consideration such factors as the Commission may prescribe by rule;

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4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (ii) the nationally recognized statistical rating organization adheres to such system; and (iii) the public disclosures of the nationally recognized statistical rating organization required under this section about its ratings, methodologies, and procedures are consistent with such system. (B) MANNER
AND FREQUENCY.The

Commission shall conduct reviews required by this paragraph no less frequently than annually in a manner to be determined by the Commission. (4) PROVISION
MISSION.Each OF INFORMATION TO THE COM-

nationally recognized statistical rat-

ing organization shall make available and maintain such records and information, for such a period of time, as the Commission may prescribe, by rule, as necessary for the Commission to conduct the reviews under paragraph (3). (4) in subsection (d) (A) in the heading, by inserting FINE, after CENSURE,; (B) by striking shall censure and all that follows through revocation and inserting

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5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the following: shall censure, fine in accordance with section 21B(a), place limitations on the activities, functions, or operations of, suspend for a period not exceeding 12 months, or revoke the registration of any nationally recognized statistical rating organization (or with respect to any person who is associated, who is seeking to become associated, or, at the time of the alleged misconduct, who was associated or was seeking to become associated with a nationally recognized statistical rating organization, the Commission, by order, shall censure, fine in accordance with section 21B(a), place limitations on the activities or functions of such person, suspend for a period not exceeding 12 months, or bar such person from being associated with a nationally recognized statistical rating organization), if the Commission finds, on the record after notice and opportunity for hearing, that such censure, fine, placing of limitations, bar, suspension, or revocation; (C) in paragraph (2), by striking furnished to and inserting filed with; (D) in paragraph (4)

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6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (i) by striking furnish and inserting file; (ii) by striking or at the end; (E) in paragraph (5), by striking the period at the end; and (F) by adding at the end the following: (6) has failed reasonably to supervise another person who commits a violation of the securities laws or any rules of the Municipal Securities Rulemaking Board if such other person is subject to his or her supervision, except that no person shall be deemed to have failed reasonably to supervise any other person under this paragraph, if (A) there have been established procedures, and a system for applying such procedures, which would reasonably be expected to prevent and detect, insofar as practicable, any such violation by such other person, and (B) such person has reasonably discharged the duties and obligations incumbent upon him or her by reason of such procedures and system without reasonable cause to believe that such procedures and system were not being complied with; or

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7 1 2 3 4 5 6 7 8 9 10 11 12 (7) fails to conduct sufficient surveillance to ensure that credit ratings remain current and reliable, as applicable.; (5) in subsection (e) (A) by striking paragraph (1); and (B) in paragraph (2), by striking (2) COMMISSION
AUTHORITY.

and moving the

text of such paragraph to follow the heading of subsection (e); (6) by amending subsection (h) to read as follows: (h) CORPORATE GOVERNANCE, ORGANIZATION, AND

13 MANAGEMENT OF CONFLICTS OF INTEREST. 14 15 16 17 18 19 20 21 22 23 24

13

(1) BOARD (A) IN

OF DIRECTORS. GENERAL.Each

nationally recog-

nized statistical rating organization or its parent entity shall have a board of directors. (B) INDEPENDENT
DIRECTORS.At

least

of such board, but no less than 2 of the

members of the board of directors, shall be independent directors. In order to be considered independent for purposes of this subsection, a director of a nationally recognized statistical rating organization may not, other than in his

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8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 or her capacity as a member of the board of directors or any committee thereof (i) accept any consulting, advisory, or other compensatory fee from the nationally recognized statistical rating organization; or (ii) be a person associated with the nationally recognized statistical rating organization or with any affiliated company thereof. (C) COMPENSATION
AND TERM.The

compensation of the independent directors shall not be linked to the business performance of the nationally recognized statistical rating organization and shall be arranged so as to ensure the independence of their judgment. The term of office of the independent directors shall be for a pre-agreed fixed period not exceeding 5 years and shall not be renewable. (D) DUTIES.In addition to the overall responsibility of the board of directors, the board shall oversee (i) the establishment, maintenance, and enforcement of policies and procedures for determining credit ratings;

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9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (ii) the establishment, maintenance, and enforcement of policies and procedures to address, manage, and disclose any conflicts of interest; (iii) the effectiveness of the internal control system with respect to policies and procedures for determining credit ratings; and (iv) the compensation and promotion policies and practices of the nationally recognized statistical rating organization. (2) ORGANIZATION
DURES.Each POLICIES AND PROCE-

nationally recognized statistical rat-

ing organization shall establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of the business of the nationally recognized statistical rating organization and affiliated persons and affiliated companies thereof, to address, manage, and disclose any conflicts of interest that can arise from such business. (3) COMMISSION
RULES.The

Commission

shall issue rules to prohibit, or require the management and disclosure of, any conflicts of interest relating to the issuance of credit ratings by a nation-

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10 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ally recognized statistical rating organization, including (A) conflicts of interest relating to the manner in which a nationally recognized statistical rating organization is compensated by the obligor, or any affiliate of the obligor, for issuing credit ratings or providing related services; (B) conflicts of interest relating to the provision of consulting, advisory, or other services by a nationally recognized statistical rating organization, or any person associated with such nationally recognized statistical rating organization, to the obligor, or any affiliate of the obligor; (C) disclosure of conflicts of interests relating to business relationships, ownership interests, and affiliations of nationally recognized statistical rating organization board members with obligors, or any other financial or personal interests between a nationally recognized statistical rating organization, or any person associated with such nationally recognized statistical rating organization, and the obligor, or any affiliate of the obligor;

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11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (D) disclosure of conflicts of interests relating to any affiliation of a nationally recognized statistical rating organization, or any person associated with such nationally recognized statistical rating organization, with any person who underwrites securities, money market instruments, or other instruments that are the subject of a credit rating; (E) a requirement that each nationally recognized statistical rating organization disclose on such organizations website a consolidated report at the end of each fiscal year that shows (i) the percent of net revenue earned by the nationally recognized statistical rating organization or an affiliate of a nationally recognized statistical rating organization, or any person associated with a nationally recognized statistical rating organization, to the extent determined appropriate by the Commission, for that fiscal year for providing services and products other than credit rating services to each person who paid for a credit rating; and

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12 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (ii) the relative standing of each person who paid for a credit rating that was outstanding as of the end of the fiscal year in terms of the amount of net revenue earned by the nationally recognized statistical rating organization attributable to each such person and classified by the highest 5, 10, 25, and 50 percentiles and lowest 50 and 25 percentiles. (F) rules providing for the establishment of a system of payment for each nationally recognized statistical rating organization that requires that payments are structured in a manner designed to ensure that the nationally recognized statistical rating organization conducts accurate and reliable surveillance of ratings over time, as applicable, and that incentives for reliable ratings are in place; (G) a requirement that a nationally recognized statistical rating organization disclose with the publication of a credit rating the type and number of credit ratings it has provided to the person being rated or affiliates of such person, the fees it has billed for the credit rating, and the aggregate amount of net revenue

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13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 earned by the nationally recognized statistical rating in the preceding 2 fiscal years attributable to the person being rated and its affiliates; and (H) any other potential conflict of interest, as the Commission determines necessary or appropriate in the public interest or for the protection of investors. (4) LOOK-BACK
REQUIREMENT. BY THE NATIONALLY RECOG-

(A) REVIEW

NIZED STATISTICAL RATING ORGANIZATION.

