US (United States) Code. Title 12. Chapter 45: Payment system risk reduction

Codificación normativa de EEUU (Estados Unidos). Legislación federal estadounidense # Banks and banking

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12 USC CHAPTER 45 - PAYMENT SYSTEM RISK REDUCTION 01/06/03

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TITLE 12 - BANKS AND BANKING

CHAPTER 45 - PAYMENT SYSTEM RISK REDUCTION

.

-HEAD-

CHAPTER 45 - PAYMENT SYSTEM RISK REDUCTION

-MISC1-

SUBCHAPTER I - BILATERAL AND CLEARING ORGANIZATION NETTING

Sec.

4401. Findings and purpose.

4402. Definitions.

4403. Bilateral netting.

(a) General rule.

(b) Limitation on obligation to make payment.

(c) Limitation on right to receive payment.

(d) Payment of net entitlement of failed financial

institution.

(e) Effectiveness notwithstanding status as financial

institution.

4404. Clearing organization netting.

(a) General netting rule.

(b) Limitation of obligation to make payment.

(c) Limitation on right to receive payment.

(d) Entitlement of failed members.

(e) Obligations of failed members.

(f) Limitation on claims for entitlement.

(g) Effectiveness notwithstanding status as member.

4405. Preemption.

4406. Relationship to other payments systems.

4407. National emergencies.

SUBCHAPTER II - MULTILATERAL CLEARING ORGANIZATIONS

4421. Definitions.

4422. Multilateral clearing organizations.

(a) In general.

(b) Clearing organizations.

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12 USC SUBCHAPTER I - BILATERAL AND CLEARING ORGANIZATION

NETTING 01/06/03

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TITLE 12 - BANKS AND BANKING

CHAPTER 45 - PAYMENT SYSTEM RISK REDUCTION

SUBCHAPTER I - BILATERAL AND CLEARING ORGANIZATION NETTING

.

-HEAD-

SUBCHAPTER I - BILATERAL AND CLEARING ORGANIZATION NETTING

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12 USC Sec. 4401 01/06/03

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TITLE 12 - BANKS AND BANKING

CHAPTER 45 - PAYMENT SYSTEM RISK REDUCTION

SUBCHAPTER I - BILATERAL AND CLEARING ORGANIZATION NETTING

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Sec. 4401. Findings and purpose

-STATUTE-

The Congress finds that -

(1) many financial institutions engage daily in thousands of

transactions with other financial institutions directly and

through clearing organizations;

(2) the efficient processing of such transactions is essential

to a smoothly functioning economy;

(3) such transactions can be processed most efficiently if,

consistent with applicable contractual terms, obligations among

financial institutions are netted;

(4) such netting procedures would reduce the systemic risk

within the banking system and financial markets; and

(5) the effectiveness of such netting procedures can be assured

only if they are recognized as valid and legally binding in the

event of the closing of a financial institution participating in

the netting procedures.

-SOURCE-

(Pub. L. 102-242, title IV, Sec. 401, Dec. 19, 1991, 105 Stat.

2371.)

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SEPARABILITY

If any provision of Pub. L. 102-242 or any application of any

provision thereof to any person or circumstance is held invalid,

the remainder of Pub. L. 102-242 and the application of any

remaining provision of such Act to any other person or circumstance

not to be affected by such holding, see section 481 of Pub. L.

102-242, set out as a note under section 1811 of this title.

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12 USC Sec. 4402 01/06/03

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TITLE 12 - BANKS AND BANKING

CHAPTER 45 - PAYMENT SYSTEM RISK REDUCTION

SUBCHAPTER I - BILATERAL AND CLEARING ORGANIZATION NETTING

-HEAD-

Sec. 4402. Definitions

-STATUTE-

For purposes of this subchapter -

(1) Broker or dealer

The term ''broker or dealer'' means -

(A) any company that is registered or licensed under Federal

or State law to engage in the business of brokering,

underwriting, or dealing in securities in the United States;

and

(B) to the extent consistent with this title, (FOOTNOTE 1) as

determined by the Board of Governors of the Federal Reserve

System, any company that is an affiliate of a company described

in subparagraph (A) and that is engaged in the business of

entering into netting contracts.

