S.Amdt. 4100

SA 4100. Mr. DODD submitted an amendment intended to be proposed to
amendment SA 3739 proposed by Mr. Reid (for Mr. Dodd (for himself and
Mrs. Lincoln)) to the bill S. 3217, to promote the financial stability
of the United States by improving accountability and transparency in
the financial system, to end ``too big to fail'', to protect the
American taxpayer by ending bailouts, to protect consumers from abusive
financial services practices, and for other purposes; which was ordered
to lie on the table; as follows:

On page 584, line 7, after the first period insert the
following:
``(k) Clearing Requirements for Credit Default Swaps.--
Subject to the exemption requirements of paragraphs (9) and
(10) of subsection (h), all credit default swaps that are
swaps shall be cleared pursuant to the requirements of
subsection (h)(1).
``(l) Ban on Risky Undisclosed Naked Credit Default
Swaps.--
``(1) Prohibition.--
``(A) In general.--It shall be unlawful for a protection
buyer to enter into a credit default swap that establishes a
short position in a reference entity's credit instrument
unless the protection buyer can demonstrate to the
Commission, in such manner and in such form as may be
prescribed jointly by the Commission and the Securities and
Exchange Commission, that the protection buyer--
``(i) is undertaking such action to establish a legitimate
short position in credit default swaps; or
``(ii) is regulated by the Commission as a swap dealer in
credit default swaps, and is acting as a market-maker or is
otherwise engaged in a financial transaction on behalf of a
customer.
``(B) Legitimate short position in credit default swaps.--A
protection buyer's short position in credit default swaps
shall be considered a legitimate short position in credit
default swaps if--
``(i) the value of the protection buyer's holdings in valid
credit instruments is equal to or greater than the absolute
notional value of the protection buyer's position in credit
default swaps; and
``(ii) the reference entity or entities for the protection
buyer's credit default swaps in clause (i), whether in a
single-name, or a narrow-based index or a non-narrow-based
index credit default swap, is the same as the borrower or
issuer, or borrowers or issuers, of the valid credit
instrument or valid credit instruments the protection buyer
owns.
``(C) Determination of the commission.--
``(i) In general.--The Commission and the Securities and
Exchange Commission shall

[[Page S3934]]

jointly establish and adopt rules, regulations, or orders, in
accordance with the public interest, defining the term `valid
credit instrument'.
``(ii) Considerations and requirements.--In defining the
term `valid credit instrument', the Commission and the
Securities and Exchange Commission shall consider which
group, category, type, or class of credit instruments can be
effectively hedged using credit default swaps.
``(iii) Rule of construction.--For purposes of this
subsection, any instrument with an equity risk exposure or
equity-like features shall not be considered by the
Commission and the Securities and Exchange Commission to be a
valid credit instrument.
``(D) Reporting.--Each protection buyer shall report all of
its legitimate short positions in credit default swaps, as
well as any other credit default swap positions and the valid
credit instruments that it owns to the Commission, in such
manner, in such frequency, and in such form as the Commission
may prescribe.
``(E) Holding of short positions in credit default swaps by
swap dealers.--Any swap dealer in credit default swaps
seeking to establish, possess, or otherwise obtain a short
position as the protection buyer of any credit default swap
for more than 60 consecutive calendar days or for more than
two-thirds of the days in any calendar quarter, shall
demonstrate to the Commission, in such manner and in such
form as shall be prescribed jointly by the Commission and the
Securities and Exchange Commission, that--
``(i) the value of the swap dealer's holdings in valid
credit instruments is equal to or greater than the absolute
notional value of the swap dealer's position in credit
default swaps; and
``(ii) the reference entity or entities for the swap
dealer's credit default swaps in clause (i), whether in a
single-name, or a narrow-based index or a non-narrow-based
index credit default swap, are the same as the borrower or
issuer, or borrowers or issuers, of the valid credit
instrument or valid credit instruments the swap dealer owns.
``(F) Prohibition on evasions and structuring of
transactions.--No person, including any protection buyer,
protection seller, or counterparty, may take any action in
connection with a credit default swap to structure such swap
for the purpose and with the intent of evading the provisions
of this subsection.
``(G) Authority of the commission.--The Commission, in
consultation with the Securities and Exchange Commission,
may, in the public interest, for the protection of investors,
for the protection of market participants, and the
maintenance of fair and orderly markets, prohibit any other
action, practice, or conduct in connection with or related to
the direct or indirect purchase or sale credit default swaps
that are swaps.
``(2) Definitions.--
``(A) In general.--In this subsection, the following
definitions shall apply:
``(i) Credit default swap.--The term `credit default
swap'--

``(I) means a swap or security-based swap whose payout is
determined by the occurrence of a credit event with respect
to a single referenced credit instrument or reference entity
or multiple referenced credit instruments or reference
entities; and
``(II) is not a security issued by a corporation, State,
municipality, or sovereign entity.