Each nationally recognized statistical rating organization shall establish, maintain, and enforce policies and procedures reasonably designed to ensure that, in any case in which an employee of a person subject to a credit rating of the nationally recognized statistical rating organization or the issuer, underwriter, or sponsor of a security or money market instrument subject to a credit rating of the nationally recognized statistical rating organization was employed by the nationally recognized statistical rating organization and participated in any capacity in determining credit ratings for the person or the securities or money market instruments during

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14 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the 1-year period preceding the date an action was taken with respect to the credit rating, the nationally recognized statistical rating organization shall (i) conduct a review to determine whether any conflicts of interest of the employee influenced the credit rating; and (ii) take action to revise the rating if appropriate, in accordance with such rules as the Commission shall prescribe. (B) REVIEW (i) IN
BY COMMISSION. GENERAL.The

Commission

shall conduct periodic reviews of the policies described in subparagraph (A) and the implementation of the policies at each nationally recognized statistical rating organization to ensure they are reasonably designed and implemented to most effectively eliminate conflicts of interest. (ii) TIMING
OF REVIEWS.The

Com-

mission shall review the code of ethics and conflict of interest policy of each nationally recognized statistical rating organization

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15 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 tion; (ii) participated in any capacity in determining credit ratings for such issuer, underwriter, or sponsor; or (iii) supervised an employee described un subparagraph (B). (I) not less frequently than annually; and (II) whenever such policies are materially modified or amended. (5) REPORT
TO COMMISSION ON CERTAIN EM-

PLOYMENT TRANSITIONS.

(A) REPORT

REQUIRED.Each

nationally

recognized statistical rating organization shall report to the Commission any case such organization knows or can reasonably be expected to know where a former employee of such organization obtains employment with any issuer, underwriter, or sponsor of a security or money market instrument for which the organization issued a credit rating during the 12-month period prior to such employment, if such employee (i) was an officer of such organiza-

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16 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) PUBLIC
DISCLOSURE.Upon

receiv-

ing such a report, the Commission shall make such information publicly available.; (7) by amending subsection (j) to read as follows: (j) DESIGNATION OF COMPLIANCE OFFICER. (1) IN
GENERAL.Each

nationally recognized

statistical rating organization shall designate an individual to serve as a compliance officer. (2) DUTIES.The compliance officer shall (A) report directly to the board of the nationally recognized statistical rating organization; (B) review compliance with policies and procedures to manage conflicts of interest and assess the risk that the compliance (or lack of such compliance) may compromise the integrity of the credit rating process; (C) review compliance with internal controls with respect to the procedures and methodologies for determining credit ratings, including quantitative models and qualitative inputs used in the rating process, and assess the risk that such compliance with the internal controls (or lack of such compliance) may compromise

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17 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 the integrity and quality of the credit rating process; (D) in consultation with the board of the nationally recognized statistical rating organization, resolve any conflicts of interest that may arise; (E) be responsible for administering the policies and procedures required to be established pursuant to this section; (F) ensure compliance with securities laws and the rules and regulations issued thereunder, including rules prescribed by the Commission pursuant to this section; and (G) shall establish procedures (i) for the receipt, retention, and treatment of complaints regarding credit ratings, models, methodologies, and compliance with the securities laws and the policies and procedures required under this section; (ii) for the receipt, retention, and treatment of confidential, anonymous complaints by employees, issuers, and investors;

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18 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (iii) for the remediation of non-compliance issues found during compliance office reviews, the reviews required under paragraph (7), internal or external audit findings, self-reported errors, or through validated complaints; and (iv) designed so that ratings that the nationally recognized statistical rating organization disseminates reflect consideration of all information that comes to the attention of and is believed by the nationally recognized statistical rating organization to be relevant, in a manner generally consistent with the nationally recognized statistical rating organizations published rating methodology, including information which is provided, received, or otherwise obtained from issuer and non-issuer

sources, such as investors, the media, and other interested or informed parties. (3) LIMITATIONS.The compliance officer shall not, while serving in that capacity (A) determine credit ratings; (B) participate in the establishment of the procedures and methodologies or the quan-

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19 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 or (D) participate in establishing compensation levels, other than for employees working for the compliance officer. (4) ANNUAL
REPORTS REQUIRED.The

titative models and qualitative inputs used to determine credit ratings; (C) perform marketing or sales functions;

com-

pliance officer shall annually prepare and sign a report on the compliance of the nationally recognized statistical rating organization with the securities laws and such organizations internal policies and procedures, including its code of ethics and conflict of interest policies, in accordance with rules prescribed by the Commission. Such compliance report shall accompany the financial reports of the nationally recognized statistical rating organization that are required to be filed with the Commission pursuant to this section and shall include a certification that, under penalty of law, the report is accurate and complete.; (8) in subsection (k) (A) by striking , on a confidential basis,; (B) by striking Each nationally and inserting the following:

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20 1 2 3 4 5 6 7 8 9 10 11 12 13 14 (1) IN
GENERAL.Each

nationally; and

(C) by adding at the end the following new paragraph: (2) EXCEPTION.The Commission may treat as confidential any item filed with the Commission under paragraph (1), the publication of which the Commission determines may have a harmful effect on a nationally recognized statistical rating organization.; (9) in subsection (l)(2)(A)(i), by striking furnished and inserting filed; (10) by amending subsection (p) to read as follows: (p) ESTABLISHMENT
OF

SEC OFFICE.The Com-

15 mission shall establish an office that administers the rules 16 of the Commission with respect to the practices of nation17 ally recognized statistical rating organizations in deter18 mining ratings, in the public interest and for the protec19 tion of investors, including rules designed to ensure that 20 credit ratings issued by such registrants are accurate and 21 not unduly influenced by conflicts of interest.; and 22 23 24 (11) by adding after subsection (p) the following new subsections: (q) TRANSPARENCY
OF

RATINGS PERFORMANCE.

