text: SECTION 1. SHORT TITLE.
  
      This Act may be cited as the ``Financial Derivatives Supervisory 
  Improvement Act of 1998''.
  
  SEC. 2. FINDINGS.
  
      The Congress finds as follows:
              (1) There should be consistency, coordination, and clarity 
          in the regulation of derivative instruments used by financial 
          institutions.
              (2) Banks and their affiliates developed, and remain the 
          principal participants in, the derivatives markets.
              (3) Regulation of the derivatives markets directly affects 
          the liquidity, efficiency, capital position, and safety and 
          soundness of the banking industry and the safety and soundness 
          of the Federal deposit insurance fund.
              (4) Regulation of the derivatives markets has profound 
          consequences for the continued effectiveness of the bank 
          supervisory process, including the capital provisions of the 
          Federal banking agencies.
              (5) Statutes and regulations governing use of financial 
          derivatives by depository institutions in the United States, 
          including over-the-counter and exchange-traded derivatives, 
          should be brought up to date to reflect the rapid evolution of 
          the markets in recent years, framed so as to keep pace with 
          changes in the markets brought on by the onrush of 
          technological advances, and formulated in a manner that 
          enhances the legal certainty of derivatives transactions.
              (6) The Congress desires interagency cooperation to 
          harmonize, to the maximum extent possible, United States rules 
          and regulations related to the derivatives markets.
              (7) Regulatory arbitrage is a fact of commerce, with market 
          participants having the tendency to move to the weakest 
          regulator.
              (8) The stability of the international financial system and 
          the competitive position of United States financial 
          institutions are jeopardized if foreign markets are regulated 
          less prudently than United States markets.
  
  SEC. 3. ESTABLISHMENT OF WORKING GROUP ON FINANCIAL DERIVATIVES.
  
      (a) Establishment; Composition.--There is established the Working 
  Group on Financial Derivatives, which shall consist of--
              (1) the Secretary of the Treasury;
              (2) the Chairman of the Board of Governors of the Federal 
          Reserve System;
              (3) the Chairman of the Securities and Exchange Commission;
              (4) the Chairman of the Commodity Futures Trading 
          Commission;
              (5) the Comptroller of the Currency;
              (6) the Director of the Office of Thrift Supervision;
              (7) the Chairperson of the Board of Directors of the 
          Federal Deposit Insurance Corporation; and
              (8) the President of the Federal Reserve Bank of New York.
      (b) Chairmanship.--The Chairman of the Working Group on Financial 
  Derivatives shall be the Secretary of the Treasury.
      (c) Designation of Officers and Employees.--The members of the 
  Working Group on Financial Derivatives may, from time to time, 
  designate other officers or employees of their respective agencies to 
  assist in carrying out the duties on the Working Group on Financial 
  Derivatives.
      (d) Establishment of Advisory Committees.--In the development of 
  recommendations related to derivative products, the Working Group on 
  Financial Derivatives shall consult, to the widest extent possible, 
  with market participants, and may establish advisory committees 
  accordingly.
      (e) Sunset; Reports.--The Working Group on Financial Derivatives 
  shall cease to exist upon the enactment of legislation authorizing 
  appropriations for the Commodity Futures Trading Commission for any 
  fiscal year after fiscal year 2000. The Secretary of the Treasury and 
  the Chairman of the Board of Governors of the Federal Reserve System 
  shall submit to the Congress every 6 months, during the 4-year period 
  beginning on the date of such cessation, a report on the progress of 
  the implementation of the recommendations of the Working Group on 
  Financial Derivatives.
  
  SEC. 4. STUDY AND RECOMMENDATIONS ON REGULATION OF DERIVATIVES MARKETS.
  