``(ii) Credit event.--The term `credit event' includes a
default, restructuring, insolvency, bankruptcy, credit
downgrade, and a violation of a debt covenant.
``(iii) Protection buyer.--The term `protection buyer'
means a person that enters into a credit default swap to
obtain a payoff from a third party (commonly referred to as
the `protection seller') upon the occurrence of one or more
credit events.
``(iv) Reference entity.--The term `reference entity' means
any borrower, such as a corporation, State, municipality,
sovereign entity, or special purpose entity, which has issued
a debt obligation or obtained a loan that is referenced by a
credit default swap.
``(B) Further definition of terms.--The Commission and the
Securities and Exchange Commission shall jointly establish
and adopt rules, regulations, or order, in accordance with
the public interest, further defining the terms `credit
default swap', `credit event', `protection buyer', and
`reference entity'.
``(3) Effective date.--This subsection shall take effect 2
years following the date on which the Wall Street
Transparency and Accountability Act of 2010 becomes
effective, except that the Commission and the Securities and
Exchange Commission may require disclosure and reporting of
positions and holdings as set forth in this subsection at
such earlier date as they may jointly determine.
``(m) Public Reporting of Credit Default Swaps.--
``(1) In general.--Notwithstanding paragraphs (8), (9), and
(10) of subsection (h), the Commission and the Securities and
Exchange Commission shall jointly adopt rules requiring
public reporting by counterparties of all net notional amount
of credit default swaps purchased or sold referencing a
specific reference entity in an amount greater than 1 percent
of the outstanding debt of that reference entity.
``(2) Rulemaking.--The Commission and the Securities and
Exchange Commission may adopt rules setting the public
reporting requirement threshold of subparagraph (A) in an
amount less than 1 percent and may set a lower reporting
requirement threshold for credit default swaps purchased or
sold on governmental entities. In adopting rules implementing
this requirement, the Commission and the Securities and
Exchange Commission shall require counterparties to report
both hedged and unhedged positions. The Commission and the
Securities and Exchange Commission shall prescribe rules to
specify the form, manner, and timing of such reports.
``(3) Further definition of terms.--For purposes of this
subsection, the Commission and the Securities and Exchange
Commission shall jointly establish and adopt rules,
regulation, or orders in accordance with the public interest,
defining the terms `credit default swap', `reference entity',
`outstanding debt', `net notional amount of credit default
swaps', and `governmental entities'.''.
On page 808, line 8, after the first period, insert the
following:
``(e) Clearing Requirements for Credit Default Swaps.--
Subject to the exemption requirements of paragraphs (9) and
(10) of subsection (a), all credit default swaps that are
security-based swaps shall be cleared pursuant to the
requirements of subsection (a)(1).

``SEC. 3C-1. BAN ON RISKY UNDISCLOSED NAKED CREDIT DEFAULT
SWAPS.

``(a) Prohibition.--
``(1) In general.--It shall be unlawful for a protection
buyer to enter into a credit default swap that establishes a
short position in a reference entity's credit instrument
unless the protection buyer can demonstrate to the
Commission, in such manner and in such form as may be
prescribed jointly by the Commission and the Commodity
Futures Trading Commission, that the protection buyer--
``(A) is undertaking such action to establish a legitimate
short position in credit default swaps; or
``(B) is regulated by the Commission as a security-based
swap dealer in credit default swaps, and is acting as a
market-maker or is otherwise engaged in a financial
transaction on behalf of a customer.
``(2) Legitimate short position in credit default swaps.--A
protection buyer's short position in credit default swaps
shall be considered a legitimate short position in credit
default swaps if--
``(A) the value of the protection buyer's holdings in valid
credit instruments is equal to or greater than the absolute
notional value of the protection buyer's position in credit
default swaps; and
``(B) the reference entity or entities for the protection
buyer's credit default swaps in subparagraph (A), whether in
a single-name, or a narrow-based index or a non-narrow-based
index credit default swap, is the same as the borrower or
issuer, or borrowers or issuers, of the valid credit
instrument or valid credit instruments the protection buyer
owns.
``(3) Determination of the commission.--
``(A) In general.--The Commission and the Commodity Futures
Trading Commission shall jointly establish and adopt rules,
regulations, or orders, in accordance with the public
interest, defining the term `valid credit instrument'.
``(B) Considerations and requirements.--In defining the
term `valid credit instrument', the Commission and the
Commodity Futures Trading Commission shall consider which
group, category, type, or class of credit instruments can be
effectively hedged using credit default swaps.
``(C) Rule of construction.--For purposes of this section,
any instrument with an equity risk exposure or equity-like
features shall not be considered by the Commission and the
Commodity Futures Trading Commission to be a valid credit
instrument.
``(4) Reporting.--Each protection buyer shall report all of
its legitimate short positions in credit default swaps, as
well as any other credit default swap positions and the valid
credit instruments that it owns to the Commission, in such
manner, in such frequency, and in such form as the Commission
may prescribe.
``(5) Holding of short positions in credit default swaps by
security-based swap dealers.--Any security-based swap dealer
in credit default swaps seeking to establish, possess, or
otherwise obtain a short position as the protection buyer of
any credit default swap for more than 60 consecutive calendar
days or for more than two-thirds of the days in any calendar
quarter, shall demonstrate to the Commission, in such manner
and in such form as shall be prescribed jointly by the
Commission and the Commodity Futures Trading Commission,
that--
``(A) the value of the security-based swap dealer's
holdings in valid credit instruments is equal to or greater
than the absolute notional value of the security-based swap
dealer's position in credit default swaps; and
``(B) the reference entity or entities for the security-
based swap dealer's credit default swaps in subparagraph (A),
whether in a single-name, or a narrow-based index or a non-
narrow-based index credit default swap, are the same as the
borrower or issuer, or borrowers or issuers, of the valid
credit instrument or valid credit instruments the security-
based swap dealer owns.
``(6) Prohibition on evasions and structuring of
transactions.--No person, including any protection buyer,
protection seller, or counterparty, may take any action in
connection with a credit default swap to structure such swap
for the purpose and with

