The commission floated the prospect of allowing funds to redeem investors' shares with the underlying securities instead of cash.
Closed-end shares can trade at a premium - or a discount - to the actual value of the underlying securities.
Then, LVMH, through subsidiaries, "entered into amendments to these contracts so that they would receive physical delivery of underlying securities".
When the government bought the underlying securities to cancel the insurance, the taxpayer became the owner of these pools of debt issues.
To be sure, the $45 trillion in credit default swaps is not an exact reflection of what would be lost or won if all the underlying securities defaulted.
Similarly, Mr. Geithner said he opposed a ban on holding "naked derivatives," the practice of buying a derivative without owning the underlying securities.
Enron, like other energy traders, used an unknown amount of derivatives -- financial instruments whose value is determined by underlying securities -- to control trading risk.
As we saw first hand during the financial crisis, trading practices in the CDS market have a direct effect on the underlying securities markets.
Credit Suisse, JPMorgan and other banks have already been sued by pension funds, insurers and others contending they misrepresented the quality of the mortgages underlying securities.
Investment banks, hedge funds and insurance companies often use credit default swaps to bet on or against bonds without trading the underlying securities.
Market timing exploits inefficiencies in the way the prices of shares in mutual funds are derived from the prices of underlying securities (such as shares in listed companies).
