Bill Text: NY A10532 | 2011-2012 | General Assembly | Introduced
NOTE: There are more recent revisions of this legislation. Read Latest Draft
Bill Title: Relates to derivative transactions and over the counter derivative instruments.
Spectrum: Strong Partisan Bill (Democrat 11-1)
Status: (Passed) 2012-08-17 - signed chap.398 [A10532 Detail]
Download: New_York-2011-A10532-Introduced.html
Bill Title: Relates to derivative transactions and over the counter derivative instruments.
Spectrum: Strong Partisan Bill (Democrat 11-1)
Status: (Passed) 2012-08-17 - signed chap.398 [A10532 Detail]
Download: New_York-2011-A10532-Introduced.html
S T A T E O F N E W Y O R K
________________________________________________________________________
10532
I N A S S E M B L Y
June 4, 2012
___________
Introduced by COMMITTEE ON RULES -- (at request of M. of A. Morelle) --
read once and referred to the Committee on Insurance
AN ACT to amend the insurance law, in relation to derivative trans-
actions and derivative instruments
THE PEOPLE OF THE STATE OF NEW YORK, REPRESENTED IN SENATE AND ASSEM-
BLY, DO ENACT AS FOLLOWS:
1 Section 1. Subsection (a) of section 1401 of the insurance law is
2 amended by adding three new paragraphs 19, 20 and 21 to read as follows:
3 (19) "OVER THE COUNTER DERIVATIVE INSTRUMENT" MEANS A DERIVATIVE
4 INSTRUMENT WHICH IS AUTHORIZED UNDER THIS CHAPTER OTHER THAN A DERIVA-
5 TIVE INSTRUMENT (A) CLEARED THROUGH A UNITED STATES OR FOREIGN CLEARING-
6 HOUSE OR (B) TRADED ON OR THROUGH A UNITED STATES OR FOREIGN EXCHANGE
7 PROVIDING CLEARING SERVICES.
8 (20) "CLEARINGHOUSE" MEANS A DERIVATIVES CLEARING ORGANIZATION WHICH
9 ACTS AS A MEDIUM FOR CLEARING, OR EFFECTING SETTLEMENTS OF, DERIVATIVE
10 INSTRUMENTS SUCH THAT THE CLEARINGHOUSE IS SUBSTITUTED AS THE OTHER
11 PARTY TO THE DERIVATIVE TRANSACTION.
12 (21) "MASTER AGREEMENT" MEANS A WRITTEN MASTER AGREEMENT RELATING TO
13 DERIVATIVES TRANSACTIONS THAT PROVIDES FOR NETTING OF PAYMENTS OWED BY
14 THE RESPECTIVE PARTIES, AND THE DOMICILIARY JURISDICTION OF THE COUNTER-
15 PARTY IS EITHER WITHIN THE UNITED STATES OR IF NOT WITHIN THE UNITED
16 STATES, WITHIN A FOREIGN (NOT UNITED STATES) JURISDICTION DEEMED BY THE
17 SECURITIES VALUATION OFFICE OF THE NATIONAL ASSOCIATION OF INSURANCE
18 COMMISSIONERS, OR ANY SUCCESSOR OFFICE ESTABLISHED BY THE NATIONAL ASSO-
19 CIATION OF INSURANCE COMMISSIONERS, AS ELIGIBLE FOR NETTING.
20 S 2. Subsection (f) of section 1410 of the insurance law, as added by
21 chapter 650 of the laws of 1998, is amended to read as follows:
22 (f)(1) The counterparty exposure under [a] AN OVER THE COUNTER deriva-
23 tive instrument entered into by an insurer authorized to engage in tran-
24 sactions pursuant to this section shall be deemed to be an obligation of
25 the institution to which the insurer is exposed to credit risk and shall
26 be included in determining compliance with any single or aggregate quan-
27 titative limitation on investments made by an insurer under this chap-
28 ter.
EXPLANATION--Matter in ITALICS (underscored) is new; matter in brackets
[ ] is old law to be omitted.
LBD15578-03-2
A. 10532 2
1 (2) Notwithstanding any single or aggregate quantitative limitation on
2 investments made by an insurer under this chapter, AN INSURER MAY ONLY
3 TRANSACT AN OVER THE COUNTER DERIVATIVE INSTRUMENT WITH:
4 (A) A QUALIFIED COUNTERPARTY; OR
5 (B) A COUNTERPARTY OTHER THAN A "QUALIFIED COUNTERPARTY" IF, AFTER
6 GIVING EFFECT TO THAT TRANSACTION, the aggregate counterparty exposure
7 OF THE INSURER under one or more OVER THE COUNTER derivative [trans-
8 actions] INSTRUMENTS to:
9 [(A) any single counterparty, other than a "qualified counterparty",
10 shall be limited to one] (I) THAT NON-QUALIFIED COUNTERPARTY DOES NOT
11 EXCEED ONE percent of [an] THE insurer's admitted assets; and
12 [(B)] (II) all counterparties, other than qualified counterparties,
13 [are limited to] DOES NOT EXCEED three percent of [an] THE insurer's
14 admitted assets.