[[Page S3935]]

the intent of evading the provisions of this section.
``(7) Authority of the commission.--The Commission, in
consultation with the Commodity Futures Trading Commission,
may, in the public interest, for the protection of investors,
for the protection of market participants, and the
maintenance of fair and orderly markets, prohibit any other
action, practice, or conduct in connection with or related to
the direct or indirect purchase or sale credit default swaps
that are security-based swaps.
``(b) Definitions.--
``(1) In general.--In this section, the following
definitions shall apply:
``(A) Credit default swap.--The term `credit default
swap'--
``(i) means a swap or security-based swap whose payout is
determined by the occurrence of a credit event with respect
to a single referenced credit instrument or reference entity
or multiple referenced credit instruments or reference
entities; and
``(ii) is not a security issued by a corporation, State,
municipality, or sovereign entity.
``(B) Credit event.--The term `credit event' includes a
default, restructuring, insolvency, bankruptcy, credit
downgrade, and a violation of a debt covenant.
``(C) Protection buyer.--The term `protection buyer' means
a person that enters into a credit default swap to obtain a
payoff from a third party (commonly referred to as the
`protection seller') upon the occurrence of one or more
credit events.
``(D) Reference entity.--The term `reference entity' means
any borrower, such as a corporation, State, municipality,
sovereign entity, or special purpose entity, which has issued
a debt obligation or obtained a loan that is referenced by a
credit default swap.
``(2) Further definition of terms.--The Commission and the
Commodity Futures Trading Commission shall jointly establish
and adopt rules, regulations, or order, in accordance with
the public interest, further defining the terms `credit
default swap', `credit event', `protection buyer', and
`reference entity'.
``(c) Effective Date.--This section shall take effect 2
years following the date on which the Wall Street
Transparency and Accountability Act of 2010 becomes
effective, except that the Commission and the Commodity
Futures Trading Commission may require disclosure and
reporting of positions and holdings as set forth in this
section at such earlier date as they may jointly determine.

``SEC. 3C-2. PUBLIC REPORTING OF CREDIT DEFAULT SWAPS.

``(a) In General.--Notwithstanding paragraphs (8), (9), and
(10) of section 3C(a), the Commission and the Commodity
Futures Trading Commission shall jointly adopt rules
requiring public reporting by counterparties of all net
notional amount of credit default swaps purchased or sold
referencing a specific reference entity in an amount greater
than 1 percent of the outstanding debt of that reference
entity.
``(b) Rulemaking.--The Commission and the Commodity Futures
Trading Commission may adopt rules setting the public
reporting requirement threshold of subsection (a) in an
amount less than 1 percent and may set a lower reporting
requirement threshold for credit default swaps purchased or
sold on governmental entities. In adopting rules implementing
this requirement, the Commission and the Commodity Futures
Trading Commission shall require counterparties to report
both hedged and unhedged positions. The Commission and the
Commodity Futures Trading Commission shall prescribe rules to
specify the form, manner, and timing of such reports.
``(c) Further Definition of Terms.--For purposes of this
section, the Commission and the Commodity Futures Trading
Commission shall jointly establish and adopt rules,
regulation, or orders in accordance with the public interest,
defining the terms `credit default swap', `reference entity',
`outstanding debt', `net notional amount of credit default
swaps', and `governmental entities'.''.
On page 893, after line 25, insert the following:

SEC. 774. COUNCIL STUDY AND ACTION REGARDING CERTAIN
PROHIBITIONS.