(FOOTNOTE 1) See References in Text note below.

(2) Clearing organization

The term ''clearing organization'' means a clearinghouse,

clearing association, clearing corporation, or similar

organization -

(A) that provides clearing, netting, or settlement services

for its members and -

(i) in which all members other than the clearing

organization itself are financial institutions or other

clearing organizations; or

(ii) which is registered as a clearing agency under the

Securities Exchange Act of 1934 (15 U.S.C. 78a et seq.); or

(B) that is registered as a derivatives clearing organization

under section 7a-1 of title 7.

(3) Covered clearing obligation

The term ''covered clearing obligation'' means an obligation of

a member of a clearing organization to make payment to another

member of a clearing organization, subject to a netting contract.

(4) Covered contractual payment entitlement

The term ''covered contractual payment entitlement'' means -

(A) an entitlement of a financial institution to receive a

payment, subject to a netting contract from another financial

institution; and

(B) an entitlement of a member of a clearing organization to

receive payment, subject to a netting contract, from another

member of a clearing organization of a covered clearing

obligation.

(5) Covered contractual payment obligation

The term ''covered contractual payment obligation'' means -

(A) an obligation of a financial institution to make payment,

subject to a netting contract to another financial institution;

and

(B) a covered clearing obligation.

(6) Depository institution

The term ''depository institution'' means -

(A) a depository institution as defined in section

19(b)(1)(A) of the Federal Reserve Act (12 U.S.C. 461(b)(1)(A))

(other than clause (vii));

(B) a branch or agency as defined in section 1(b) of the

International Banking Act of 1978 (12 U.S.C. 3101);

(C) a corporation chartered under section 25(a) (FOOTNOTE 1)

of the Federal Reserve Act (12 U.S.C. 611 et seq.); or

(D) a corporation having an agreement or undertaking with the

Board of Governors of the Federal Reserve System under section

25 of the Federal Reserve Act (12 U.S.C. 601 et seq.).

(7) Failed financial institution

The term ''failed financial institution'' means a financial

institution that -

(A) fails to satisfy a covered contractual payment obligation

when due;

(B) has commenced or had commenced against it insolvency,

liquidation, reorganization, receivership (including the

appointment of a receiver), conservatorship, or similar

proceedings; or

(C) has generally ceased to meet its obligations when due.

(8) Failed member

The term ''failed member'' means any member that -

(A) fails to satisfy a covered clearing obligation when due,

(B) has commenced or had commenced against it insolvency,

liquidation, reorganization, receivership (including the

appointment of a receiver), conservatorship, or similar

proceedings, or

(C) has generally ceased to meet its obligations when dud.

(9) Financial institution

The term ''financial institution'' means a broker or dealer, a

depository institution, a futures commission merchant, or any

other institution as determined by the Board of Governors of the

Federal Reserve System.

(10) Futures commission merchant

The term ''futures commission merchant'' means a company that

is registered or licensed under Federal law to engage in the

business of selling futures and options in commodities.

(11) Member

The term ''member'' means a member of or participant in a

clearing organization, and includes the clearing organization.

(12) Net entitlement

The term ''net entitlement'' means the amount by which the

covered contractual payment entitlements of a financial

institution or member exceed the covered contractual payment

obligations of the institution or member after netting under a

netting contract.

(13) Net obligation

The term ''net obligation'' means the amount by which the

covered contractual payment obligations of a financial

institution or member exceed the covered contractual payment

entitlements of the institution or member after netting under a

netting contract.