15 (3) For purposes of this section:
16 (A) a "qualified counterparty" is a ["qualified broker or dealer" or a
17 "qualified bank" or other counterparty rated AA-/Aa3 or higher by a
18 nationally recognized statistical rating organization if it is also
19 approved by the superintendent;
20 (B) a "qualified broker or dealer" means a broker or dealer that is
21 organized under the laws of a state and is registered under the Securi-
22 ties Exchange Act of 1934, 15 U.S.C. SS 78a-78kk, and has net capital in
23 excess of two hundred fifty million dollars;
24 (C) a "qualified bank" means a bank or trust company that:
25 (i) is organized and existing, or in the case of a branch or agency of
26 a foreign banking organization is licensed, under the laws of the United
27 States or any state thereof;
28 (ii) is regulated, supervised and examined by United States federal or
29 state authorities having regulatory authority over banks and trust
30 companies;
31 (iii) has assets in excess of five billion dollars;
32 (iv) has senior obligations outstanding, or has a parent corporation
33 that has senior obligations outstanding, rated AA or better (or the
34 equivalent thereto) by two independent nationally recognized statistical
35 rating organizations; and
36 (v) has a ratio of primary capital to total assets of at least five
37 and one-half percent and a ratio of total capital to total assets of at
38 least six percent; and
39 (D)] COUNTERPARTY WITH WHICH THE INSURER HAS ENTERED INTO A MASTER
40 AGREEMENT, TOGETHER WITH A CREDIT SUPPORT ANNEX OR OTHER DOCUMENTATION
41 PROVIDING FOR THE COLLATERALIZATION OF THE COUNTERPARTY'S OBLIGATIONS TO
42 THE INSURER UNDER THE MASTER AGREEMENT AND WHICH MEETS ONE OF THE
43 FOLLOWING RATING STANDARDS:
44 (I) AN INVESTMENT GRADE CREDIT RATING FROM AT LEAST ONE NATIONALLY
45 RECOGNIZED STATISTICAL RATING ORGANIZATION;
46 (II) WHOSE PARENT HAS AN INVESTMENT GRADE CREDIT RATING FROM AT LEAST
47 ONE NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION; OR
48 (III) THAT HAS CREDIT ENHANCEMENT FOR ALL OF ITS FINANCIAL OR SETTLE-
49 MENT OBLIGATIONS UNDER THE OVER THE COUNTER DERIVATIVE INSTRUMENT FOR
50 THE DURATION OF THE DERIVATIVE INSTRUMENT FROM AN ENTITY THAT HAS AN
51 INVESTMENT GRADE CREDIT RATING FROM AT LEAST ONE NATIONALLY RECOGNIZED
52 STATISTICAL RATING ORGANIZATION FOR THE BENEFIT OF THE INSURER; AND
53 (B) "aggregate counterparty exposure" means the [sum of: (i) the
54 aggregate statement value of options, swaptions, caps, floors, and
55 warrants purchased; and (ii) the aggregate potential exposure of
56 collars, swaps, forwards and futures entered into] AGGREGATE, NET AMOUNT
A. 10532 3
1 OF CREDIT RISK ATTRIBUTABLE TO ALL OVER THE COUNTER DERIVATIVE INSTRU-
2 MENTS ENTERED INTO WITH A COUNTERPARTY, CALCULATED AS FOLLOWS:
3 (I) IF THERE IS NO MASTER AGREEMENT IN PLACE WITH THE COUNTERPARTY,
4 THE SUM OF THE MARKET VALUES OF ALL OVER THE COUNTER DERIVATIVE INSTRU-
5 MENTS WITH THE COUNTERPARTY THAT HAVE A POSITIVE MARKET VALUE, LESS ANY
6 COLLATERAL; OR
7 (II) IF A MASTER AGREEMENT IS IN PLACE WITH THE COUNTERPARTY, THE
8 GREATER OF ZERO OR THE NET SUM PAYABLE TO THE INSURER IN CONNECTION WITH
9 ALL OVER THE COUNTER DERIVATIVE INSTRUMENTS SUBJECT TO THE MASTER
10 NETTING AGREEMENT, LESS ANY COLLATERAL.
11 S 3. This act shall take effect immediately.
