House bill proposes ban on naked CDS

House Financial Services Committee Chairman Barney Frank said "naked" credit default swaps may be banned in the overhaul of derivatives industry oversight. House Agriculture Committee Chairman Collin Peterson (D-MN) said he is helping draft the legislation which would ban credit-default swaps where the investor doesn't own the underlying debt. Under the current proposal, market makers would be exempt from the ban. As much as 80% of the $26T CDS market is traded by investors who don't own the underlying debt.