Section 546(e) of the Bankruptcy Code has engendered more than its fair share of litigation. Section 546(e) provides a safe harbor to exempt certain types of financial contracts from the reach of the automatic stay and the avoidance powers of the code.
Congress enacted Section 546(e) "to minimize displacement caused in the commodities and securities market in the event of a major bankruptcy affecting those industries." The section provides that a trustee in bankruptcy may not avoid a transfer that is a "settlement payment" by a financial institution, financial participant or securities-clearing agency. On its face, the code’s definition of "settlement payment" is not very helpful: A settlement payment is "a preliminary settlement payment, a partial settlement payment, an interim settlement payment, a settlement payment on account, a final settlement payment or any other similar payment commonly used in the securities trade."
