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.






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