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Title 12 — Banks and BankingRelease 119-73not60

§4404 Clearing Organization Netting

Title 12 › Chapter 45— PAYMENT SYSTEM RISK REDUCTION › Subchapter I— BILATERAL AND CLEARING ORGANIZATION NETTING › § 4404

Last updated Apr 3, 2026|Official source

Summary

Netting contracts control how members’ payments to each other are ended, sped up, settled, and offset. Even if other state or federal laws say otherwise (except section 1821(e) of this title, section 1787(c) of this title, and any order under section 78eee(b)(2) of title 15), each member’s payments and claims with other members are handled under the terms of the netting contract (subject to section 561(b)(2) of title 11). A member only has to pay the single net amount it owes under a netting contract, and only has the right to receive the single net amount it is owed. If a member fails, its net amount is determined and paid under the netting contract, and it cannot claim more than that net amount. Security or credit support tied to those netting contracts can be enforced as written and cannot be stopped or limited by other laws except the same listed exceptions.

Full Legal Text

Title 12, §4404

Banks and Banking — Source: USLM XML via OLRC

(a)Notwithstanding any other provision of State or Federal law (other than section 1821(e) of this title, section 1787(c) of this title, and any order authorized under section 78eee(b)(2) of title 15), the covered contractual payment obligations and the covered contractual payment entitlements of a member of a clearing organization to and from all other members of a clearing organization shall be terminated, liquidated, accelerated, and netted in accordance with and subject to the conditions of any applicable netting contract (except as provided in section 561(b)(2) of title 11).
(b)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)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)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)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)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)This section shall be given effect notwithstanding that a member is a failed member.
(h)The provisions of any security agreement or arrangement or other credit enhancement related to one or more netting contracts between any 2 members of a clearing organization shall be enforceable in accordance with their terms (except as provided in section 561(b)(2) of title 11), and shall not be stayed, avoided, or otherwise limited by any State or Federal law (other than section 1821(e) of this title, section 1787(c) of this title, and section 78eee(b)(2) of title 15).

Legislative History

Notes & Related Subsidiaries

Editorial Notes

Amendments

2006—Subsec. (a). Pub. L. 109–390 struck out “paragraphs (8)(E), (8)(F), and (10)(B) of” before “section 1821(e)” and “section 1787(c)” and inserted “terminated, liquidated, accelerated, and” after “organization shall be”. Subsec. (h). Pub. L. 109–390, § 4(b)(1), struck out “paragraphs (8)(E), (8)(F), and (10)(B) of” before “section 1821(e)” and “section 1787(c)”. 2005—Subsec. (a). Pub. L. 109–8, § 906(c)(1), added subsec. (a) and struck out heading and text of former subsec. (a). Text read as follows: “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.” Subsec. (h). Pub. L. 109–8, § 906(c)(2), added subsec. (h).

Statutory Notes and Related Subsidiaries

Effective Date

of 2006 AmendmentAmendment by Pub. L. 109–390 not applicable to any cases commenced under Title 11, Bankruptcy, or to appointments made under any Federal or State law, before Dec. 12, 2006, see section 7 of Pub. L. 109–390, set out as a note under section 101 of Title 11, Bankruptcy.

Effective Date

of 2005 AmendmentAmendment by Pub. L. 109–8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under Title 11, Bankruptcy, before such

Effective Date

, except as otherwise provided, see section 1501 of Pub. L. 109–8, set out as a note under section 101 of Title 11.

Reference

Citations & Metadata

Citation

12 U.S.C. § 4404

Title 12 — Banks and Banking

Last Updated

Apr 3, 2026

Release point: 119-73not60