(14) Netting contract

(A) In general

The term ''netting contract'' -

(i) means a contract or agreement between 2 or more

financial institutions or members, that -

(I) is governed by the laws of the United States, any

State, or any political subdivision of any State, and

(II) provides for netting present or future payment

obligations or payment entitlements (including liquidation

or close-out values relating to the obligations or

entitlements) among the parties to the agreement; and

(ii) includes the rules of a clearing organization.

(B) Invalid contracts not included

The term ''netting contract'' does not include any contract

or agreement that is invalid under or precluded by Federal law.

-SOURCE-

(Pub. L. 102-242, title IV, Sec. 402, Dec. 19, 1991, 105 Stat.

2372; Pub. L. 102-550, title XVI, Sec. 1606(a), Oct. 28, 1992, 106

Stat. 4087; Pub. L. 106-554, Sec. 1(a)(5) (title I, Sec. 112(a)(2),

123(b)), Dec. 21, 2000, 114 Stat. 2763, 2763A-391, 2763A-411.)

-REFTEXT-

REFERENCES IN TEXT

This title, referred to in par. (1)(B), means title IV of Pub. L.

102-242, Dec. 19, 1991, 105 Stat. 2371. For complete classification

of title IV to the Code, see Tables.

The Securities Exchange Act of 1934, referred to in par.

(2)(A)(ii), is act June 6, 1934, ch. 404, 48 Stat. 881, as amended,

which is classified principally to chapter 2B (Sec. 78a et seq.) of

Title 15, Commerce and Trade. For complete classification of this

Act to the Code, see section 78a of Title 15 and Tables.

Section 25(a) of the Federal Reserve Act, referred to in par.

(6), which is classified to subchapter II (Sec. 611 et seq.) of

chapter 6 of this title, was renumbered section 25A of that act by

Pub. L. 102-242, title I, Sec. 142(e)(2), Dec. 19, 1991, 105 Stat.

2281. Section 25 of the Federal Reserve Act is classified to

subchapter I (Sec. 601 et seq.) of chapter 6 of this title.

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AMENDMENTS

2000 - Pub. L. 106-554, Sec. 1(a)(5) (title I, Sec. 112(a)(2)),

substituted ''this subchapter'' for ''this chapter'' in

introductory provisions.

Par. (2)(B). Pub. L. 106-554, Sec. 1(a)(5) (title I, Sec.

123(b)), added subpar. (B) and struck out former subpar. (B) which

read as follows: ''that performs clearing functions for a contract

market designated pursuant to the Commodity Exchange Act.''

1992 - Par. (14)(B). Pub. L. 102-550 substituted ''Federal law''

for ''Federal commodities law''.

EFFECTIVE DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-550 effective as if included in the

Federal Deposit Insurance Corporation Improvement Act of 1991, Pub.

L. 102-242, as of Dec. 19, 1991, see section 1609(a) of Pub. L.

102-550, set out as a note under section 191 of this title.

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12 USC Sec. 4403 01/06/03

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TITLE 12 - BANKS AND BANKING

CHAPTER 45 - PAYMENT SYSTEM RISK REDUCTION

SUBCHAPTER I - BILATERAL AND CLEARING ORGANIZATION NETTING

-HEAD-

Sec. 4403. Bilateral netting

-STATUTE-

(a) General rule

Notwithstanding any other provision of law, the covered

contractual payment obligations and the covered contractual payment

entitlements between any 2 financial institutions shall be netted

in accordance with, and subject to the conditions of, the terms of

any applicable netting contract.

(b) Limitation on obligation to make payment

The only obligation, if any, of a financial institution to make

payment with respect to covered contractual payment obligations to

another financial institution shall be equal to its net obligation

to such other financial institution, and no such obligation shall

exist if there is no net obligation.

(c) Limitation on right to receive payment

The only right, if any, of a financial institution to receive

payments with respect to covered contractual payment entitlements

from another financial institution shall be equal to its net

entitlement with respect to such other financial institution, and

no such right shall exist if there is no net entitlement.

(d) Payment of net entitlement of failed financial institution

The net entitlement of any failed financial institution, if any,

shall be paid to the failed financial institution in accordance

with, and subject to the conditions of, the applicable netting

contract.

