Dennis Mossberg

Document Type

Research Memorandum

Publication Date




Under title 11 of the United States Code (the “Bankruptcy Code”), a bankruptcy trustee has the power to avoid, or claw back, certain transfers of property made before a bankruptcy filing. A trustee may avoid transfers such as those that are preferential under section 547 and fraudulent transfers under section 548. Section 546(e) of the Bankruptcy Code generally provides that a transfer made by, to, or for the benefit of a commodity broker, stockbroker, financial institution, or securities clearing agency in connection with a securities contract cannot be avoided. In 2018, the Supreme Court clarified the scope of the section 546(e) safe harbor and held that the relevant transfer to consider is the overarching transfer between the end parties, and not transfers made between financial institutions that are mere intermediaries.

This article discusses the requirement that a payment must be made “in connection with” a securities contract for it to not be avoidable under the Bankruptcy Code. The kinds of transactions addressed are examples of transactions that have been disputed and the cases illustrate the approach courts take to determine whether the section 546(e) safe harbor applies. Part One discusses the definitions in the Bankruptcy Code that courts rely on when adjudicating cases involving the safe harbor provision. Part Two emphasizes that courts generally only apply the safe harbor where there is an exchange that is made to complete a securities contract. Part Three highlights that a court will not protect a transfer made that is only tangentially related to a securities contract and not a part of the deal itself.


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