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21 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) RULEMAKING
REQUIRED.The

Commis-

sion shall, by rule, require each nationally recognized statistical rating organization to publicly disclose information on initial ratings and subsequent changes to such ratings for the purpose of providing a gauge of the performance of ratings and allowing investors to compare performance of ratings by different nationally recognized statistical rating organizations. (2) CONTENT.The rules of the Commission under this subsection shall require, at a minimum, disclosures that (A) are comparable among nationally recognized statistical rating organizations, so that investors can compare rating performance across rating organizations; (B) are clear and informative for a wide range of investor sophistication; (C) include performance information over a range of years and for a variety of classes of credit ratings, as determined by the Commission; and (D) are published and made freely available by the nationally recognized statistical rating organization, on an easily accessible portion

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22 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 of its website and in written form when requested by investors. (r) CREDIT RATINGS METHODOLOGIES. (1) IN
GENERAL.The

Commission shall pre-

scribe rules, in the public interest and for the protection of investors, that require each nationally recognized statistical rating organization to establish, maintain, and enforce written procedures and methodologies that are reasonably designed to (A) ensure that credit ratings are determined using procedures and methodologies, including quantitative models and qualitative inputs that are determined in accordance with the policies and procedures of the nationally recognized statistical rating organization for developing and modifying credit rating procedures and methodologies; (B) ensure that when major changes to credit rating procedures and methodologies, including to quantitative models and qualitative inputs, are made, that the changes are applied consistently to all credit ratings to which the changed procedures and methodologies apply and, to the extent the changes are made to credit rating surveillance procedures and meth-

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23 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 odologies, they are applied to current credit ratings within a time period to be determined by the Commission by rule, and that the reason for the change is publicly disclosed; (C) notify persons who have access to the credit ratings of the nationally recognized statistical rating organization, regardless of whether they are made readily accessible for free or a reasonable fee, of the version of a procedure or methodology, including quantitative models and qualitative inputs, used with respect to a particular credit rating; (D) notify persons who have access to the credit ratings of the nationally recognized statistical rating organization, regardless of whether they are made readily accessible for free or a reasonable fee, when a change is made to a procedure or methodology, including to quantitative models and qualitative inputs, or an error is identified in a procedure or methodology that may result in credit rating actions, and the likelihood of the change resulting in current credit ratings being subject to rating actions; and

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24 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (E) use credit rating symbols that distinguish credit ratings for structured products from credit ratings for other products that the Commission determines appropriate or necessary in the public interest and for the protection of investors. (2) RATING
CLARITY AND CONSISTENCY. OBLIGATION.Subject

(A) COMMISSION

to subparagraphs (B) and (C), the Commission shall require, by rule, each nationally recognized statistical rating organization to establish, maintain, and enforce written policies and procedures reasonably designed (i) with respect to credit ratings of securities and money market instruments, to assess the risk that investors in securities and money market instruments may not receive payment in accordance with the terms of such securities and instruments; (ii) to define clearly any credit rating symbol used by that organization; and (iii) to apply such credit rating symbol in a consistent manner for all types of securities and money market instruments.

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25 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) ADDITIONAL
CREDIT FACTORS.

Nothing in subparagraph (A) (i) prohibits a nationally recognized statistical rating organization from using additional credit factors that are documented and disclosed by the organization and that have a demonstrated impact on the risk an investor in a security or money market instrument will not receive repayment in accordance with the terms of issuance; (ii) prohibits a nationally recognized statistical rating organization from considering credit factors that are unique to municipal securities that are not backed by the issuers full faith and credit in its assessment of the risk an investor in a security or money market instrument will not receive repayment in accordance with the terms of issuance; or (iii) prohibits a nationally recognized statistical rating organization from using an additional symbol with respect to the ratings described in subparagraph (A)(i) for the purpose of distinguishing the rat-

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26 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 ings of a certain type of security or money market instrument from ratings of any other types of securities or money market instruments. (C) COMPLEMENTARY
RATINGS.The

Commission shall not impose any requirement under subparagraph (A) that prevents nationally recognized statistical rating organizations from establishing ratings that are complementary to the ratings described in subparagraph (A)(i) and that are created to measure a discrete aspect of the securitys or instruments risk. (s) TRANSPARENCY
OF

CREDIT RATING METHREVIEWED. Commission shall re-

ODOLOGIES AND INFORMATION

(1) IN

GENERAL.The

quire, by rule, a nationally recognized statistical rating organization to include with the publication of each credit rating regardless of whether the credit rating is made readily accessible for free or a reasonable fee a form that discloses information about the assumptions underlying the procedures and methodologies used, and the data relied on, to determine the credit rating in the format prescribed in

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27 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 paragraph (2) and containing the information described in paragraph (3). (2) FORMAT.The Commission shall prescribe a form for use under paragraph (1) that (A) is designed in a user-friendly and helpful manner for investors to understand the information contained in the report; (B) requires the nationally recognized statistical rating organization to provide the content, as required by paragraph (3), in a manner that is directly comparable across securities; and (C) the nationally recognized statistical rating organization certifies the information on the form as true and accurate. (3) CONTENT.The Commission shall prescribe a form that requires a nationally recognized statistical rating organization to disclose (A) the main assumptions included in constructing procedures and methodologies, including quantitative models and qualitative inputs and assumptions about the correlation of defaults across obligors used in rating certain structured products;

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28 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (B) the potential shortcomings of the credit ratings, and the types of risks not measured in the credit ratings that the registrant is not commenting on, such as liquidity, market, and other risks; (C) information on the certainty of the rating, including information on the reliability, accuracy, and quality of the data relied on in determining the ultimate credit rating and a statement on the extent to which key data inputs for the credit rating were reliable or limited, including any limits on the reach of historical data, limits in accessibility to certain documents or other forms of information that would have better informed the credit rating, and the completeness of certain information considered; (D) whether and to what extent third party due diligence services have been utilized, and a description of the information that such third party reviewed in conducting due diligence services; (E) a description of relevant data about any obligor, issuer, security, or money market instrument that was used and relied on for the purpose of determining the credit rating;

