[Congressional Bills 110th Congress]
[From the U.S. Government Printing Office]
[S. 3739 Introduced in Senate (IS)]
110th CONGRESS
2d Session
S. 3739
To address the regulation of derivatives and unregistered hedge funds,
and for other purposes.
_______________________________________________________________________
IN THE SENATE OF THE UNITED STATES
December 11 (legislative day, December 10), 2008
Mr. Dorgan (for himself and Mr. Feingold) introduced the following
bill; which was read twice and referred to the Committee on Banking,
Housing, and Urban Affairs
_______________________________________________________________________
A BILL
To address the regulation of derivatives and unregistered hedge funds,
and for other purposes.
Be it enacted by the Senate and House of Representatives of the
United States of America in Congress assembled,
SECTION 1. SHORT TITLE.
This Act may be cited as the ``Derivatives and Hedge Fund
Regulatory Improvement Act of 2008''.
SEC. 2. COORDINATED RULEMAKING.
(a) Initiation of Proceedings.--Not later than 90 days after the
date of enactment of this Act, the appropriate Federal banking
agencies, in coordination with the Commission, after consultation with
the Secretary of the Treasury and the Commodity Futures Trading
Commission, shall initiate a coordinated rulemaking with respect to the
entities under their respective jurisdictions that engage in
transactions involving unregistered hedge funds or over-the-counter
derivatives--
(1) to extend the requirements of regulations relating to
the safety and soundness of the financial system applicable to
mutual funds under the Investment Company Act of 1940 (15
U.S.C. 80a-1 et seq.) to unregistered hedge funds, including--
(A) requiring the fund to disclose its policies on
borrowing money and requiring a shareholder vote to
change such policy, as in section 5 of that Act (15
U.S.C. 80a-5);
(B) strict record keeping and reporting rules, as
in section 30 of that Act (15 U.S.C. 80a-29); and
(C) capital structure requirements, as in section
18 of that Act (15 U.S.C. 80a-18);
(2) to provide for the regulation of over-the-counter
derivatives, including credit default swaps, interest rate
swaps, currency swaps, mortgage-backed securities, asset-backed
securities, collateralized debt obligations, and other
derivatives that are not traded on a national securities
exchange or by a registered securities association, in the
public interest and for the protection of investors, the
stability of the financial markets, and the well-being of the
economy; and
(3) to prohibit insured depository institutions from
trading derivatives for their own accounts.
(b) Coordination, Consistency, and Comparability.--Each of the
agencies and authorities referred to in subsection (a) shall consult
and coordinate with the other such agencies and authorities for the
purpose of assuring, to the extent possible, that the regulations by
each such agency and authority are consistent and comparable with those
prescribed by the other such agencies and authorities.
SEC. 3. SCOPE AND DEADLINE.
The appropriate Federal banking agencies and the Commission shall,
not later than 12 months after the date of enactment of this Act, issue
the rules required by this Act in final form that are designed--
(1) to avoid systemic risks to the financial markets;
(2) to ensure safe and sound operation of banks, including
by requiring the maintenance of sufficient capital levels and
limits on aggregate leverage and establishing appropriate
restrictions on the buying, selling, or entering into
derivatives by an insured depository institution for its own
account; and
(3) to provide means to prevent fraudulent, deceptive, or
manipulative practices.
SEC. 4. AUTHORITY TO GRANT EXCEPTIONS.
The regulations prescribed under this Act may allow an insured
depository institution to purchase, sell, or engage in traditional
hedging transactions or to purchase, sell, or engage in transactions
involving de minimus interests in derivatives for the account of that
institution, but only to the extent that such exceptions are consistent
with the safety and soundness of such institution.
SEC. 5. AGENCY AUTHORITY.
The rules issued under this Act shall be enforced by the
appropriate Federal banking agencies with respect to entities under
their respective jurisdictions, and by the Commission with respect to
any other entity that engages in transactions involving unregistered
hedge funds or over-the-counter derivatives.
SEC. 6. DEFINITIONS.
As used in this Act--
(1) the terms ``appropriate Federal banking agency'',
``Federal banking agencies'', and ``insured depository
institution'' have the same meanings as in section 3 of the
Federal Deposit Insurance Act (12 U.S.C. 1813);
(2) the term ``Commission'' means the Securities and
Exchange Commission; and
(3) the term ``derivative''--
(A) means any financial contract or other
instrument that derives its value from the value or
performance of any security or other financial
instrument, or of any excluded commodity (as that term
is defined in section 1a of the Commodity Exchange Act
(7 U.S.C. 1a)); and
(B) does not include--
(i) any security that is traded on a
national securities exchange or on an automated
interdealer quotation system sponsored by a
securities association registered under section
15A of the Securities Exchange Act of 1934 (15
U.S.C. 78o-3); or
(ii) any forward contract which has a
maturity at a time of issuance of not longer
than 270 days;
(4) the term ``unregistered hedge fund''--
(A) means any pooled investment vehicle, or group
or family of pooled investment vehicles, that--
(i) has total assets under management of
not less than $1,000,000,000 or such other
amount as is determined to be appropriate by
the appropriate Federal banking agency and the
Commission with respect to the entities under
their respective jurisdictions; and
(ii) is excepted from the definition of an
investment company by paragraph (1) or (7) of
section 3(c) of the Investment Company Act of
1940, or is a foreign company that would be
required to obtain an order from the Commission
under section 7(d) of that Act if it made a
public offering of its securities by use of the
mails and means or instrumentalities of
interstate commerce; and
(B) does not include a commodity pool operator or
futures commission merchant (as such terms are defined
in section 1a of the Commodity Exchange Act (7 U.S.C.
1a)).
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