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Enron Mail |
FYI -----Original Message----- From: Stacy Carey <SCAREY@ISDA.ORG<@ENRON [mailto:IMCEANOTES-Stacy+20Carey+20+3CSCAREY+40ISDA+2EORG+3E+40ENRON@ENRON.com] Sent: Thursday, July 26, 2001 12:44 PM To: US REGULATORY COMMITTEE Subject: Bankruptcy Reform Language - Section 562 Attached is the most recent Sec. 562 proposal responding to FDIC's concerns. Modifications include: a) incorporation of burden of proof language into statute. This language was originally refrenced only in the legislative history language.(i.e if the timing of the measurement of damages is challenged by the trustee, the burden of proving that the measurement of the date of liquidation,termination, acceleration would not be commercially reasonable ... etc. lies with the swap participant .. master netting participant.... b) additional legislative history language strengthening non-application of Section 562 to FDIA (562 has no impact on contracts/agreements othern than those specified in the section) c) additional langauge in legislative history explaining that the need to measuring damages prior to date of termination/liquidation/acceleration is rare but will occur in unusual circumstances (language cites the disapperance of the Kuwaiti Dinar after the 1990 invasion. Please call if you have any questions. Many thanks! Stacy Carey Policy Director International Swaps and Derivatives Association 600 5th Avenue, 27th Floor Rockefeller Center New York, NY 10020 (212) 332-1202 ph (212) 332-1212 fax (917) 543-9622 cell scarey@isda.org ------------------------------------------------------- -----Original Message----- From: Seth GROSSHANDLER [mailto:sgrosshandler@cgsh.com] Sent: Thursday, July 26, 2001 1:21 PM To: mkrimminger@fdic.gov Cc: dina.ellis@do.treas.gov; norman.carleton@do.treas.gov; dwall@fdic.gov; fhampton@bondmarkets.com; psaltzman@bondmarkets.com; scarey@isda.org; daniel.cunningham@allenovery.com; ejlich@isda.org; Edward J ROSEN Subject: Section 562 Here is our proposal, based on yesterday's meeting (sorry you weren't there). We believe this is responsive to the concerns that were raised, and hope that you agree. I am circulating this to those at yesterday's meeting for whom I have e-mail addresses; I trust you will circulate to others in the PWG. Thanks Mike. Sec. 562 - Timing of damage measurement in connection with [protected contracts] If the trustee rejects a [protected contract or agreement] or if [a protected counterparty] liquidates, terminates, or accelerates such contract or agreement, damages shall be measured as of the earlier of -- (1) the date of such rejection; or (2) the date or dates of such liquidation, termination, or acceleration unless: (A) there are not any commercially reasonable determinants of value as of such date or dates, in which case such forward contract merchant, stockbroker, financial institution, securities clearing agency, repo participant, financial participant, master netting agreement participant, or swap participant shall measure damages as of the earliest subsequent date or dates on which there are commercially reasonable determinants of value; or (B) there are no determinants of value as of such date or dates, in which case such forward contract merchant, stockbroker, financial institution, securities clearing agency, repo participant, financial participant, master netting agreement participant, or swap participant shall measure damages as of the earliest date or dates after, or the latest date or dates before, such date or dates on which there are commercially reasonable determinants of value. For the purposes of subsection (2), if damages are not measured as of the date or dates of liquidation, termination or acceleration and the trustee challenges the timing of the measurement of damages by a forward contract merchant, stockbroker, financial institution, securities clearing agency, repo participant, financial participant, master netting agreement participant, or swap participant, such forward contract merchant, stockbroker, financial institution, securities clearing agency, repo participant, financial participant, master netting agreement participant, or swap participant has the burden of proving that there were no commercially reasonable determinants of value or no determinants of value as of such date or dates. Legislative History: Section 910 adds a new section 562 to the Bankruptcy Code providing that damages under any swap agreement, securities contract, forward contract, commodity contract, repurchase agreement or master netting agreement will be calculated as of the earlier of (i) the date of rejection of such agreement by a trustee or (ii) the date or dates of liquidation, termination or acceleration of such contract or agreement. Section 562 provides an exception to the rule in (ii) if there are no commercially reasonable determinants of value as of such date or dates, in which case damages are to be measured as of the earliest subsequent date or dates after such date or dates on which there are commercially reasonable determinants of value, or if there are no determinants of value as of such date or dates, in which case damages are to be measured as of the earliest subsequent date or dates after such date or dates or the latest date or dates before such date or dates on which there are commercially reasonable determinants of value. Although it is expected that in most circumstances damages would be measured as of the date or dates of liquidation, termination or acceleration, in certain unusual circumstances, such as dysfunctional markets or liquidation of very large portfolios, there may be no commercially reasonable determinants of value, and in other unusual circumstances, such as war conditions, there may be no determinants of value whatsoever. Measuring damages as of a date or dates before the date of liquidation, termination or acceleration will occur in very unusual circumstances. An example was the need to use the most recent available information for the Kuwaiti Dinar after the virtual disappearance of the currency after the invasion of Kuwait in 1990. The non-bankrupt party is not given unlimited discretion to determine the date as of which damages are to be measured. Instead, its actions are circumscribed unless there are no "commercially reasonable" determinants of value (or no determinants of value whatsoever) for it to measure damages on the date or dates of liquidation, termination or acceleration. The references to "commercially reasonable" are intended to reflect existing state law standards relating to a creditor's actions in determining damages. New section 562 provides that if damages are not measured as of the date or dates or liquidation, termination or acceleration and the trustee challenges the timing of the measurement of damages by a forward contract merchant, stockbroker, financial institution, securities clearing agency, repo participant, financial participant, master netting agreement participant, or swap participant, such forward contract merchant, stockbroker, financial institution, securities clearing agency, repo participant, financial participant, master netting agreement participant, or swap participant has the burden of proving the absence of any commercially reasonable determinants of value or any determinants of value, as the case may be. New section 562 is not intended to have any impact on the determination under the Bankruptcy Code of the timing of damages for contracts and agreements other than those specified in section 562. Also, section 562 does not apply to proceedings under the FDIA, and it is not intended that Section 562 have any impact on the interpretation of the provisions of the FDIA relating to timing of damages in respect of QFCs or other contracts. This message is being sent from a law firm and may contain information which is confidential or privileged. If you are not the intended recipient, please advise the sender immediately by reply e-mail and delete this message and any attachments without retaining a copy.
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