(e) Effectiveness notwithstanding status as financial institution

This section shall be given effect notwithstanding that a

financial institution is a failed financial institution.

-SOURCE-

(Pub. L. 102-242, title IV, Sec. 403, Dec. 19, 1991, 105 Stat.

2374.)

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 4405 of this title.

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12 USC Sec. 4404 01/06/03

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TITLE 12 - BANKS AND BANKING

CHAPTER 45 - PAYMENT SYSTEM RISK REDUCTION

SUBCHAPTER I - BILATERAL AND CLEARING ORGANIZATION NETTING

-HEAD-

Sec. 4404. Clearing organization netting

-STATUTE-

(a) General netting rule

Notwithstanding any other provision of law, the covered

contractual payment obligations and covered contractual payment

entitlements of a member of a clearing organization to and from all

other members of a clearing organization shall be netted in

accordance with and subject to the conditions of any applicable

netting contract.

(b) Limitation of obligation to make payment

The only obligation, if any, of a member of a clearing

organization to make payment with respect to covered contractual

payment obligations arising under a single netting contract to any

other member of a clearing organization shall be equal to its net

obligation arising under that netting contract, and no such

obligation shall exist if there is no net obligation.

(c) Limitation on right to receive payment

The only right, if any, of a member of a clearing organization to

receive payment with respect to a covered contractual payment

entitlement arising under a single netting contract from other

members of a clearing organization shall be equal to its net

entitlement arising under that netting contract, and no such right

shall exist if there is no net entitlement.

(d) Entitlement of failed members

The net entitlement, if any, of any failed member of a clearing

organization shall be paid to the failed member in accordance with,

and subject to the conditions of, the applicable netting contract.

(e) Obligations of failed members

The net obligation, if any, of any failed member of a clearing

organization shall be determined in accordance with, and subject to

the conditions of, the applicable netting contract.

(f) Limitation on claims for entitlement

A failed member of a clearing organization shall have no

recognizable claim against any member of a clearing organization

for any amount based on such covered contractual payment

entitlements other than its net entitlement.

(g) Effectiveness notwithstanding status as member

This section shall be given effect notwithstanding that a member

is a failed member.

-SOURCE-

(Pub. L. 102-242, title IV, Sec. 404, Dec. 19, 1991, 105 Stat.

2374.)

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 4405 of this title.

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12 USC Sec. 4405 01/06/03

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TITLE 12 - BANKS AND BANKING

CHAPTER 45 - PAYMENT SYSTEM RISK REDUCTION

SUBCHAPTER I - BILATERAL AND CLEARING ORGANIZATION NETTING

-HEAD-

Sec. 4405. Preemption

-STATUTE-

No stay, injunction, avoidance, moratorium, or similar proceeding

or order, whether issued or granted by a court, administrative

agency, or otherwise, shall limit or delay application of otherwise

enforceable netting contracts in accordance with sections 4403 and

4404 of this title.

-SOURCE-

(Pub. L. 102-242, title IV, Sec. 405, Dec. 19, 1991, 105 Stat.

2375.)

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12 USC Sec. 4406 01/06/03

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TITLE 12 - BANKS AND BANKING

CHAPTER 45 - PAYMENT SYSTEM RISK REDUCTION

SUBCHAPTER I - BILATERAL AND CLEARING ORGANIZATION NETTING

-HEAD-

Sec. 4406. Relationship to other payments systems

-STATUTE-

This chapter shall have no effect by implication or otherwise on

the validity or legal enforceability of a netting arrangement of

any payment system which is not subject to this chapter.

-SOURCE-

(Pub. L. 102-242, title IV, Sec. 406, Dec. 19, 1991, 105 Stat.

2375.)