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29 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and (ii) the loss given default; (I) information on the sensitivity of the rating to assumptions made by the nationally recognized statistical rating organization; (J) where applicable, how the nationally recognized statistical rating organization used servicer or remittance reports, and with what frequency, to conduct surveillance of the credit rating; and (F) a statement containing an overall assessment of the quality of information available and considered in producing a credit rating for a security in relation to the quality of information available to the nationally recognized statistical rating organization in rating similar obligors, securities, or money market instruments; (G) an explanation or measure of the potential volatility for the credit rating, including any factors that might lead to a change in the credit rating, and the extent of the change that might be anticipated under different conditions; (H) information on the content of the credit rating, including (i) the expected default probability;

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30 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (K) such additional information as may be required by the Commission. (4) DUE
DILIGENCE SERVICES. REQUIRED.In

(A) CERTIFICATION

any

case in which third-party due diligence services are employed by a nationally recognized statistical rating organization or an issuer or underwriter in connection with the issuance of a credit rating, the firm providing the due diligence services shall provide to the nationally recognized statistical rating organization written certification of such due diligence, which shall be subject to review by the Commission, and the issuer or underwriter shall provide any reports issued by the provider of such due diligence services to the nationally recognized statistical rating organization. (B) FORMAT
AND CONTENT.The

Com-

mission shall establish the appropriate format and content for written certifications required under subparagraph (A) to ensure that providers of due diligence services have conducted a thorough review of data, documentation, and other relevant information necessary for the na-

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31 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 tionally recognized statistical rating organization to provide an reliable rating. (C) DISCLOSURE
OF CERTIFICATION.

The Commission shall adopt rules requiring a nationally recognized statistical rating organization to disclose to persons who have access to the credit ratings of the nationally recognized statistical rating organization regardless of whether they are made readily accessible for free or a reasonable fee the certification described in subparagraph (A) with the publication of the applicable credit rating in a manner that may permit the persons to determine the adequacy and level of due diligence services provided by the third party. (t) PROHIBITED ACTIVITIES. (1) IN
GENERAL.Except

as provided in para-

graph (2), beginning 180 days from the date of enactment of the Accountability, Reliability, and Transparency in Rating Agencies Act, it shall be unlawful for a nationally recognized statistical rating organization, or an affiliate of a nationally recognized statistical rating organization, or any person associated with a nationally recognized statistical rating organization, to the extent determined appro-

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32 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 priate by the Commission, that provides a rating for an issuer, underwriter, or placement agent of a security to provide to that issuer, underwriter, or placement agent, any non-rating service that preceded the retention of the nationally recognized statistical rating organization by the issuer, underwriter, or placement agent to provide a rating for the security in question or any assistance provided after such point for which additional compensation is paid directly or indirectly, including (B) risk management advisory services; (C) advice or consultation relating to any merger, sales, or disposition of assets of the issuer; (D) ancillary assistance, advice, or consulting services unrelated to any specific credit rating issuance; and (E) such further activities or services as the Commission may determine as necessary or appropriate in the public interest or for the protection of investors. (2) EXEMPTION
AUTHORITY.The

Commis-

sion may, on a case by case basis, exempt any person, issuer, underwriter, placement agent, or nationally recognized statistical rating organization from

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33 1 2 3 4 5 6 7 the prohibition in subsection (t), to the extent that such exemption is necessary or appropriate in the public interest and is consistent with the protection of investors, and subject to review by the Commission..
SEC. 4. STANDARDS FOR PRIVATE ACTIONS.

(a) IN GENERAL.Section 21D(b)(2) of the Securi-

8 ties Exchange Act of 1934 (15 U.S.C. 78u-4(b)(2)) is 9 amended by inserting before the period at the end of the 10 following: , and in the case of an action brought under 11 this title for money damages against a nationally recog12 nized statistical rating organization, it shall be sufficient 13 for purposes of pleading any required state of mind for 14 purposes of such action that the complaint shall state with 15 particularity facts giving rise to a strong inference that 16 the nationally recognized statistical rating organization 17 knowingly or recklessly violated the securities laws.. 18 (b) PLEADING STANDARD.Section 15E(m) of the

19 Securities Exchange Act of 1934 (15 U.S.C. 78o-7(m)) 20 amended to read as follows: 21 (m) APPLICATION
IN OF

ENFORCEMENT PROVISIONS;
OF

22 PLEADING STANDARD

PRIVATE RIGHTS

ACTION.

23 Statements made by nationally recognized statistical rat24 ing organizations shall not be deemed forward looking 25 statements for purposes of section 21E. In any private

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34 1 right of action commenced against a nationally recognized 2 statistical rating organization under this title, the same 3 pleading standards with respect to knowledge and reck4 lessness shall apply to the nationally recognized statistical 5 rating organization as would apply to any other person 6 in the same or a similar private right of action against 7 such person.. 8 9
SEC. 5. ISSUER DISCLOSURE OF PRELIMINARY RATINGS.

The Securities and Exchange Commission shall adopt

10 rules under authority of the Securities Act of 1933 (15 11 U.S.C. 77a, et seq.) to require issuers to disclose prelimi12 nary credit ratings received from nationally recognized 13 statistical rating agencies on structured products and all 14 forms of corporate debt. 15 16
SEC. 6. TIMELINE FOR REGULATIONS.

Unless otherwise specified in this Act, the Securities

17 and Exchange Commission shall adopt rules and regula18 tions, as required by the amendments made by this Act, 19 not later than 365 days after the date of enactment. 20 21 22
SEC. 7. FEDERAL AGENCY REVIEW OF RELIANCE ON RATINGS.

(a) REVIEW.Not later than 1 year after the date

23 of the enactment of this Act, each Federal agency and de24 partment shall, to the extent applicable, review

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35 1 2 3 4 5 6 (1) any regulation issued by such agency or department that requires the use of an assessment of the creditworthiness of a security or money market instrument, and (2) its policies and practices with regard to such ratings,

7 to determine if another measure of creditworthiness is ap8 propriate in order to reduce the reliance of such agency 9 on such ratings, to the extent permitted by law. 10 (b) REPORT.Upon conclusion of the review required

11 under subsection (a), each Federal agency and department 12 shall submit a report to the Congress containing a descrip13 tion of 14 15 16 17 18 19 20 21 22 23 24 25 (1) any modification of any regulation such agency or department made following the review required by subsection (a); and (2) each regulation issued by such agency or department that requires the use of an assessment of the creditworthiness of a security or money market instrument that such agency or department did not modify pursuant to subsection (a), accompanied by an explanation of why such modification could not be made.
SEC. 8. STUDIES AND REPORTS.

(a) GAO STUDY.

