Vote Smart's Synopsis:

Vote on a motion to table an amendment to S Amdt 4072 to S 3217 that establishes new restrictions on activities related to credit default swaps, including prohibiting "naked" credit default swaps.

Highlights:

• Prohibits issuers, underwriters, placement agents, sponsors, and initial purchasers from offering, selling, or transferring a synthetic asset-backed security that has no purpose apart from speculation on a possible future gain or loss associated with the value or condition of the referenced assets.

• Defines "synthetic asset-backed security" as an asset-backed security that is designed so that the self-liquidating financial assets referenced in the synthetic securitization do not provide any direct payment or cash flow to the holders of the security.

• Prohibits entering into a credit default swap, unless the swap is submitted for clearing to a registered derivatives clearing organization (or one that is exempt from registration), and specifies that if no derivatives clearing organization will accept the credit default swap for clearing then it shall be unlawful to enter into that swap.

• Prohibits protection buyers from entering into credit default swaps that establish a short position in a reference entity's credit instrument, unless the protection buyer can demonstrate the following:
• The action is being taken to establish a "legitimate short position" in credit default swaps; or
• That such buyer is regulated by the Commission as a swap dealer in credit default swaps and is acting as a market-maker or is otherwise engaged in a financial transaction on behalf of a customer.

• Specifies that a "legitimate short position" in credit default swaps for a protection buyer must meet the following conditions:
• The value of the buyer's holdings in valid credit instruments must be equal to or greater than the absolute notional value of the buyer's credit default swaps; and
• The reference entity or entities for the buyer's credit default swaps must be the same as the borrower(s) or issuer(s) of the valid credit instrument(s) the buyer owns.

• Requires any swap dealer or security-based swap dealer seeking to establish, possess, or otherwise obtain a short position as the protection buyer of any credit default swap for more than 60 consecutive calendar days or for more than two-thirds of the days in any calendar quarter to demonstrate that:
• The value of the dealer's holdings in valid credit instruments must be equal to or greater than the absolute notional value of the dealer's position in credit default swaps; and
• The reference entity or entities for the dealer's credit default swaps must be the same as the borrower(s) or issuer(s) of the valid credit instrument(s) the dealer owns.

Full Bill Text

Full Bill Text