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12 USC Sec. 4407 01/06/03

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TITLE 12 - BANKS AND BANKING

CHAPTER 45 - PAYMENT SYSTEM RISK REDUCTION

SUBCHAPTER I - BILATERAL AND CLEARING ORGANIZATION NETTING

-HEAD-

Sec. 4407. National emergencies

-STATUTE-

The provisions of this chapter may not be construed to limit the

authority of the President under the Trading With the Enemy Act (50

U.S.C. App. 1 et seq.) or the International Emergency Economic

Powers Act (50 U.S.C. 1701 et seq.).

-SOURCE-

(Pub. L. 102-242, title IV, Sec. 407, Dec. 19, 1991, 105 Stat.

2375.)

-REFTEXT-

REFERENCES IN TEXT

The Trading With the Enemy Act, referred to in text, is act Oct.

6, 1917, ch. 106, 40 Stat. 411, as amended, which is classified to

sections 1 to 6, 7 to 39 and 41 to 44 of Title 50, Appendix, War

and National Defense. For complete classification of this Act to

the Code, see Tables.

The International Emergency Economic Powers Act, referred to in

text, is Pub. L. 95-223, title II, Dec. 28, 1977, 91 Stat. 1626,

which is classified generally to chapter 35 (Sec. 1701 et seq.) of

Title 50, War and National Defense. For complete classification of

this Act to the Code, see Short Title note set out under section

1701 of Title 50 and Tables.

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12 USC SUBCHAPTER II - MULTILATERAL CLEARING

ORGANIZATIONS 01/06/03

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TITLE 12 - BANKS AND BANKING

CHAPTER 45 - PAYMENT SYSTEM RISK REDUCTION

SUBCHAPTER II - MULTILATERAL CLEARING ORGANIZATIONS

.

-HEAD-

SUBCHAPTER II - MULTILATERAL CLEARING ORGANIZATIONS

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12 USC Sec. 4421 01/06/03

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TITLE 12 - BANKS AND BANKING

CHAPTER 45 - PAYMENT SYSTEM RISK REDUCTION

SUBCHAPTER II - MULTILATERAL CLEARING ORGANIZATIONS

-HEAD-

Sec. 4421. Definitions

-STATUTE-

For purposes of this subchapter, the following definitions shall

apply:

(1) Multilateral clearing organization

The term ''multilateral clearing organization'' means a system

utilized by more than two participants in which the bilateral

credit exposures of participants arising from the transactions

cleared are effectively eliminated and replaced by a system of

guarantees, insurance, or mutualized risk of loss.

(2) Over-the-counter derivative instrument

The term ''over-the-counter derivative instrument'' includes -

(A) any agreement, contract, or transaction, including the

terms and conditions incorporated by reference in any such

agreement, contract, or transaction, which is an interest rate

swap, option, or forward agreement, including a rate floor,

rate cap, rate collar, cross-currency rate swap, basis swap,

and forward rate agreement; a same day-tomorrow, tomorrow-next,

forward, or other foreign exchange or precious metals

agreement; a currency swap, option, or forward agreement; an

equity index or equity swap, option, or forward agreement; a

debt index or debt swap, option, or forward agreement; a credit

spread or credit swap, option, or forward agreement; a

commodity index or commodity swap, option, or forward

agreement; and a weather swap, weather derivative, or weather

option;

(B) any agreement, contract or transaction similar to any

other agreement, contract, or transaction referred to in this

clause (FOOTNOTE 1) that is presently, or in the future

becomes, regularly entered into by parties that participate in

swap transactions (including terms and conditions incorporated

by reference in the agreement) and that is a forward, swap, or

option on one or more occurrences of any event, rates,

currencies, commodities, equity securities or other equity

instruments, debt securities or other debt instruments,

economic or other indices or measures of economic or other risk

or value;

(FOOTNOTE 1) So in original. Probably should be ''this

paragraph''.

(C) any agreement, contract, or transaction excluded from the

Commodity Exchange Act (7 U.S.C. 1 et seq.) under section 2(c),

2(d), 2(f), or 2(g) of such Act (7 U.S.C. 2(c), (d), (f), (g)),

or exempted under section 2(h) or 4(c) of such Act (7 U.S.C.