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36 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 (1) IN
GENERAL.The

Comptroller General

shall conduct a study of (A) the implementation of this Act and the amendments made by this Act by the Securities and Exchange Commission; (B) the appropriateness of relying on ratings for use in Federal, State, and local securities and banking regulations, including for determining capital requirements; and (C) the effect of liability in private actions arising under the Securities Exchange Act of 1934; and (D) alternative means for compensating credit rating agencies that would create incentives for accurate credit ratings and what, if any, statutory changes would be required to permit or facilitate the use of such alternative means of compensation. (2) REPORT.Not later than 30 months after the date of enactment of this Act, the Comptroller General shall submit to Congress and the Securities Exchange Commission, a report containing the findings under the study required by subsection (a). (b) SEC STUDY.The Securities and Exchange

25 Commission shall undertake a study on creating a system

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37 1 whereby nationally recognized statistical rating organiza2 tions are assigned on a rotating basis to issuers seeking 3 a credit rating. Not later than 1 year after the date of 4 enactment of this Act, the Securities and Exchange Com5 mission shall transmit to Congress a report containing the 6 findings of the study.

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AMENDMENT

IN THE TO

NATURE

OF A

SUBSTITUTE

H.R. 2609
OF

OFFERED

BY

MR. KANJORSKI

PENNSYLVANIA

Strike all after the enacting clause and insert the following: 1 2
SECTION 1. SHORT TITLE.

This Act may be cited as the Federal Insurance Of-

3 fice Act of 2009. 4 5

SEC. 2. FEDERAL INSURANCE OFFICE ESTABLISHED.

(a) ESTABLISHMENT

OF

OFFICE.Subchapter I of

6 chapter 3 of title 31, United States Code, is amended 7 8 9 10 11 12 13 14 15 (1) by transferring and inserting section 312 after section 313; (2) by redesignating sections 313 and 312 (as so transferred) as sections 312 and 315, respectively; and (3) by inserting after section 312 (as so redesignated) the following new sections:
SEC. 313. FEDERAL INSURANCE OFFICE.

(a) ESTABLISHMENT

OF

OFFICE.There is estab-

16 lished the Federal Insurance Office as an office in the De17 partment of the Treasury.

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2 1 (b) LEADERSHIP.The Office shall be headed by a

2 Director, who shall be appointed by the Secretary of the 3 Treasury. The position of such Director shall be a career 4 reserved position in the Senior Executive Service. 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (c) FUNCTIONS. (1) AUTHORITY
SECRETARY.The PURSUANT TO DIRECTION OF

Office shall have the authority,

pursuant to the direction of the Secretary, as follows: (A) To monitor all aspects of the insurance industry, including identifying issues or gaps in the regulation of insurers that could contribute to a systemic crisis in the insurance industry or the United States financial system. (B) To recommend to the Board of Governors of the Federal Reserve System or to any other entity identified under law as having systemic risk responsibility, that it designate an insurer, including its affiliates, as an entity subject to heightened regulation. (C) To assist the Secretary in administering the Terrorism Insurance Program established in the Department of the Treasury under the Terrorism Risk Insurance Act of 2002 (15 U.S.C. 6701 note).

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3 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 (D) To coordinate Federal efforts and develop Federal policy on prudential aspects of international insurance matters, including representation as appropriate in the International Association of Insurance Supervisors and assisting the Secretary in negotiating international insurance agreements on prudential measures. (E) To determine, in accordance with subsection (f), whether State insurance measures are preempted by international insurance agreements on prudential measures. (F) To consult with the States regarding insurance matters of national importance and prudential insurance matters of international importance. (G) To perform such other related duties and authorities as may be assigned to it by the Secretary. (2) ADVISORY
FUNCTIONS.The

Office shall

advise the Secretary on major domestic and prudential international insurance policy issues. (d) SCOPE.The authority of the Office shall ex-

23 tend to all lines of insurance except health insurance, as 24 determined by the Secretary based on section 2791 of the 25 Public Health Service Act (42 U.S.C. 300gg-91).

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4 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (e) GATHERING OF INFORMATION. (1) GENERAL.In carrying out its functions under subsection (c), the Office may receive and collect data and information on and from the insurance industry and insurers, enter into information-sharing agreements, analyze and disseminate data and information, and issue reports regarding all lines of insurance except health insurance. (2) COLLECTION
OF INFORMATION FROM IN-

SURERS AND AFFILIATES.Except

as provided in

paragraph (3), the Office may require an insurer, or affiliate of an insurer, to submit such data or information that the Office may reasonably require in carrying out its functions under subsection (c). (3) EXCEPTION
FOR SMALL INSURERS.Para-

graph (2) shall not apply with respect to any insurer or affiliate thereof that meets a minimum size threshold that may be established by the Office by order or rule. Such threshold shall be appropriate to the particular request and need for the data or information. (4) ADVANCE
COORDINATION.Before

col-

lecting any data or information under paragraph (2) from an insurer, or affiliate of an insurer, the Office shall coordinate with each relevant State insurance

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5 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 regulator (or other relevant Federal or State regulatory agency, if any, in the case of an affiliate of an insurer) and any publicly available sources to determine if the information to be collected is available from, or may be obtained in a timely manner by, such State insurance regulator, individually or collectively, other regulatory agency, or publicly available sources. Notwithstanding any other provision of law, each such relevant State insurance regulator or other Federal or State regulatory agency is authorized to provide to the Office such data or information. (5) CONFIDENTIALITY. (A) The submission of any non-publicly available data and information to the Office under this subsection shall not constitute a waiver of, or otherwise affect, any privilege arising under Federal or State law (including the rules of any Federal or State Court) to which the data or information is otherwise subject. (B) Any requirement under Federal or State law to the extent otherwise applicable, or any requirement pursuant to a written agreement in effect between the original source of any non-publicly available data or information

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6 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 and the source of such data or information to the Office, regarding the privacy or confidentiality of any data or information in the possession of the source to the Office, shall continue to apply to such data or information after the data or information has been provided pursuant to this subsection to the Office. (C) Any data or information obtained by the Office may be made available to State insurance regulators individually or collectively through an information sharing agreement that shall comply with applicable Federal law and that shall not constitute a waiver of, or otherwise affect, any privilege under Federal or State law (including the rules of any Federal or State Court) to which the data or information is otherwise subject. (D) Section 552 of title 5, United States Code, shall apply to any data or information submitted by an insurer or affiliate of an insurer. (f) PREEMPTION
URES. OF

STATE INSURANCE MEAS-

(1) STANDARD.A State insurance measure shall be preempted if, and only to the extent that the