      (a) Study.--The Working Group on Financial Derivatives established 
  under section 2--
              (1) shall conduct a study on the regulation of the 
          derivatives markets, including over-the-counter derivatives and 
          exchange-traded derivatives, in which depository institutions, 
          brokers or dealers registered under the Securities and Exchange 
          Act of 1934, foreign banks, or affiliates of a depository 
          institution or a foreign bank, participate; and
              (2) shall develop recommendations for modernizing and 
          harmonizing statutes, regulations, and policies--
                      (A) to reflect changes in the markets described in 
                  paragraph (1);
                      (B) to improve their operations;
                      (C) to enhance legal certainty for all types of 
                  instruments related to such markets, including hybrid 
                  instruments and swap agreements; and
                      (D) to promote the harmonization of regulation of 
                  such markets worldwide.
      (b) Reports.--
              (1) Interim report.--Not later than 6 months after the date 
          of the enactment of this Act, the Working Group on Financial 
          Derivatives established under section 2 shall submit an interim 
          report to the Congress describing the working group's progress.
              (2) Final report.--Not later than 1 year after the date of 
          the enactment of this Act, the Working Group on Financial 
          Derivatives established under section 2 shall submit a final 
          report to the Congress describing the study conducted under 
          subsection (a)(1) and containing the recommendations developed 
          under subsection (a)(2).
              (3) Separate views.--The reports under paragraph (1) and 
          (2) may include separately stated views of any member of the 
          working group.
  
  SEC. 5. PROTECTION OF INTERNATIONAL BANKING SYSTEM.
  
      To protect customers, stabilize the international financial system, 
  and underpin the safety and soundness of banking institutions in the 
  United States and the banking system around the world, the Government 
  of the United States and the Working Group on Financial Derivatives 
  should make a high priority continual negotiations to ensure that 
  foreign markets and regulatory bodies establish and maintain 
  regulations comparably prudent to those applicable in United States 
  markets.
  
  SEC. 6. RESTRICTIONS RELATING TO HYBRID INSTRUMENTS AND SWAP 
                AGREEMENTS.
  
      Notwithstanding any other provision of law--
              (1) during the period beginning on the date of the 
          enactment of this Act and ending upon the enactment of 
          legislation authorizing appropriations for the Commodity 
          Futures Trading Commission for any fiscal year after fiscal 
          year 2000, the Commodity Futures Trading Commission may not, 
          without the approval of the Secretary of the Treasury, propose 
          or promulgate any rule, regulation, or order, or issue any 
          interpretive or policy statement, that restricts or regulates 
          activity in a hybrid instrument or swap agreement--
                      (A) that is eligible for exemption under part 34 or 
                  35 of title 17, Code of Federal Regulations (as in 
                  effect on January 1, 1998); and
                      (B) to which a depository institution, a broker or 
                  dealer registered under the Securities and Exchange Act 
                  of 1934, a foreign bank, or an affiliate of a 
                  depository institution or a foreign bank, is a party; 
                  and
              (2) a hybrid instrument or swap agreement described in 
          paragraph (1) that is entered into before the period described 
          in such paragraph shall not be subject to section 2(a)(1)(B)(v) 
          of the Commodity Exchange Act (7 U.S.C. 2a(a)(1)(B)(v)).
  
  SEC. 7. DEFINITIONS.
  
      For purposes of this Act:
              (1) The term ``depository institution'' has the meaning 
          given such term in section 19(b)(1)(A) of the Federal Reserve 
          Act (12 U.S.C. 461(b)(1)(A)).
              (2) The term ``foreign bank'' has the meaning given such 
          term in section 1(b)(7) of the International Banking Act of 
          1978 (12 U.S.C. 3101(b)(7)).
target: Financial Derivatives Supervisory Improvement Act of 1998 - Establishes the Working Group on Financial Derivatives to study and report to the Congress on:  (1) the regulation of derivatives markets in which domestic and foreign depository institutions and registered brokers and dealers participate; and (2) any recommendations for modernizing and harmonizing statutes, regulations, and policies. 
  Urges the Group to assign a high priority to continual negotiations to ensure that foreign markets and regulatory bodies establish and maintain regulations comparably prudent to those governing the U.S. markets. 
  Prohibits the Commodity Futures Trading Commission, for a specified time period, without the Secretary of the Treasury's approval, from promulgating or proposing regulations, or issuing any interpretive or policy statements that regulate or restrict activity in certain hybrid instruments and swap agreements.  Declares that any such hybrid instruments or swap agreements entered into before such period shall not be subject to the Commodity Exchange Act's restriction of futures contracts or exempted securities.
feat_title: Financial Derivatives Supervisory Improvement Act of 1998