2(h), 6(c)); and

(D) any option to enter into any, or any combination of,

agreements, contracts or transactions referred to in this

subparagraph. (FOOTNOTE 1)

(3) Other definitions

The terms ''insured State nonmember bank'', ''State member

bank'', and ''affiliate'' have the same meanings as in section

1813 of this title.

-SOURCE-

(Pub. L. 102-242, title IV, Sec. 408, as added Pub. L. 106-554,

Sec. 1(a)(5) (title I, Sec. 112(a)(3)), Dec. 21, 2000, 114 Stat.

2763, 2763A-391.)

-REFTEXT-

REFERENCES IN TEXT

The Commodity Exchange Act, referred to in par. (2)(C), is act

Sept. 21, 1922, ch. 369, 42 Stat. 998, as amended, which is

classified generally to chapter 1 (Sec. 1 et seq.) of Title 7,

Agriculture. For complete classification of this Act to the Code,

see section 1 of Title 7 and Tables.

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12 USC Sec. 4422 01/06/03

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TITLE 12 - BANKS AND BANKING

CHAPTER 45 - PAYMENT SYSTEM RISK REDUCTION

SUBCHAPTER II - MULTILATERAL CLEARING ORGANIZATIONS

-HEAD-

Sec. 4422. Multilateral clearing organizations

-STATUTE-

(a) In general

Except with respect to clearing organizations described in

subsection (b) of this section, no person may operate a

multilateral clearing organization for over-the-counter derivative

instruments, or otherwise engage in activities that constitute such

a multilateral clearing organization unless the person is a

national bank, a State member bank, an insured State nonmember

bank, an affiliate of a national bank, a State member bank, or an

insured State nonmember bank, or a corporation chartered under

section 25A of the Federal Reserve Act (12 U.S.C. 611 et seq.).

(b) Clearing organizations

Subsection (a) of this section shall not apply to any clearing

organization that -

(1) is registered as a clearing agency under the Securities

Exchange Act of 1934 (15 U.S.C. 78a et seq.);

(2) is registered as a derivatives clearing organization under

the Commodity Exchange Act (7 U.S.C. 1 et seq.); or

(3) is supervised by a foreign financial regulator that the

Comptroller of the Currency, the Board of Governors of the

Federal Reserve System, the Federal Deposit Insurance

Corporation, the Securities and Exchange Commission, or the

Commodity Futures Trading Commission, as applicable, has

determined satisfies appropriate standards.

-SOURCE-

(Pub. L. 102-242, title IV, Sec. 409, as added Pub. L. 106-554,

Sec. 1(a)(5) (title I, Sec. 112(a)(3)), Dec. 21, 2000, 114 Stat.

2763, 2763A-392.)

-REFTEXT-

REFERENCES IN TEXT

Section 25A of the Federal Reserve Act, referred to in subsec.

(a), popularly known as the Edge Act, is classified to subchapter

II (Sec. 611 et seq.) of chapter 6 of this title. For complete

classification of this Act to the Code, see Short Title note set

out under section 611 of this title and Tables.

The Securities Exchange Act of 1934, referred to in subsec.

(b)(1), is act June 6, 1934, ch. 404, 48 Stat. 881, as amended,

which is classified principally to chapter 2B (Sec. 78a et seq.) of

Title 15, Commerce and Trade. For complete classification of this

Act to the Code, see section 78a of Title 15 and Tables.

The Commodity Exchange Act, referred to in subsec. (b)(2), is act

Sept. 21, 1922, ch. 369, 42 Stat. 998, as amended, which is

classified generally to chapter 1 (Sec. 1 et seq.) of Title 7,

Agriculture. For complete classification of this Act to the Code,

see section 1 of Title 7 and Tables.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 339a of this title; title

11 sections 101, 103, 109, 781.

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