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7 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 Director determines, in accordance with this subsection, that the measure (A) directly or indirectly treats a nonUnited States insurer domiciled in a foreign jurisdiction that is subject to an international insurance agreement on prudential measures less favorably than it treats a United States insurer domiciled, licensed, admitted, or otherwise authorized in that State; and (B) is inconsistent with an international insurance agreement on prudential measures that is entered into on a date after the date of the enactment of this Act. (2) DETERMINATION. (A) NOTICE
ENCY.Before OF POTENTIAL INCONSIST-

making any determination of in-

consistency, the Director shall (i) cause to be published in the Federal Register notice of the issue regarding the potential inconsistency or preemption, including a description of each State insurance measure at issue and any applicable international insurance agreement on prudential measures;

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8 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 on (I) the protection of policyholders and policy claimants; (II) the maintenance of the safety, soundness, integrity, and financial responsibility of any entity involved in the business of insurance or insurance operations; (III) ensuring the integrity and stability of the United States financial system; (IV) the need to establish a supervisory or regulatory authority of the Office over any entity involved in the business of insurance or insurance operations in the United States; and (V) the creation of a gap or void in financial or market conduct regulation of any entity involved in the business of insurance or insurance operations in the United States; and (ii) provide interested parties a reasonable opportunity to submit written comments to the Office; (iii) consider the effect of preemption

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9 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 (iv) consider any comments received. (B) SCOPE

OF REVIEW.For

purposes of

this section, the Directors determination of State insurance measures shall be limited to the subject matter of the prudential measures applicable to the business of insurance contained within the international insurance agreement on prudential measures involved. (C) NOTICE
OF DETERMINATION OF IN-

CONSISTENCY.Upon

making any determina-

tion of inconsistency, the Director shall (i) notify the appropriate State of the determination and the extent of the inconsistency; (ii) establish a reasonable period of time, which shall not be shorter than 90 days, before the determination shall become effective; and (iii) notify the Committee on Financial Services of the House of Representatives and the Committee on Banking, Housing, and Urban Affairs of the Senate of the inconsistency. (3) NOTICE
OF EFFECTIVENESS.Upon

the

conclusion of the period referred to in paragraph

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10 1 2 3 4 5 6 7 8 9 10 11 12 (2)(B)(ii), if the basis for the determination of inconsistency still exists, the determination shall become effective and the Director shall (A) cause to be published notice in the Federal Register that the preemption has become effective, as well as the effective date; and (B) notify the appropriate State. (4) LIMITATION.No State may enforce a State insurance measure to the extent that it has been preempted under this subsection. (g) APPLICABILITY
DURE OF

ADMINISTRATIVE PROCE-

ACT.Determinations of inconsistency pursuant to

13 subsection (f)(2) shall be subject to the applicable provi14 sions of subchapter II of chapter 5 of title 5, United 15 States Code (relating to administrative procedure), and 16 chapter 7 of such title (relating to judicial review). 17 (h) REGULATIONS, POLICIES,
AND

PROCEDURES.

18 The Secretary may issue orders, regulations, policies and 19 procedures to implement this section. 20 (i) CONSULTATION.The Director shall consult

21 with State insurance regulators, individually and collec22 tively, to the extent the Director determines appropriate, 23 in carrying out the functions of the Office. 24 (j) SAVINGS PROVISIONS.Nothing in this section

25 shall

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11 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 (1) preempt any State insurance measure that governs any insurers rates, premiums, underwriting or sales practices, or State coverage requirements for insurance, or to the application of the antitrust laws of any State to the business of insurance; (2) be construed to alter, amend, or limit the responsibility of any department or agency of the Federal Government to issue regulations under the Truth in Lending Act (15 U.S.C. 1601 et seq.) or any other Federal law regulating the provision of consumer financial products or services; or (3) affect the preemption of any State insurance measure otherwise inconsistent with and preempted by Federal law. (k) RETENTION
OF

EXISTING STATE REGULATORY

16 AUTHORITY.Nothing in this section shall be construed 17 to establish a general supervisory or regulatory authority 18 of the Office or the Department of the Treasury over the 19 business of insurance. 20 (l) ANNUAL REPORT
TO

CONGRESS.Beginning

21 September 30, 2011, the Director shall submit a report 22 on or before September 30 of each calendar year to the 23 President and to the Committee on Financial Services of 24 the House of Representatives and the Committee on 25 Banking, Housing, and Urban Affairs of the Senate on

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12 1 the insurance industry, any actions taken by the office 2 pursuant to subsection (f) (regarding preemption of incon3 sistent State insurance measures), and any other informa4 tion as deemed relevant by the Director or as requested 5 by such Committees. 6 (m) USE
OF

EXISTING RESOURCES.To carry out

7 this section, the Office may employ personnel, facilities, 8 and other Department of the Treasury resources available 9 to the Secretary. 10 (n) DEFINITIONS.For purposes of this section and

11 section 314, the following definitions shall apply: 12 13 14 15 16 17 18 19 20 21 22 23 24 25

ON

(1) AFFILIATE.The term affiliate means, with respect to an insurer, any person that controls, is controlled by, or is under common control with the insurer. (2) DETERMINATION
OF INCONSISTENCY.

The term determination of inconsistency means a determination that a State insurance measure is preempted under subsection (f). (3) INSURER.The term insurer means any person engaged in the business of insurance, including reinsurance. (4) INTERNATIONAL
PRUDENTIAL INSURANCE AGREEMENT

MEASURES.The

term inter-

national insurance agreement on prudential meas-

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13 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 ures means a written bilateral or multilateral agreement entered into between the United States and a foreign government, authority, or regulatory entity regarding prudential measures applicable to the business of insurance or reinsurance. (5) NON-UNITED
STATES INSURER.The

term

non-United States insurer means an insurer that is organized under the laws of a jurisdiction other than a State, but does not include any United States branch of such an insurer. (6) OFFICE.The term Office means the Federal Insurance Office established by this section. (7) SECRETARY.The term Secretary means the Secretary of the Treasury. (8) STATE.The term State means any State, commonwealth, territory, or possession of the United States, the District of Columbia, the Commonwealth of Puerto Rico, the Commonwealth of the Northern Mariana Islands, American Samoa, Guam, or the United States Virgin Islands. (9) STATE
INSURANCE MEASURE.The

term

State insurance measure means any State law, regulation, administrative ruling, bulletin, guideline, or practice relating to or affecting prudential measures applicable to insurance or reinsurance.