(a) In General.--
(1) In general.--The Financial Stability Oversight Council
shall conduct a study of issues involving the purchase and
sale of credit default swaps and naked credit default swaps.
(2) Rule of construction.--For purposes of this section, a
naked credit default swap is a credit default swap entered
into by a person that does not own the valid debt instrument
or valid debt instruments referenced in the credit default
swap or own a valid debt instrument or valid debt instruments
of the issuer or borrower, or issuers or borrowers,
referenced in the credit default swap, or a similar risk
exposure.
(b) Matters To Be Addressed.--The study required under
subsection (a) shall address--
(1) the impact of trading of credit default swaps on debt
issuers, credit availability, financial markets, and the
overall economy of the United States;
(2) the potential uses of naked credit default swaps;
(3) the potential systemic impact of short positions in
naked credit default swaps;
(4) existing authority of regulators to address risks to
market participants and systemic risk of credit default swaps
and naked credit default swaps; and
(5) such other relevant matters as the Council deems
necessary or appropriate to address.
(c) Report.--Not later than 1 year after the date of
enactment of this Act, if the Financial Stability Oversight
Council agrees by an affirmative vote of the majority of its
members then serving to the conclusions and findings of the
study required under subsection (a), and to any
recommendations for legislative action the Council deems
necessary and appropriate based on such conclusions and
findings, the Council shall submit such report, together with
such recommendations, to Congress.
(d) Action by Chairperson of the Council.--Following
receipt of the report required by subsection (c), and
notwithstanding section 2(l) of the Commodity Exchange Act,
section 5A of the Securities Act of 1933, and section 3C-1 of
the Securities Exchange Act of 1934, the Chairperson of the
Council may make a written determination suspending, in whole
or in part, the prohibitions of section 2(l) of the Commodity
Exchange Act, section 5A of the Securities Act of 1933, and
section 3C-1 of the Securities Exchange Act of 1934.
(e) Finding by Chairperson of the Council.--Based upon the
conclusions and findings of the study required under
subsection (a), the Chairperson of the Council may make a
written determination as provided in subsection (d) only upon
a finding that the prohibitions in section 2(l) of the
Commodity Exchange Act, section 5A of the Securities Act of
1933, and section 3C-1 of the Securities Exchange Act of 1934
would have a material adverse effect on the financial markets
and economy of the United States.
(f) Congressional Notice; Effectiveness.--The Chairperson
of the Council shall submit any written determination made
pursuant to subsection (d) to the Committees on Banking,
Housing, and Urban Affairs and the Committee on Agriculture,
Nutrition, and Forestry of the United States Senate and the
Committees on Financial Services and Agriculture of the
United States House of Representatives. Any such written
determination by the Chairperson of the Council shall not be
effective until such determination has been submitted to the
appropriate committees of Congress.
On page 1056, line 17, strike the second period and insert
the following: ``.

SEC. 946. RESTRICTION ON SYNTHETIC ASSET-BACKED SECURITIES.

The Securities Act of 1933 (15 U.S.C. 77a et seq.) is
amended by inserting after section 5 the following:

``SEC. 5A. RESTRICTION ON SYNTHETIC ASSET-BACKED SECURITIES.

``(a) Definition.--For purposes of this section, the term
`synthetic asset-backed security' means an asset-backed
security, as defined in section 3(a)(77) of the Securities
Exchange Act of 1934, with respect to which, by design, the
self-liquidating financial assets referenced in the synthetic
securitization do not provide any direct payment or cash flow
to the holders of the security.
``(b) Restriction.--
``(1) In general.--No issuer, underwriter, placement agent,
sponsor, or initial purchaser may offer, sell, or transfer a
synthetic asset-backed security that has no purpose apart
from speculation on a possible future gain or loss associated
with the value or condition of the referenced assets. The
Commission may determine, by rule or otherwise, whether a
security is included within the description set forth in the
preceding sentence. Any such determination by the Commission,
other than by rule, is not subject to judicial review.
``(2) Rulemaking.--Not later than 270 days after the date
of enactment of this section, the Commission shall issue
rules carry out this section and to prevent evasions thereof.
``(c) Effective Date.--This section shall take effect 2
years following the date on which the Wall Street
Transparency and Accountability Act of 2010 becomes
effective, except that the Commission may require any
disclosure or reporting of information or data pursuant this
section at such earlier date as the Commission may
determine.''.
______