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14 1 2 3 4 5 6 7 8 9 10 11 (10) STATE
INSURANCE REGULATOR.The

term State insurance regulator means any State regulatory authority responsible for the supervision of insurers. (11) UNITED
STATES INSURER.The

term

United States insurer means (A) an insurer that is organized under the laws of a State; or (B) a United States branch of a nonUnited States insurer. (o) AUTHORIZATION
OF

APPROPRIATIONS.There

12 are authorized to be appropriated for the Office such sums 13 as may be necessary for each fiscal year. 14 15 16
SEC. 314. INTERNATIONAL INSURANCE AGREEMENTS ON PRUDENTIAL MEASURES.

The Secretary is authorized to negotiate and enter

17 into international insurance agreements on prudential 18 measures on behalf of the United States.. 19 (b) DUTIES
OF

SECRETARY.Section 321(a) of title

20 31, United States Code, is amended 21 22 23 24 end; (2) in paragraph (8)(C), by striking the period at the end and inserting ; and; and (1) in paragraph (7), by striking and at the

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15 1 2 3 4 5 6 7 (3) by adding at the end the following new paragraph: (9) advise the President on major domestic and international prudential policy issues in connection with all lines of insurance except health insurance.. (c) CLERICAL AMENDMENT.The table of sections

8 for subchapter I of chapter 3 of title 31, United States 9 Code, is amended by striking the item relating to section 10 312 and inserting the following new items:
Sec. Sec. Sec. Sec. 312. 313. 314. 315. Terrorism and Financial Intelligence. Federal Insurance Office. International Insurance Agreements on Prudential Measures. Continuing in office..

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  30

Eric, Attached please find a letter from Chairman Bernanke to be submitted for the record for tomorrow's hearing. Thanks. Tara

Tara Wade Foscato Assistant Congressional Liaison Board of Governors Federal Reserve System Washington, D.C. 20551 (b) (6)

tara.w.foscato@frb.gov

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......
BOARD OF GOVERNORS
O F THE

FEDERAL RESERVE SYSTEM

WAS HI N GT ON, D . C:. 2055 1
BEN S . BER N ANKE C HA I RM A N

October 21, 2009

The Honorable John Conyers, Jr. Chairman Committee on the Judiciary House of Representatives Washington, D.C. 20515 Dear Mr. Chairman: Experience over the past two years clearly demonstrates that the Uruted States needs a comprehensive strategy to help reduce and contain systemic risk and address the related problem of fmancial institutions that are deemed too big--or perhaps too interconnected--to fail. In light of the topic of the Committee's October 21 hearing, I will focus on one critical aspect of such an . agenda for reform--establishment of a new resolution regime for systemically important financial firms. The Federal Reserve believes that, whenever possible, the difficulties experienced by financial firms in distress should be addressed through private-sector arrangements, such as, for example, by capital injections from private sources, as many financial firms have done or by reorganization or liquidation under the bankruptcy code like other types of firms. However, in the midst of a crisis and when no private sector solution is available, authorities--acting in the public's interest--may need an alternative to the disorderly failure of a large, highly interconnected fmancial firm because of the risks such a failure would pose to the financial system, the broader economy, and ultimately households and businesses. Large, complex financial institutions tend to be highly interconnected with other financial firms and markets. Indeed, in recent years the interlinkages within the financial system have become even closer as a result of, among other things, the integration of lending activities with financial markets through increased use of securitization, the expansion of derivative hedging and trading activities among counterparties, and the growth of arrangements--such as tri-party repurchase and securities lending arrangements--through which holders of securities can obtain short-term financing from risk averse investors through collateralized loans. In light of these and other factors, the bankruptcy of a large, complex financial firm can have serious adverse consequences for other firms and financial markets, and, consequently, for the flow of credit and for economic conditions more broadly. Such spillovers may be particularly large at times when financial markets and institutions already are under stress and the economy is weak. In such periods, the disorderly failure of a large, interconnected financial fum may result in substantial pressures on other firms seen by investors as having similar exposures or business models, dislocations in a range of financial markets, and disruptions in the

The Honorable John Conyers, Jr. Page 2 flow of credit to households and businesses. Losses sustained by other financial firms could erode their financial strength, limiting their ability to play their intermediation role, or even cause them to fail, reinforcing financial pressures. Moreover, the disorderly failure of a large, interconnected firm during a time of pre-existing financial and economic stress could undermine confidence in the U.S. financial sector more broadly, potentially triggering a widespread withdrawal of funding by investors and an additional tightening of credit conditions, which could, in turn, cause a further reduction in economic activity. Historical experience shows that, once begun, a financial panic can spread rapidly and unpredictably. Indeed, this is precisely what happened following the bankruptcy of Lehman Brothers Holdings, Inc. (Lehman) in September 2008. At that time, the U.S. and global financial system had already been under significant strains for more than a year, strains that initially were triggered by the end of the housing boom in the United States and other countries and the associated probl~ms in markets for mortgage-related assets. These developments had resulted in a sharp decline in the valuations of mortgage-related assets, widespread pressures in funding markets, tighter credit conditions for businesses and households, and substantial declines in business and consumer confidence around the world. Over the months leading up to Lehman' s failure, a weakening U.S. economy and continued financial turbulence led to a broad loss of confidence in financial firms. These strains were punctuated by the government's decision in early September to place the government-sponsored enterprises Fannie Mae and Freddie Mac into conservatorship due to concerns about their solvency.

In this environment, the bankruptcy of Lehman on September 15 led to a substantial intensification of the financial crisis, with corresponding negative effects on the flow of credit and economic conditions more broadly, both here and abroad. Concerns about the potential direct and indirect losses that Lehman's failure could impose on other firms undermined confidence in wholesale bank funding markets, leading to further increases in bank borrowing costs and a tightening of credit availability from banks. Other investment banks, which were perceived to have weaknesses similar to those at Lehman, faced substantial pressures as investors pulled back from exposures to them, thus requiring the Federal Reserve to step up its provision of liquidity to such firms as well as to banking institutions. Nonetheless, in the following weeks, several large financial institutions failed, came to the brink of failure, or were acquired by competitors under distressed circumstances.
Moreover, on September 16, the Reserve Primary Fund, a money market mutual fund, announced that it "broke the buck" as a result oflosses on its holdings of Lehman commercial paper. This announcement prompted investors to withdraw large amounts not only from the Reserve Primary Fund, but also from other so-called prime funds, which usually invest mainly in private debt securities and which were seen by investors as having exposures potentially similar to those of the Reserve Primary Fund. A severe run on much of the prime money market fund industry ensued, with withdrawals totaling hundreds of billions of dollars and more than 100 funds losing a substantial volume of assets in the span of just a few weeks. The magnitude of these withdrawals decreased only after the Treasury announced a guarantee program for money market mutual fund investors and the Federal Reserve established a new lending program to support liquidity in the asset-backed commercial paper market. Nevertheless, these massive

The Honorable John Conyers, Jr. Page3 outflows undermined the stability of short-term funding markets, particularly the commercial paper market, upon which corporations rely heavily to meet their short-term borrowing needs. Against this backdrop, investors pulled back broadly from risk-taking in September and October. Liquidity in short-term funding markets vanished for a time, and prices plunged across asset classes. Securitization markets--a key source of financing for consumers and businesses-essentially shut down with the exception of those for government-supported mortgages. Reflecting in part these developments, economic activity dropped sharply in late 2008, with the pace of job losses accelerating, continued steep declines in housing activity, and widespread cutbacks in capital spending by business.
It was precisely to avoid these types of consequences that the Federal Reserve, with the full support of the Treasury Department, acted to prevent the disorderly failure of Bear Steams in March 2008 and of American International Group, Inc. (AIG) the day after Lehman's failure. 1 While these actions were necessary in the environment then prevailing to address unacceptable risks to the global financial system and our economy, these actions have exacerbated the belief of market participants that some financial firms are too big to fail. This belief has many undesirable effects. While shareholders of Bear Stearns and AIG suffered significant losses, creditors of the firms were shielded from loss, creating an expectation among managers and investors of similar treatment going forward. This outcome reduces market discipline and encourages excessive risk-taking by financial firms that are perceived as being too big to fail. It also provides an artificial incentive for firms to grow in order to be perceived as too big to fail. And it creates an unlevel playing field with smaller firms, which may not be regarded as having the same degree of government support. Moreover, government rescues of too-big-to-fail firms can, as we have seen in the current crisis, involve the commitment of substantial amounts of public funds.

For these reasons, it is essential that policymakers make changes to the financial rules of the game to address the too-big-to-fail problem. This will require actions on two fronts. First, we must reduce the potential for large, highly interconnected firms to place the financial system at risk. To do so, policymakers must ensure that all systemically important financial institutions are subject to a robust and effective regime for consolidated supervision. Supervision also must be strengthened to better protect the safety and soundness of individual institutions and must be reoriented to better take account of the risks that an institution may pose on the financial system as a whole. The Federal Reserve has already taken a number of important steps to improve its

In light ofthe tools available at the time, the U.S. government was unable to prevent the failure of Lehman. The amount of available collateral at Lehman fell well short of the amount needed to secure a Federal Reserve loan of sufficient size to meet Lehman's funding needs for survival. Also, at the time of Lehman's demise, Treasury lacked the ability to inject capital into financial institutions to maintain fmancial stability because the Emergency Economic Stabilization Act of 2009 had not yet been enacted. Thus, when attempts to find a buyer for the company and develop an industry solution proved unavailing, Lehman's failure became unavoidable.

The Honorable John Conyers, Jr. Page4 regulation and su~ervision of large financial groups along these lines, building on lessons from the current crisis. Second, and the focus of the Committee's hearing, a new, alternative resolution process should be created that woul.d allow the government to wind down in an orderly manner a failing systemically important financial institution whose disorderly collapse would pose substantial risks to the fmancial system and the broader economy. fudeed, after the Lehman, Bear Steams, and AIG experiences, there is little doubt that there needs to be a third option to the existing choices of bankruptcy and bailout for these firms. fu most cases, the federal bankruptcy laws provide an appropriate framework for the resolution of nonbank fmancial institutions. However, the bankruptcy code does not sufficiently protect the public's strong interest in ensuring the orderly resolution of a nonbank financial firm whose failure would pose substantial risks to the financial system and to the economy. An alternative, orderly resolution regime already exists for banks: If a bank approaches insolvency, the Federal Deposit fusurance Corporation (FDIC) is empowered to intervene as needed to protect depositors, sell the bank's assets, and take any necessary steps to prevent broader consequences to the financial system. A similar regime should be established for systemically important nonbank financial institutions, including bank holding companies. Such a regime should provide the government with the tools to restructure or wind down a failing systemically important finn in a way that mitigates the risks to financial stability and the economy and thus protects the public interest. For example, such tools should include the ability to take control of the management and operations of the failing firm; to sell assets, liabilities, and business units of the firm; to transfer the viable portions of the firm to a new "bridge" entity that can continue these operations with minimal disruptions while preserving value; and to repudiate contracts of the firm, subject to appropriate recompense. fu addition, establishing credible processes for imposing losses on shareholders and creditors of the ftrm is essential to restoring a meaningful degree of market discipline and addressing the too-big-to-fail problem. As I noted at the outset, financial firms- -including those that might be considered systemically important--should be resolved under the bankruptcy code whenever possible. Thus, this new regime should serve as an alternative to the bankruptcy code only when needed to address systemic concerns, and its use should be subject to high standards and checks and balances. The Administration's proposal would allow the new regime to be invoked with respect to a particular firm only with the approval of multiple agencies, including the Federal Reserve, and only upon a determination that the firm's failure and resolution under the bankruptcy code or otherwise applicable law would have serious adverse effects on financial stability and the U.S. economy. These standards, which are similar to those governing use of the systemic risk exception to least-cost resolution in the Federal Deposit fusurance Act (FDI Act), appear appropriate. The Federal Reserve's participation in this decision-making process would be an extension of our long-standing role in fostering fmancial stability, involvement in the current
2

See Ben S. Bemanke (2009), testimony before the House Financial Services Committee, Oct. 1.

- -

- - r - .. - - ...

-- - 4-

The Honorable John Conyers, Jr. Page 5 process for invoking the systemic risk exception under the FDI Act, and status as consolidated supervisor for large banking organizations. The Federal Reserve, however, is not well suited, nor do we seek, to serve as the resolution agency for systemically important institutions under the new framework. As we have seen during the recent crisis, a substantial commitment of public funds may be needed, at least on a temporary basis, to stabilize and facilitate the orderly resolution of a large, highly interconnected financial firm. The Administration's proposal provides for such funding needs to be addressed by the Treasury, with the ultimate costs of any assistance to be recouped through the sale or dissolution of the troubled firm supplemented by assessments on financial firms over an extended period of time if necessary. We believe this approach provides the appropriate source of funding for the resolution of systemically important financial institutions, given the unpredictable and inherently fiscal nature of this function and the importance of protecting taxpayers from losses. Thank you for the opportunity to provide the views of the Federal Reserve on these important matters. I hope this information is helpful.

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Hey, Rita.

Any chance at all of making the meeting next Tuesday at 4:15pm?

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